Bankruptcy and the Hostess Twinkie

If you’ve followed the news or been to your local Wonder Bread store recently you may have noticed the high demand for the nation’s cream filled treat: the Twinkie. Hostess, the company that produces the simple oval shaped sponge cake filled with a sweet cream, is going bankrupt and the country is fretting the end of a favorite dessert. So what does it mean for consumers when a company like Hostess files for bankruptcy?

First of all you should understand the type of bankruptcy filed by the Hostess Corporation called the Chapter 11. This type of bankruptcy is solely for businesses and it acts as a “reorganization” of plan so that the business can get back on track financially. A Chapter 11 bankruptcy is similar to the Chapter 13 personal bankruptcy that allows individuals or married couples to pay back an overall percentage of their unsecured debt through a 3-5 year repayment plan. The reorganization of the Chapter 11 bankruptcy is overseen by a bankruptcy judge who has the initial responsibility of approving or denying the plan altogether. Once the Chapter 11 is filed the court will alert all of the creditors involved so that they are aware and can be prepared for the possible lack of full repayment.

The Hostess Corporation first entered Chapter 11 bankruptcy in 2004 and emerged from it in 2009 with the doors still open, and with positive outlooks about their financial future. During their bankruptcy process the company closed 54 bakeries, nearly 300 retail stores, and downsized their workforce by 10,000 employees. Unfortunately their first Chapter 11 bankruptcy didn’t work out in the long run and in January 2012 they filed again.

When Hostess filed again in January 2012 they cited $860 million dollars worth of debt and they were hoping once again that the bankruptcy would help them pay off their creditors and get back on track. The first few months of the Chapter 11 saw the company’s CEO resign, an email threatening a mass layoff, and other worrisome events. Finally, due to an employee strike in November 2012 the Hostess company could not continue production and was forced to layoff their 18,000+ workers and begin to succumb to their creditors.

So what is going to happen to your favorite snack cake? Probably not too much. Hostess will need to start liquidating their assets which means selling off small pieces to competitors, entrepreneurs, or anyone else interested. They will be able to start the liquidation process as soon as the bankruptcy judge approves the request. It would truly be stunning if no one decided to buy the Hostess company out for the recipe and distribution of the “Twinkie” or it’s many other famous snacks.The ultimate goal of a business bankruptcy is always to get the company back on the right track and keep the revenue flowing, but sometimes it doesn’t work out that way.

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