When many in Kentucky think about filing for bankruptcy protection, they generally assume that a company must immediately cease operations. However, this is not always the case. A large hotel chain recently filed for Chapter 11 bankruptcy, and the judge presiding over the proceeding has allowed the company to continue normal operations while the court determines whether the company will be required to sell its assets.
The hotel chain at the heart of the proceedings was founded by John Q. Hammons and, until recently, included 78 properties. In 2005, a complicated buyout of 43 of the properties was solidified between Hammons and Jonathan Eilian, who is a former managing director of Starwood Capital Group. The deal was structured in such a way that it allowed Hammons to receive a great deal of cash without requiring him to pay significant capital gains taxes. In addition, Eilian was allowed the right of first refusal if he wanted to purchase the 35 hotel properties that were not included in the original deal.
These 35 properties are now in bankruptcy, following Hammon’s death in 2013. Despite what many think, there are benefits that even financially stable companies can take advantage of when filing for Chapter 11 bankruptcy. One of these benefits is called the automatic stay provision, which can stop pending legal action against a debtor who files for bankruptcy. This has allowed Hammons Hotels to continue to operate and to use the cash it receives in order to pay its more than 4,000 employees, satisfy its bills and also honor customer reward programs.
The laws pertaining to filing for Chapter 11 or any other type of bankruptcy protection are complex, and most companies in Kentucky rely upon the counsel of experienced bankruptcy attorneys. Though it may be difficult to make the decision to file for bankruptcy, there may be many options available to business owners that are not readily evident. Working with an attorney who focuses on this area of law could allow owners and shareholders to emerge from bankruptcy in a way that allows them to move their future business objectives forward in a positive manner.
Source: nasdaq.com, “Hammons Hotels Can Continue Normal Operations in Bankruptcy”, June 28, 2016