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Manufacturer cites materials price increases in Chapter 11 filing

Of all available forms of business bankruptcy, Chapter 11 is the only one that allows for restructuring of a jointly-owned business, LLC or corporation (Chapter 13 restructuring is only available for sole proprietorships). Although the Chapter 11 process can be difficult, it is an opportunity to revive a business that may still be viable despite unanticipated hardships.

Many companies find themselves in situations like this because the economy is unpredictable. Even factors like fluctuations in the cost of manufacturing materials can severely strain a business’ bottom line. This was one of the factors cited in a recent Chapter 11 filing by Florida-based Hollander Sleep Products, which bills itself as the largest manufacturer of bed pillows in the world (it also makes other bedding products as well).

A restructuring specialist explained that Hollander has experienced a liquidity problem because of “substantial” price increases on materials like feathers, fiber and down. These increases “have significantly reduced Hollander’s profit margins for many products, which are generally sold on low profit margins to begin with.”

The company will be making other strategic changes as well in order to regain financial health, but the in the meantime, it has convinced lenders to convert $166.5 million of its debt into equity, which should significantly help in its turnaround efforts.

As a business owner, you have likely felt vulnerable to market forces like the cost of raw materials, consumer confidence and other factors beyond your control. If you are facing serious debt but your core business plan remains profitable, filing for Chapter 11 could be the most appropriate course of action to restructure and revive your company. 

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