Bankruptcy Law News

INSIGHT: Chapter 11 Communications in the Age of Sears and PG&E

Jan. 18, 2019, 9:00 AM

Sometimes the Chapter 11 process may be smooth and quick. Think pre-packaged restructurings that can begin and end within 60 days.

Other times, not so much. Think Sears. After years of speculation amid swooning financial condition, it filed Chapter 11 in October 2018, and Sears Chairman Eddie Lampert reportedly prevailed Jan. 16 with his plans to keep the remnants of the retailer open.

On Jan. 14, Pacific Gas & Electric in California announced its plans to file for bankruptcy protection.

These two bankruptcies are highly publicized, with every twist and turn sure to attract media attention.

The majority of the public doesn’t understand the difference between the different types of bankruptcy and restructuring. Often, they imagine “Going Out of Business” signs, abandoned buildings, and Mr. Monopoly with his pockets turned out. Even if the news isn’t so bad, the public perceives it as negative right along with buzzwords like “government investigation” or “recall.”

You must cope with the misperception. Your communications strategy must educate people about what’s happening and why—all in easy-to-understand language. You must reassure and persuade customers, vendors, and employees not to panic and jump ship. If they do, your client’s business will suffer.

Handling the News Cycles

Because Sears isn’t a pre-packaged deal, its media coverage has dragged out. Each time there’s an upcoming event, there are typically three news cycles: first speculation about the pending event, second about the actual event, and third analyses of what it means.

Different Outcomes, Different Rationalizations

Final outlines of a deal often aren’t clear until the last moment. You must be prepared with different storylines based on often-contradictory rationalizations.

You need to be ready with a Plan A and Plan B (and sometimes Plan C). The tone and focus of communications will change significantly if you have a pre-packaged deal vs. one that’s not. Even within a pre-packaged deal, you may confront wildly different outcomes.

Consider seesaw negotiations that went down to the wire over which assets were valuable and would be included and which were of marginal worth and would be disposed of. Over the course of a weekend, three starkly different Chapter 11 scenarios emerged:

  • The assets at issue were all being excluded because they were a low-margin business unattractive to the restructured company.
  • Some were being sold to monetize them, but the rest were being retained to cash in on their long-term value.
  • All were being retained because they were core, high-value assets.

Which version was true—if any? Ultimately, it’s in the eye of the beholder. But whatever the outcome, the goal of your communications strategy is to sell it as positively as possible.

Negotiating Table

Negotiations don’t occur only at the bargaining table. Sometimes a decisive factor is what you say and do publicly.

Consider the Weinstein Company. Shortly after the allegations against Harvey Weinstein began surfacing, a sale or bankruptcy was equally plausible. At first, a sale seemed imminent. But those talks stalled, restarted, and were finally abandoned. Bankruptcy appeared to be the only option remaining. Was all the public posturing just a negotiating ploy?

Timing the Announcement

Most often, the first official announcement comes when a company files in U.S. Bankruptcy Court and announces it publicly.

Depending on the situation, it may be beneficial to float the possibility publicly before filing, as Sears did. PG&E had no choice but to announce its intent to file early under a new state law that requires a 15-day notice to employees.

But what about unofficial news? Whenever a company closes a retail outlet or factory or lays off a few people, gossip and speculation quickly fill any void of information. If the rumors aren’t addressed quickly and clearly, they create a crisis of confidence that can undermine the business.

Regardless of when the announcement occurs, your communications strategy must be carefully orchestrated, set the tone, and reassure. It must guide your client in who needs to be informed, what needs to be said to each target audience, the forums in which to make announcements and disclosures, and when is the best timing.

Who to Communicate With, What to Say, and Forums to Use

Similar to “The Force” in Star Wars, the rumor mill is strong within each company. Once negative financial news is in the air, rumors will start to churn and become more powerful with time if left unattended.

Each of your client’s audiences has its own interests. But your underlying message to all must be consistent. You must soothe nerves by letting people know what to expect and by anticipating questions. Most can be answered by looking through the lens of the recipient and asking, “How does this affect me? How will I benefit (or be hurt)?”

Employees want to know if they’re next on the chopping block. Vendors wonder if they’ll get paid for their products and services. Customers wonder if they should start shopping somewhere else or wait to make their purchase until there’s a going-out-of-business fire sale.

Marrying the legal disclosures with the human/personal element can be tricky, but it’s vital. While you never want your client to say or do anything that will undermine it legally, you also must make sure that the tone is reassuring and comforting and that the content is easy to understand.

Beyond a news release announcing the filing, a solid strategic communications strategy will also provide packets of information that must be shared with employees, vendors, and others who are critical to keeping your client’s business operating. These packets should include letters from management, Q&As, Chapter 11 terms and definitions, a sequence of events, and talking points for hotlines.

Depending on your client’s culture, a more personal touch may be beneficial. This may include in-person town halls/meetings with senior management and the bankruptcy attorney fielding questions and allaying concerns.

Author Information

Eden Gillott, president of Gillott Communications LLC, is a strategic communications consultant and has more than a decade of expertise in crisis and reputation management. A former business professor, she is co-author of two crisis public relations books: “A Lawyer’s Guide to Crisis PR” (Second Edition) and “A Board Member’s Guide to Crisis PR.”

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