Bankruptcy

Technology Giveth, and Technology Taketh Away!

By Joseph McDaniel, Esq.

Shifts in technology have worked shifts in buying patterns, and that has closed many businesses, and opened areas of opportunity for others.

For instance, a remarkably successful business grew up around the renting of video tapes (Do you remember video tapes? Do you remember competition between different formats of video tapes? Just checking.) There were Mom and Pop No-name Video Store that did very well for a while, and then chains like Blockbuster made those go away.

Recall that for a very long time, drive-in movies were a staple feature of American popular culture. If you had a bundle of kids and wanted to take 'em to a movie, it was much cheaper than buying them all tickets and popcorn at a walk in movie. And if you were a teenager who wanted to canoodle with his sweetie, drive-in movies were Lourdes, where you prayed for a miracle.

Now drive-in movies have mostly gone the way of the Dodo and the Tasmanian Devil, and they have been supplanted by faster, cheaper, and more convenient ways to watch movies.

Blockbuster, which helped squish what was left of Mom and Pop No-name Video Stores, which had helped close down the few remaining drive in movies, now gets to compete with Netflix, including a variant of Netflix that permits instant downloading to a little box on your television, and every version of instant moves that cable can bring into your home.

The great thing about an economic system that runs on principles of capitalism is that resources tend to flow in directions that make people happy; note that in the United States, as opposed to East Germany, the problem has never been trying to figure out how to keep our citizens in our country.

By and large, we like it here.

And to a large extent, that's because it's possible to start businesses and watch them grow, and if they make people happy, and they're managed well, they can make profits, and expand, to make other people happy.

On the other hand, all those businesses are subject to competition, so if one kind of store makes people pretty happy, and another makes 'em really happy, the second sort of store will thrive, and the second sort will shrivel and die, all other factors being equal.

Recently I read that Blockbuster was now facing the same bankruptcy options that it's success brought to a bundle of little video stores that had trouble competing with it.

But now that Amazon, Apple, Netflix and cable are all fighting for a slice of the instant gratification movie business, a business that used to look like the cutting edge of convenience in one economic segment now apparently...doesn't look like the cutting edge of providing convenience.

And that's one reason that most people love our economic system. When one business model no longer makes people happy enough to pay for the privilege of staying open, it tends to close.

That, in turn, tends to make more people happy, because the goal of every business owner, whether she knows it or not, is happiness.

Because people vote with dollars concerning happiness, and they part with dollars when they reach a decision that the product or service will make them happier than pieces of paper with portraits of dead presidents.

Lately, all over the country, people have been changing their spending habits for one primary reason; they had less money.

As a quick history lesson, remember that during the housing bubble, people could become millionaires overnight by buying houses with a little of their own money and a lot of bank money; and when the value of the dozen houses went up, so did their net worth.

And they often borrowed that new-found equity and bought additional houses, because they were such obvious great investment vehicles. And they also bought expensive cars and dinners and wines and art and horses and expensive furniture into the bargain.

And that brings us to today, when people who had previously saved used their savings, along with bank money, to become rich, and subsequently they spent like sailors, because the thrill ride was never going to end.

Then it ended.

You may wonder, where is the bankruptcy information for Arizona debtors in all this?

It's simply the following: if you run a business and your revenues have fallen by half, it is probably not a matter of the food in your restaurant being less tasty, or the service being slower.

The reason your revenues have fallen off is that the buying public has much less money to spend right now, because many folks got rich off of real estate in on phase of that game or another, and now are poor, especially in Arizona.

So they can't keep employees on payrolls.

And if those business owners and employees don't have dollars to spend, they can't spend them in your restaurant.

And if you're a big publicly traded business like Blockbuster, you get to discuss the issues and consider them and hire very, very expensive lawyers, consultants, cpas, and restructuring experts of all flavors.

If you're a small business and your gross business income has decreased by half, you probably have many, many fewer options.

Downsizing after a bankruptcy is one of them. Not a particularly convenient or pleasant one, and one with many risks.

But there come several times in the average U.S. businessman's life when he gets to consider whether he wants to continue with the particular configuration of business he's built.

And if the answer is no, the answer is often bankruptcy.

And here's the article about Blockbuster that triggered this rant:

Blockbuster looks at bankruptcy financing among other options

12:00 AM CDT on Tuesday, June 15, 2010

By MARIA HALKIAS / The Dallas Morning News
mhalkias@dallasnews.com

Blockbuster Inc . chief executive Jim Keyes confirmed Monday that he is looking at a number of options for the company, including arranging short-term financing should the company file for bankruptcy.

But he still insists that doesn't mean bankruptcy is its mostly likely path.

"As far back as a year and a half ago, we've said we've been looking at all alternatives," Keyes said in an interview. "Our objective is to satisfy all our stakeholders in an out-of-court settlement."

The Dallas-based company's shares hit an all-time low on Monday as investors reacted to news reports late last week that Blockbuster is seeking financing to help it operate in bankruptcy if it can't renegotiate its $930 million in debt.

While the company negotiates to restructure its debt, it's also reportedly conducting talks to secure $100 million to $150 million in so-called debtor-in-possession financing that would help it operate if it's forced to seek Chapter 11 protection from creditors. Keyes wouldn't confirm the details.

The move isn't shocking. Blockbuster has warned since last year in regulatory filings that bankruptcy is a possibility. Still, its stock price fell 21 percent in Monday trading to close at 21.5 cents a share. Shares traded as low as 16.5 cents.

Blockbuster is also negotiating with equity and strategic investors to find a way to recapitalize its balance sheet "as quickly as possible," Keyes said. But there's no absolute deadline, he noted, other than being "anxious to resume our focus on transforming the company."

The company's annual meeting is next week and its next loan payment of $42 million is due on July 1.

Blockbuster had $109.9 million in cash on April 4, down from $188.7 million on Jan. 3. Its cash position could improve if Blockbuster succeeds in selling some overseas operations.

NOTHING HERE CONSTITUTES LEGAL ADVICE RE A CHAPTER 7, CHAPTER 13, CHAPTER 11, OR CHAPTER 12. FIND AN ARIZONA BANKRUPTCY LAWYER WHO IS BOARD CERTIFIED IN BANKRUPTCY LAW, AV RATED, AVVO 10 RATED, ON SUPERLAWYERS, OR JUST VERY EXPERIENCED AND A FORMER CHAIR OF SOME BANKRUPTCY SECTION OR COMMITTEE. NOTHING HERE MAY BE USED AS LEGAL ADVICE IN CONNECTION WITH ANY BANKRUPTCY, WHETHER THAT BANKRUPTCY IS IN PHOENIX, GLENDALE, TEMPE, MESA, SCOTTSDALE, OR ANYWHERE ELSE.

Full post as published by Arizona Bankruptcy Attorney Blog on June 16, 2010 (boomark / email).