Tag Archives: bankruptcy

Random thoughts – keeping you on your toes

Free Spending

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With the annual Canadian budget announced last week, there has been a lot of discussion in the Canadian press about deficit spending.  That is spending more money than you receive over a specified period of time, e.g., a year.

For me, a lot of the recent discussion is focused on the question ” Can government budget deficits actually be a positive approach to encouraging economic development?

Balanced Analysis

For Canada, the budget is not balanced but the analysis of whether this is good or bad seems to be.  I have read reasonable arguments both supporting deficits or to stay within income limits.

On the overspending side, the arguments largely postulate borrowed money could be used by the government to foster economic development.

Things road, ports and airport construction can act as facilitators of economic development where the benefits often, but not always, exceed the costs.

The proponents often point to the fact the investment fraction of GDP has fallen to half what it was in the decades after WWII when deficits were small and even in surplus a couple of years.

Basically during a rampant period of deficit spending since 19060’s the average economic growth rate has been much less then it was during periods of balanced budgets.

In the End

For me, it is a simple discussion.  If the debt reaches a point where re-payment is unfeasible, the consequences are catastrophic.  Even for immediate term economic benefits, this risk is too high.

Our governments should balance their budgets and pay down the debt in an orderly manner.  Peace of mind and our economic model demand it.

 

Random thoughts – keeping you on your toes

Organizational Change

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There are three major grocery retailers in Canada, Sobeys (a division of Empire company), Loblaws (George Weston Ltd.) and Metro Foods.

Last week Sobey’s announced a major re-organization which will reduce their office staff across the company by about 800, as it is implemented nationwide.

Why Re-organize

The goal of changing the structure of an organization typically is one to all of the following:

  • Address changing market forces which are attacking the organizations business model. In the case of Sobey’s the rise of on-line retailing is beginning to impact the food sector. The signs of major impacts like those that affected book,  music and general retailers are clearly present.
  • By changing the way you do business and even in some cases focusing or expanding the business scope, a key objective is improved efficiency and higher quality so the business becomes sustainable
  • Reduce resource cost (expense reduction) without impacting volume or quality of service or product by changing processes and practices both significantly and rapidly (not a slow continous process improvement but a drastic one in a fell swoop)

Cutting Staff

Some organizational changes increase staff but often expense reduction is one of the goals (not always though).  Unfortunately the press has focused on the Sobey announcement as a staff reduction.

This is a good way to sell news content but the perspective is a little unfair to Sobey’s.  The reality is any retail company can go bankrupt in the current consumer environment (e.g., Sears and Toys r Us) , size is not a protection.

Sobey{s move to sustain the company by changing its business model is both strategic and wise.

Random thoughts – keeping you on your toes

Context Counts

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The answer to the question, “Is this a successful outcome?” can be dependent on your perspective.  Although the result can be agreed to objectively, that is everyone accepts what happened, whether it was positive (sucessful) or negative is very much contextual.

For Example

The owners of the majority of shares in a large company develop a plan of subsidary asset sales and excess cash divestiture through stock repurchase and dividend payouts.

The result is beneficial to exisitng shareholders of the parent company.  The value of the subsidiary drops but the holders of equity in the parent company gain (dividends, parent company stock price increases).

Ultimately the subsidiary may go bankrupt having a very negative impact on its employees, suppliers and customer base ( they need to go elsewhere if they can even find an alternative)

In this case, the shareholders deem the result a success, the other shareholders not so much.  The outcome, bankruptcy of a viable enterprise, is not disputed, whether it was a good or bad outcome is.

In case you did not recognize it, this  story is one way of describing the recent Sears Canada bankrupty.  My telling of the tale is from a cynical perspective, but does have some validity nether the less.

That is the facts, allbeit interpreted liberally, are provable facts.  So clearly your place in the story, rich owner profiting from others loss or poor employyee without severance really speaks to how the outcome is viewed.

 

Random thoughts – keeping you on your toes

Sears Canada Bankruptcy Thoughts

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Sears Canada entered bankruptcy protection last week.  The intent of this protection is to enable the Corporation to continue to operate although their debts exceed their assets.

The concept is, by restructuring both the debtors and the Corporation will ultimately be better off.  That is the debtors will end up with more than they would by seizing and selling the assets, the Corporation can continue to exist (in some form)

Of course, the debtors probably still end up with some losses, although depending on how well secured your debt was you might break even.

In theory, the restructuring allows the company to emerge from bankruptcy as a slimer invigorized entity ready to be a world beater once again.

Theory does not always work in practice and some companies have been known to go from bankruptcy to bankruptcy.  (I guess the restructuring teams probably benefited somewhat each time).

Good for the Employees

By continuing to operate in bankruptcy, wholesale layoffs of the work force can be avoided – although restructuring will probably affect some percentage of the employees.

The case of Sears though, is a reminder of how those employee directly impacted can be adversly impacted.  Although the restructing plan is not completed, Sears Canada announced preliminary layoffs of about 3700.

The catch, no serverence will be paid to laid off employees regardless of years of service.

The company does say those employees can sue for their severance, but given the bankruptcy protection any successful litigation would simply result in a unsecured claim.