Borders Putting Assets in Liquidating Trust
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Borders Putting Assets in Liquidating Trust

October 15, 2011


Borders, Inc., which filed for bankruptcy protection earlier this year, has decided to distribute its remaining assets via a liquidating trust, according to The trust will allow the company to pay its creditors, but its shareholders are not expected to recover any money.

Liquidating trusts can be useful for companies that have significant intellectual property to sell. In late September, Borders announced plans to sell customer information to Barnes & Noble, a rival bookseller that has remained afloat in recent years thanks in part to its introduction of the Nook, a store-branded e-reader.

Barnes & Noble bid $13.9 million for access to information for about 48 million customers, including contact information and buying history. The still-extant bookseller sent opt-out notices to Borders' customers but lawyers involved in the case have suggested that the notices did not adequately inform customers about their option to withhold their information from B&N. The issue remains unresolved at present.

Once Borders' assets have been put into the liquidating trust, a third-party trustee will distribute them among creditors as necessary.

Sources report that the lawyer representing Borders, Inc., has also submitted a request for an extended deadline under which to submit the company’s proposed Chapter 11 reorganization plan. Lawyers apparently want to ensure that no competing plan is submitted and that Borders is able to repay its fees and secured creditors in full.

Gradual Decline for Borders

In its glory days (as recently as 2006), Borders’ shares traded higher than $25. By last year, they had fallen to just over $1.50; today, they’re worth approximately two cents. Analysts have blamed Borders’ decline on its inability to adapt to changing models of retail book sales and its subsequent inability to compete with online sellers like Amazon and others offering e-books.

Borders is by no means the only former giant suffering serious financial losses from digital competition: recent years have seen a number of once-dominant companies (including Polaroid, Kodachrome and Kodak; most print newspapers; and a number of typewriter producers) brought to their knees by changing consumer behavior facilitated by digital technology.

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