Chapter 11 used to have a shameful and negative connotation in corporate America. Quite simply, it meant failure through bankruptcy.
That was the past, though. For decades, many companies have willfully utilized Chapter 11 protection laws to gain a second chance. We've seen it over and over again. Those over their heads in piles of debt, or companies that simply come close to running out of cash use these bankruptcy laws to erase most (if not all) their obligations and problems.
Even though Chapter 11 filing is used as a business strategy now, it's fair to say that most in the business world still view it as a failure to succeed. That's why I find today's news of Sbarro's bankruptcy filing to be so comical. More to the point, specific comments made by its CEO about this news are just plain odd.
Let's state the facts first. The company is suffering from a serious liquidity crisis. In its current state, it couldn't afford to keep paying off loads of debt, while operating its 1000+ restaurants. What pushed it into Chapter 11 is when Sbarro's financing options died. All of this happened because of recessionary matters which also forced the company to shutter 150 stores.
The bankruptcy will allow Sbarro to shed 195 million in bad debt, coming out of bankruptcy relatively quickly, but not unscathed and certainly not completely healthy as it will owe 175 million to debtors and creditors still.
Yet, its CEO Nicholas McGrane, said in court papers earlier this week, “Sbarro is a strong company that will quickly emerge from Chapter 11 and remain very competitive."
Huh? Is that comment just a tad too optimistic considering the company's current predicament? I mean the company has run out of cash.
It also makes the company's senior management come across as pathetically too optimistic, out of touch with what readers will believe and just plain silly.
Does the company have a bright future? I'm not sure anyone knows that answer. More to the point, if this CEO wants to be taken seriously, he needs to understand an important communication strategy— choose words and tone that are both believable and fit within the current scenario he is dealing with.
We often advise clients on this very issue. I've witnessed many cases where executives just didn't understand that their overly positive statements wouldn't come across well. Often, they were edited or changed to more acceptable language. Clearly that didn't happen in the case of Sbarro's CEO. Unfortunately, it's an egregious mistake.