The nation’s fourth largest cable operator, Charter Communications INC., has announced its plans to file a prearranged Chapter 11 bankruptcy by April 1st of this year. Charter’s largest shareholder and co-founder of Microsoft, Paul Allen, says he has reached an agreement with certain debt holders to reduce the company’s debt by $8 billion in exchange for a combination of new debt and cash as well as other factors. University of South Carolina School of Law Professor Lewis Burke says that Chapter 11 cases exist to allow a company to restructure itself. Burke also says to file for Chapter 11, a good relationship between the company and its creditors is necessary.
“Chapter 11s are usually used by businesses and very wealthy individuals to reorganize,” says Burke. “Those are sometimes successful, sometimes not depending on how good a plan they have to reorganize the business and how much cooperation they have with their creditors. The creditors have a great deal of control over whether the bankruptcy goes forward and the reorganization works.”
Burke also says Chapter 11 allows the company to continue to operate unlike other types of bankruptcies. “The contrast between a (Chapter 11) and a Chapter 7…a Chapter 7 is the liquidation in which the assets of the business or an individual are sold to satisfy the creditor and in the case of a corporation they simply go out of business,” he says.
When filing for Chapter 11, there is a process according to Burke, including “approval by a creditor’s committee as well as approval by the court.”
Paul Allen will maintain the largest voting interest in Charter. He has invested nearly $7 billion into the company.