Chapter 11 of the American bankruptcy protection laws effectively puts a protective ring around a company, winning it time to renegotiate its debts and stopping creditors from claiming assets. It does not guarantee a ticket to recovery. Indeed, it often only delays the inevitable, but companies that file for Chapter 11 bankruptcy protection do at least get the chance to sort themselves out and emerge fitter than before. A textbook example of survival post-Chapter 11 is offered by Continental Airlines, which sought protection in 1983 and again in 1990, but each time was nurtured back to profitability under chairman and CEO Gordon Bethune. The British version of Chapter 11 is administration, when instead of liquidating a company the court can, with the approval of creditors, appoint an administrator to take over the running of the firm, selling bits off to repay debt as and when it is advantageous. The point is to preserve the core of the company so that it can resume trading if possible; hence preserving more shareholder value in the long term than if the firm’s assets are all sold in a firesale.
In a series of three short videos, Merryn Somerset-Webb talks to Hugh Hendry, manager of the Eclectica hedge fund, about everything from China to the US, Europe, and Japan.
More from MoneyWeek
|How to buy and sell penny shares|
|A beginner's guide to investing in gold|
|How to invest in British fracking|
The first royal Christmas message by George V gave the fledgling World Service an early boost six days after it was founded in 1932.