People tend to worry when large corporations file for bankruptcy; it can put hundreds of people out of work, it can have a domino effect on its vendors and suppliers and the amount of corporate bankruptcies can be a general indicator of the state of our economy. But just as in personal bankruptcy, corporations can also reorganize their debt instead of shut down and liquidate. This is just the case for Swedish car manufacturer Saab, who was granted a bit of breathing room last Wednesday.
Saab sought protection from the West Sweden Court of Appeals after the Vanersborg District Court had denied their request for bankruptcy protection, based on the uncertainty of funds. The car manufacturer has been struggling since 2010, when they were sold by General Motors to a Netherlands-based company called “Swedish Automobile.” So much so that production at their manufacturing plant has been suspended for most of 2011 due to lack of funds and suppliers cutting off production. Sweden’s debt collection agency had already begun seizing company assets.
Luckily for Saab, they have Chinese investors that will hopefully turn the company around. Chinese car firms Zhejiang Youngman Lotus Automobile and Pang Da Automobile Trade Co. plan on investing $336 million into the company and are waiting on approval from Chinese authorities. The Court of Appeals feels there is enough certainty with investors that “the prerequisites for a successful reconstruction exist.”
The bankruptcy protection will only last for three months, but there has been an agreement for roughly $94 million in bridge financing to help the company until the Chinese money comes through. The bridge financing was granted with the help of a guarantee from Youngman. The protection will be a sigh of relief for employees, as Saab owes nearly $200 million in wages to employees and debts to suppliers. During the three month restructuring period, Sweden’s government will be paying Saab’s employees’ salaries.
Swedish Automobile will be using the protection and bridge financing to restructure Saab’s business plan for 2012, which will be aimed at reducing costs. Changes will begin before the end of the year, which may include staff layoffs. The protection is considered good news all around for the company, and others agree. “Now the company and its employees will get a much needed breathing space systematically to develop a long-term business plan,” according to a statement by IF Metall.
The court’s announcement had a significant effect on the Amsterdam stock exchange, as Swedish Automobile’s shares shot up almost 29% to $1.57. To find out more information about a Waco or Killeen bankruptcy lawyer, click here.