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Chapter 11 business definition
A bankruptcy option in which a trustee is appointed to reorganize the bankrupt firm. Although the existing claims of security holders are likely to be reduced or replaced with different claims, it is expected that the firm will continue operating. Both creditors and owners must vote approval of the plan before the reorganization can be confirmed by court action and become effective. See also prepackaged bankruptcy, reorganization plan.
Case Study Once the supermarket industry's most profitable company, Jacksonville, Florida-based Winn-Dixie Stores filed for Chapter 11 bankruptcy protection on February 21, 2005. At the time of the filing, Winn-Dixie was the country's eighth largest food and drug store chain and ranked number 182 on Fortune's 500 listing of America's largest corporations. Unfortunately, Winn-Dixie was being squeezed between the low prices of Wal-Mart's Supercenters and the upscale service and stores of Florida-based Publix Super Markets. On the filing date, Winn-Dixie listed $2.23 billion of assets and $1.87 billion of debts. The company indicated that it expected to close a third of its 913 stores and reduce its workforce by 22,000 employees. It would cease operations in North Carolina, South Carolina, Tennessee, and Virginia. Twenty-one months after filing for Chapter 11, Winn-Dixie emerged as a new company, with 522 stores and 55,000 employees. In the interim, the firm had closed stores and sold warehouses and manufacturing plants. Its old common stock was canceled, and 54.5 million shares of stock of the new company were issued to the bankrupt company's unsecured creditors. The company operated stores in only five states following its emergence from Chapter 11 bankruptcy.