BANKRUPTCY UPDATES

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• Nassau Broadcasting Sells its Assets in Bankruptcy Court (May 22, 2012)

Bankruptcy Filings Drop as Firms Look for Other Ways

Corporate bankruptcy rates in the U.S. have dropped by half this year, according to a report from Reuters, a sign that some companies have successfully weathered the recession and are ready to emerge on the other side.

Fifty corporate bankruptcies that involve publicly traded companies have been filed in the first half of 2010. These filings include both Chapter 11 and Chapter 7 bankruptcy cases. That number, 50, is down from the 118 that were filed in the same time period in 2009. This information comes from BankruptcyData.com.

In an odd twist, the improved health of some companies is causing financial problems for others. Firms that specialize in restructuring finacially struggling businesses are themselves hitting tough financial times as fewer big businesses file for bankruptcy.

“There are a lot of hungry bankruptcy professionals, restructuring firms and financial advisers,” Mark Jacobs told Reuters. Jacobs is a partner at Pryor Cashman LLP, and is a specialist in bankruptcy. “Everyone there is trolling for new business.”

With the improvement of the economy comes a more aggressive approach from hedge funds trying to keep their investments out of bankruptcy court. This means that they are taking more steps to avoid bankruptcy proceedings, and that means bankruptcy professionals specializing in big corporate cases may not have as many cases to work on.

Taking a bankruptcy restructuring to court can cost twice as much as restructuring it out of court. Handling a restructuring outside of court means a business may be able to maintain control of the decision-making that goes on, rather than putting decisions into the hands of a bankruptcy judge. By avoiding a bankruptcy filing with the courts, hedge funds and investors can both save money and lessen the risk involved.

Also, the high number of bankruptcies in 2009 thinned out the level of competition as business rivals fell off the map, leading to improved conditions in the market for those companies that weathered the storm.

“We’re on the backside of the implosion of 2008,” Jacobs told Reuters, referring to the crashing of the financial markets that year. “The cases that were going to file in the wake of the Great Recession have pretty much filed.”

Gross domestic product has also expanded for three straight quarters, providing further evidence that the U.S. economy is rebounding. In the first quarter of this year, the gross domestic product expanded by 3.2 percent as the U.S. emerges from the worst economic recession since the 1930s and the Great Depression.

In addition to the falling outright number of big business bankruptcies, the size of the bankruptcies filed has also decreased, according to BankruptcyData.com. When added up, the combined assets of the companies that filed for bankruptcy in 2009 was $367 billion. This year that number fell to $45 billion.

Among the companies that filed in 2009 were former industry giants like General Motors and CIT Group Inc, whose assets were around $90 and $80 billion respectively. This year, the largest corporate bankruptcy filed by a public company was that of Corus Bankshares Inc, with assets of $8.35 billion.

But while businesses may be doing better, many Americans are still struggling. While the rate of personal bankruptcy filings isn't growing as rapidly as last year, 2010 could still be poised to set a record for personal bankruptcy filings.