Hostess requests to liquidate, but Twinkies may soldier on

Across the country, people are flocking to grocery stores to buy up the last bits of Twinkies and other Hostess goodies. Hostess declared on Friday that it will be unable to continue its Chapter 11 bankruptcy and has asked the bankruptcy court for permission to liquidate and go out of business.

Twinkies are well-known for their longevity, so don’t expect this to be the end. Like the cake itself, the brand name will likely go on. Companies are already lining up to bid on the cake, which has brought its owner more than $68 million in revenue this year alone.

Yet, that revenue was simply not enough for Hostess. The company, which has filed for Chapter 11 bankruptcy twice in one decade, claims that rising union costs, management pay, competition and changing American taste buds are to blame for its financial challenges. The company attempted to offer its bakers union a new contract that cuts wages and health benefits, but the union went on strike, which cause management to announce its choice to liquidate.

In a hearing this afternoon, however, the bankruptcy judge decided to require mediation between the two parties. If the mediation runs afoul, then we can expect the judge to appoint a trustee to liquidate Hostess’ assets and commence the sale process. If it goes well, however, the company may continue its Chapter 11 bankruptcy plan and stay solvent.

Unlike Hostess, many businesses are able to make it through the Chapter 11 reorganization without too many hiccoughs and remain viable businesses. One of the biggest hurdles for these large corporations lies in their union contracts. In some cases, the bankruptcy court will allow the corporations to throw out the contracts all together (such as in the American Airlines Chapter 11 bankruptcy). Smaller corporations and companies often have less trouble re-working labor costs.

Thankfully, there are many options. The choice to reorganize through Chapter 11 bankruptcy rather than to liquidate through Chapter 7 bankruptcy does not have to be the final choice. If, like Hostess, a company finds that it cannot make the reorganization work, it can still decide to liquidate.

Source: SFGate, “Twinkies likely to survive sale of Hostess,” Tom Krisher, Nov. 18, 2012

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