Are Avaya going out of business and what exactly is Chapter 11?

If the rumours are true (as suggested by the Wall Street Journal), Avaya are due for yet another bad spell. On top of the rumours circulating that they’re about to sell of their Contact Centre business, speculation is growing that they may also file for Chapter 11 bankruptcy.

Rather than focus this post on why they have such woes, I thought it’d be useful to explore the basic principles of what Chapter 11 means, because the word bankruptcy tends to have a very finite meaning to many.

In the US, filing for Chapter 11 isn’t a ‘pack up your kit and go home’ affair, where all the investors end up fighting over the bones of a dead company. Rather, Chapter 11 is a form of bankruptcy that allows a company to re-organise itself in order to extract itself from a failure.

According to the US Courts Chapter 11:
…provides for reorganisation, usually involving a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganisation to keep its business alive and pay creditors over time.

So, this will likely mean the management stays in place (with big decisions being approved by the bankruptcy court), and a new business plan is put in place to help revive the faltering organisation back to days of former glory – or at the very least to a position where they can continue to repay the creditors.

The new business plan needs creditor, shareholder and other interested party acceptance and bankruptcy court approval to be allowed. It is possible for the court to approve the plan even if creditors et al reject it – though this would need to satisfy the court that the plan is fair in its treatment to all interested parties.

Assuming the green light, trading continues as normal until one of two things happen within an agreed time frame. 1) the company gets itself to the business plan state, or 2) they don’t.

All said and done, history has shown the odds are against a happy ending, but you never know.

As for Avaya, this is all rumour and conjecture right now. Whatever they decide, it’s likely it’ll be sooner rather than later that we will all get some news. Like the once mighty Nortel before them, Avaya are up against it.

Watch this space…