What is Chapter 11 bankruptcy?
Chapter 11 is one of the chapters of the US Bankruptcy Code that provides protection to debtors. Chapter 11 bankruptcy is almost exclusively used by businesses due to the expense and complexity of the process. Chapter 11 bankruptcy is appropriate when a business needs to restructure the debts it has and reorganize its finances so it can stay open. As an alternative to Chapter 7, which would require a business to liquidate, Chapter 11 allows a business to keep many of its assets.
Chapter 11 bankruptcy involves the financial reorganization of a business, which may be a complex and extensive process. As soon as a company files for Chapter 11, all collection activities must cease. This stay will remain in effect throughout the bankruptcy process.
The process of Chapter 11 begins with the creation of a plan. The debtor or debtors involved may propose the repayment and reorganization plan or, after a period of time (usually around 120 days), the creditors may propose a plan as well. The plan may allow the debtor to cancel contracts. The value of shares owned if the stock is publicly traded may also be cancelled, leaving the shareholders with nothing. Any plan that is created must be approved by the creditors, and if there are multiple plans sometimes the creditors are given the opportunity to vote on the plan that is put into place.
A trustee will be involved throughout the reorganization process as well. The trustee will help to ensure that priority claims are paid, that assets are managed properly, and that the reorganization proceeds as it should.
The Tuesday filing for bankruptcy protection by Great Bend-based Fuller Brush and its Leicester, NY-based parent company CPAC should have little impact on the day-to-day operation at Fuller’s Great Bend headquarters, a local Fuller official said Thursday.
“We’re still in business making brushes and chemicals like we have been for over 100 years,” said Larry Perkins, Fuller chief restructuring officer. “We are going to continue to make product and deliver product.”
The company filed for Chapter 11 in U.S. Bankruptcy Court for the Southern District of New York. Fuller Brush’s assets and debts each amount to between $10 million and $50 million.
Fuller has 185 employees, 180 of which are at the Great Bend plant, Perkins said. For now, that should not change.
The reason for the filing, Perkins said, was to bring an infusion of needed capital into the struggling company. The cash was necessary to pay for raw materials, cover salaries and pay Fuller’s landlord.
“Fuller Brush has been and will be a staple in our community,” said Jan Peters, president of the Great Bend Chamber of Commerce. “We want them to know we are here if there is anything we can do to help.”
Peters said the chamber has worked with Fuller over the years and she understands why this action was taken. “They are doing this so they will be stronger in the long run and we support these efforts.”
Kudos, she said, need to go to the long-term employees that have stuck with the company. “They have gone through a number of changes and they are the ones who really need to be commended. They have given their all.”
Not business as usual
The recession hit Fuller, but Perkins said there were other reasons why the company floundered. “We were not proactive in coming up with new products.” Instead, they relied on a product line that had changed little over the years.
“We want to improve our sales and marketing efforts,” he said. They will also emphasize a line of custom products.
“Nothing is business as usual” in a rapidly and ever changing business environment, Perkins said. “This really speaks to the quality of our products that they have survived this long.”
“If you are doing business the way you were doing it five years ago, you will not be in business five years from now,” Peters said. Perhaps Fuller was a little slow realizing this, but she has seen their long-range plans and said the company is on the right track.
The headline on a news release posted on the Fuller website Jan. 3 of this year reads “The Fuller Brush Company is back.”
The release goes on to say “The legendary Fuller Brush Company returns with a whole new line of products specifically designed for today’s consumers. The company has completely rebooted itself with a new website (www.fuller.com), products, marketing campaign, distribution channels and mass retail relationships to expand its reach into the consumer market and mindset.
“‘This is a landmark year for The Fuller Brush Company as we have devoted a significant amount of time and effort toward creating new strategies to better serve our customers,’ said Vinnie D’Alleva, chief marketing officer, Fuller Brands. ‘We’ve invested in new product development, expanded our retail offering, hired new talent and refreshed our branding to meet the needs of today’s consumers.’
“As part of the new initiatives, the Company has broadened relationships with key retailers, including Publix, Home Depot, Orchard Supply Hardware, Vermont Country Store and Dierberg’s to name a few.”
Economic development loan
In June 2011, the Great Bend City Council approved both applying for a state grant and a local loan to secure part of the funding for a million-dollar project at Fuller, including an effort to “rebrand” the company.
The city’s part included applying for $568,340 in Community Development Block Grant funds through the Department of Commerce. If that money would be granted to the city, the city would have loaned at 4 percent interest for five years, to Fuller.
Also, the city would loan $147,490 from its Economic Development Revolving Loan Fund.
However, City Administrator Howard Partington said Thursday that Fuller never signed or finalized the loan. “They never acted on it.”
So, city doesn’t stand lose any of that money as a result of the bankruptcy.
Partington did say the loan offer could be brought up again to help the company, should it be feasible.
The company, founded in Connecticut in 1906 by Alfred C. Fuller and famous for its door-to-door “Fuller Brush Man” sales force, now sells personal care and household cleaning products directly and through retailers.
The Fuller facility sits on 123.46 acres at the corner of 10th and Airport roads and is leased to Fuller. Covering 572,114 square feet, the plant was built in 1973.