When a company is on the brink of failure, it will often file for Chapter 11 bankruptcy protection. This allows the company to undergo a reorganization of its business affairs, debts, and assets. Sometimes businesses are successful at restructuring, while other times, they end up liquidating assets and closing up shop permanently.
Enron, WorldCom, and Lehman Brothers are some well-known examples of bankrupt companies that never came back. But there are companies that have managed to re-emerge from bankruptcy in better shape than before they went bust. These spectacular comebacks are from companies that either went bankrupt or came nail-bitingly close to doing so.
- Filing for Chapter 11 bankruptcy allows a company to restructure its debts.
- In some cases, companies are able to emerge from bankruptcy stronger than ever.
- General Motors, Texaco, and Marvel Entertainment are three of many companies that have emerged from bankruptcy successfully.
It's hard to believe that one of the world's largest companies by market capitalization was once in dire straits. While never actually filing for bankruptcy, Apple (AAPL) was on the verge of going bust in 1997. At the last minute, arch-rival Microsoft (MSFT) swooped in with a $150 million investment and saved the company.
People have speculated that Microsoft only did this because it was worried that regulators would regard it as a monopoly without the competition from Apple in the marketplace.
2. General Motors
Following the financial crisis of 2008, General Motors (GM), once the largest automobile manufacturer in the world, filed for bankruptcy and was ultimately bailed out by the federal government. In December 2013, the U.S. Department of the Treasury fully exited its investment in GM, recovering a total of $39.7 billion from its original investment of about $51 billion.
3. Ally Financial
GMAC, now Ally Financial (ALLY), was the auto-financing arm of General Motors, extending credit to purchasers of its cars. The bank was bailed out alongside its parent to the tune of $17.2 billion by the U.S. Treasury Department. The company has emerged as a profitable business with a market capitalization of $7.61 billion as of March 2023.
General Motors wasn't the only carmaker to go bust during the Great Recession. American car manufacturer Chrysler filed for bankruptcy in April 2009, about one month before GM. Chrysler took $12.5 billion in government assistance, of which it repaid the U.S. Treasury $11.2 billion. European carmaker Fiat (FCAU) purchased Chrysler in January 2014.
5. Marvel Entertainment
With blockbuster movies such as Spiderman, The Avengers, and Guardians of the Galaxy, it is surprising to note that Marvel filed for bankruptcy in 1996. This was before the company got into the movie-making business when it focused primarily on comic books. Today, the company's properties are worth billions of dollars with millions of fans around the world and it is now a subsidiary of Disney (DIS).
6. Six Flags
Theme park operator and amusement company Six Flags (SIX) has 27 theme and water parks throughout North America, home to some of the world's biggest and fastest roller coasters. In 2009, however, the company declared bankruptcy after racking up more than $2.7 billion in debt which it could not pay back. Six Flags reorganized and emerged from bankruptcy in 2010.
Texaco, now part of Chevron (CVX), once dominated the oil industry. In 1984, Texaco agreed to buy Getty Oil, setting off a three-year legal drama that would end with Texaco owing billions to rival Pennzoil.
It all started when Getty Oil and Pennzoil agreed to a merger. Texaco swooped in with a larger offer, snatching Getty Oil away and leaving Pennzoil fuming at the altar. Pennzoil sued for damages. A jury agreed and awarded Pennzoil $11 billion. Texaco offered to settle for $2 billion, but Pennzoil refused. This forced Texaco to seek Chapter 11 bankruptcy protection. It emerged from bankruptcy in December 1987 when Pennzoil agreed to accept a $3 billion settlement.
Sbarro operates and franchises more than 630 fast-food-style pizza and Italian-food restaurants worldwide. Sbarro went bankrupt twice: first through a Chapter 11 bankruptcy reorganization in 2011 and then again in 2014. The company has re-emerged with the help of a collaboration of private equity firms to transform the company's image to a more fast-casual style, rather than its previous kiosk or food counter concept.
What Happens if my Employer Files for Chapter 7 Bankruptcy?
In a chapter 7 bankruptcy, a company declares that it is unable to meet its debt obligations and liquidates its assets. This means that the company effectively goes out of business, discharging most of its employees. Employees who are owed wages must get in line for repayment along with the company's other creditors. The good news is that employees have a relatively high priority for repayment.
What Happens if my Employer Files for Chapter 11 Bankruptcy?
In a chapter 11 bankruptcy, the bankrupt company is shielded from creditors while it attempts to reorganize and become profitable. Generally, this means the company will remain in business and continue operating. However, it may sell part of its assets or dissolve unprofitable arms of the business, resulting in layoffs for some employees.
Can I Be Fired if I Declare Bankruptcy?
You cannot be legally fired for declaring bankruptcy, and employers cannot use bankruptcy as a reason for changing your salary, responsibilities, or other terms of employment. change your salary or responsibilities solely due to bankruptcy. If an employer does fire you shortly after learning of bankruptcy, and no other cause exists, you may have a case against them for illegal discrimination.
The Bottom Line
Bankruptcy is often the end of a company, but it doesn't have to be. The companies in the list above have reemerged from bankruptcy to become profitable and successful. As an investor, it is useful to note that bankruptcy isn't always the end of the line for a company and that through buying shares of companies as they emerge, investors can profit from bankrupt companies.