In 2009 a Chicago-area transportation company called The BusBank filed for bankruptcy.
The company had been depending on investor funds, which dried up—along with the economy. ”It started getting rough in 2006, and by 2009 we were struggling for cash,” explains Brandon Dudley, BusBank’s director of marketing and operations. “At that time we had over $10 million of liabilities to local bus companies.”
The company filed for Chapter 11 bankruptcy protection at their lawyers’ advice—and then set about rebuilding. BusBank changed its focus from getting new customers to being more efficient with spending, which included restructuring the company’s senior management. Each quarter they make a payment (decided in bankruptcy) to the vendors that they still owe.
“Every day was long and stressful,” Dudley recounts. “We didn’t know if we would make it through.”
But today BusBank is still alive and kicking. The company has paid off most of its smaller debts, and it’s even profitable—in fact, BusBank’s 2012 profits surpassed company goals and increased over 1,000%. In 2013 they’re already operating ahead of revenue projections.
Filing for bankruptcy can feel like a hard stop—a failure. Yet the reality is that bankruptcy can actually serve as a clean state to start building a better business model. But what’s the difference between a company that successfully rebuilds, and one that shutters its doors forever?
Bankruptcy Doesn’t Have to Be a Death Knell
One inspiring—not to mention high-profile—case of post-bankruptcy reinvention is Betsey Johnson, a dynamic clothing brand named after its equally dynamic founder. When the 34-year-old company found itself $4 million in debt, it announced, in April 2012, that it would file for Chapter 11 bankruptcy, closing 63 stores and letting go of 350 employees.
Designer Steve Madden, who stepped in to take over a $48 million loan on which Betsy Johnson LLC had defaulted in 2010, now owns the Betsey Johnson license in conjunction with Castanea Partners, a Boston-based private equity firm. Madden explained what ultimately landed the company in so much financial trouble to The New York Times: ”They borrowed a lot of money, they had too many stores and their rents were too high.”