PR TECHNIQUE: BANKRUPT COMPANIES - Handling PR during Chapter 11

Explaining complex financial jargon to the press and keeping up a

dialogue with employees are the most crucial PR tasks for a bankrupt

company. Robin Londner reports.

If you weren't familiar with the term "Chapter 11" before the beginning

of this year, it's likely that you are by now. The grim state of the

economy has contributed to 2,961 companies entering Chapter 11

bankruptcy proceedings in the first quarter of this year, up from 169

during the same period in 2000.

Chapter 11 is the chapter in US bankruptcy code that provides for

court-supervised reorganization of companies in debt. Filing is often

voluntary, but it can be an involuntary order from creditors. The court

will need to see not only a reorganization plan, but also many

management functions must be court-approved. Chapter 11 ends when the

debt is paid or the company is forced to go out of business, usually

liquidating its assets to pay creditors.

Since most companies know for weeks or months that they're in trouble,

press releases should be drafted before Chapter 11 documents are even

filed, and released as soon as the company's lawyer confirms that the

filing has been made.

The key messages to explain to constituencies are: what Chapter 11 is,

why the company has moved itself into that state, and how Chapter 11

status will affect each person's relationship to the company. Releases

should stress that the company remains open for business. Media and

analyst contacts should be sent a release, as well as other media

outlets liable to write stories.

Michael Sitrick, chairman and CEO of Sitrick and Company, a firm that

has handled 120 Chapter 11 bankruptcies since 1989, stresses the

importance of explaining the filing to the media. He uses the example of

his work with then-bankrupt Orange County, CA. Sitrick got an 11pm call

from a reporter saying he had it on good authority that a number of the

county's $5.5 billion in bonds didn't exist. It was 2am in New

York, so Sitrick couldn't get hold of bank Solomon Smith Barney. He woke

up the newspaper editor at home, and convinced him to hold the story for

a day.

"In a big case, you have a lot of reporters thrown on a project, some of

whom don't know the difference between a balance sheet and a bedsheet,"

says Sitrick. "It turned out these bonds were shelf registration issues,

which is why they weren't listed. When I told Solomon about this, they

said had this story been published, it certainly would have delayed and

harmed the bond sale. It would have created pandemonium that would have

affected the sale price. Figuring it would have a 1% effect, that would

have been a $55 million impact."

In addition to educating the media, a PR person should deliver

statements targeted to the concerns of company constituents, including

employees (the top priority), vendors, creditors, suppliers, customers,

shareholders, the sales force, and other important groups.

Companies with dispersed employees may want to use an intranet,

closed-circuit TV, or conference call to give the initial news. Many

companies also set up toll-free phone numbers or password-protected

websites for concerned constituents. If the company has an employee

newsletter, consider a special edition or bulletin.

Also remember that people talk, sometimes across constituency


"Once any of your constituencies knows that you face difficult financial

times, it is important to increase communication to all of them about

the benefits your company provides," says Marc Jampole, president of

Jampole Communications. "Be able to fight off the rumors of facility

closures and bond defaults quickly."

To avoid misinformation and gossip, the company shouldn't necessarily

seek a high media profile, but it must communicate its key messages

quickly and efficiently. Because Chapter 11 is a mercurial process,

every corporate change should be announced to all constituencies. Since

many Chapter 11 management activities must be court-approved, news is

often public record, and will be reported whether or not it is


Bob Butter, SVP and associate director of Ketchum's global corporate

practice, has done bankruptcy communications consultation for 10


He stresses communication with all audiences, but says employees,

especially, need to be informed.

"You want to be able to retain the best employee talent, and employees

want to know on a frequent basis what's happening to the company," says

Butter. "We operate under the premise that your supervisor is the person

you as a worker trust the most for information about the company. Train

supervisors to be able to talk about it to their staff and people who

report to them."

However, it's important to remember that Chapter 11 can, in the case of

Eastern Airlines, for example, result in the company going out of


Jennifer Mercer, senior account supervisor at Hill & Knowlton, says when

a company no longer has hope of recovery, the key message becomes

simple: "We're going out of business."

As always, Mercer says, when a company is going under, it should alert

employees first.

"I've been fortunate in the years I've been doing this that I have found

most companies do try to provide HR assistance in terms of helping folks

find other jobs or providing severance packages," says Mercer, who says

successful employee relocation can be a good story to tell amidst a very

bad situation.

But the end of a company is the worst-case scenario. Many companies,

including Dow Corning and Macy's, have emerged from Chapter 11 healthier

and stronger than before. The press release announcing a company's

successful exit from Chapter 11 is often accompanied by events to thank

employees, vendors, customers, and other constituencies for sticking

with the company.

Making your way through bankruptcy proceedings isn't pretty. But handled

efficiently, it can at least be less painful.


1. Do keep your CEO front and center to show responsibility and


2. Do be knowledgeable of the legal side of Chapter 11. You'll need to

be able to explain legal dealings

3. Do work on a team including the board of directors, CEO, CFO, HR

executives, legal counsel, and corporate communications director. You

should know each person's concerns

1. Don't create an emergency situation. Instead, position the bankruptcy

as a recovery situation

2. Don't issue releases that rehash lawyer-speak. Instead, articulate

legal messages with a personal touch

3. Don't make any corporate announcements without explaining their

relevance to the Chapter 11. Constituents will relate everything back to

the bankruptcy, anyway.

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