Posted on 02/12/2016 9:07:05 AM PST by AndyJackson
In an effort to take out frontrunner Donald Trump, Republican presidential candidates have pelted Trump with criticism over his multiple trips to federal bankruptcy court. That criticism was on full display in CNN's Republican debate Sept. 16. Most notably, former Hewlett-Packard CEO Carly Fiorina criticized Trump's history of bankruptcies in his businesses.
"You know, there are a lot of us Americans who believe that we are going to have trouble someday paying back the interest on our debt because politicians have run up mountains of debt using other people's money," Fiorina said. "That is in fact precisely the way you ran your casinos. You ran up mountains of debt, as well as losses, using other people's money, and you were forced to file for bankruptcy not once, not twice, four times."
Trump doesn't deny that four of his businesses have filed for bankruptcy. He argues, however, that filing for bankruptcy is a common business decision, and he was smart to make the moves when he did.
"Hundreds of companies" have filed for bankruptcy, Trump said earlier in the debate. "I used the law four times and made a tremendous thing. I'm in business. I did a very good job."
Trump's four bankruptcies were Chapter 11 reorganizations (named for its location in federal bankruptcy code), which are designed to restructure businesses without shutting them down completely. The purpose is to "save" the business, as opposed to other forms of bankruptcy which would liquidate the company, said Michael Venditto, a partner at the ReedSmith law firm who has extensive experience with Chapter 11.
Because they keep coming up, we decided to outline Trump's four bankruptcies. We also talked to some finance experts, who told us Trump is correct that Chapter 11 reorganization is not always the result of bad business decisions.
Bankruptcy 1: The Trump Taj Mahal, 1991
The first bankruptcy associated with Trump was perhaps the most significant in terms of his personal finances, according to news reports at the time. He funded the construction of the $1 billion Trump Taj Mahal casino in Atlantic City, which opened in 1990. By 1991, the casino was nearly $3 billion in debt, while Trump had racked up nearly $900 million in personal liabilities, so the business decided to file for Chapter 11 reorganization, according to the New York Times. As a result, Trump gave up half his personal stake in the casino and sold his yacht and airline, according to the Washington Post.
Bankruptcy 2: Trump Plaza Hotel, 1992
Trump acquired the Plaza Hotel in New York for $390 million in 1988. By 1992, the hotel had accumulated $550 million in debt. As a result of the bankruptcy, in exchange for easier terms on which to pay off the debts, Trump relinquished a 49 percent stake in the Plaza to a total of six lenders, according to ABC News. Trump remained the hotel's CEO, but it was merely a gesture -- he didn't earn a salary and had no say in the hotel's day-to-day operations, according to the New York Times.
Bankruptcy 3: Trump Hotels and Casinos Resorts, 2004
Trump Hotels and Casinos Resorts filed for bankruptcy again in 2004 when his casinos -- including the Trump Taj Mahal, Trump Marina and Trump Plaza casinos in Atlantic City and a riverboat casino in Indiana -- had accrued an estimated $1.8 billion in debt, according to the Associated Press. Trump agreed to reduce his share in the company from 47 to 27 percent in a restructuring plan, but he was still the company's largest single shareholder and remained in charge of its operations. Trump told the Associated Press at the time that the company represented less than 1 percent of his net worth.
Bankruptcy 4: Trump Entertainment Resorts, 2009
Trump Entertainment Resorts -- formerly Trump Hotels and Casinos Resorts -- was hit hard by the 2008 economic recession and missed a $53.1 million bond interest payment in December 2008, according to ABC News. After debating with the company's board of directors, Trump resigned as the company's chairman and had his corporate stake in the company reduced to 10 percent. The company continued to use Trump's name in licensing.
So four Trump companies filed for Chapter 11 reorganization. Is that as big a deal as Fiorina says?
Risky business
While it would be better to avoid a situation where Chapter 11 reorganization is necessary, filing for bankruptcy can be a "sound business decision" when the company is facing serious financial problems, Venditto said. It's better than the business shutting down completely.
"However, the source of the financial problems varies from case to case," he said. "Sometimes it is the result of circumstances beyond the control of the business. Sometime it caused by poor judgment. More frequently, it is a combination."
Trump's four bankruptcies all happened within the past 25 years. That's a lot, said Stephen Lubben, a leading expert in corporate finance and professor at Seton Hall School of Law. But to be fair, the gaming industry has been struggling the past few years, he added, and three out of four of Trump's bankruptcies were tied to casinos.
It's not fair to put all the blame on Trump for the four bankruptcies because he's acting as any investor would. Investors often own many non-integrated companies, which they fund by taking on debt, and some of them inevitably file for bankruptcy, said Adam Levitin, a law professor at Georgetown University.
He added that people typically wouldn't personally blame former Republican presidential candidate Mitt Romney or investor Warren Buffett for individual failures within their investment companies, Bain Capital and Berkshire Hathaway, respectively.
"The only difference is that Trump puts his name on his companies, which means people associate them with him, but he's not at all the leader in the bankruptcy space," Levitan said. "These bankruptcies were not defining moments for Trump and shouldn't color our view of him."
Our ruling
Fiorina said Trump was "forced to file for bankruptcy not once, not twice, four times."
While it is accurate that Trump filed Chapter 11 bankruptcy four times, Fiorina's statement doesn't tell the whole story. In context, Fiorina's phrasing suggests Trump was personally responsible for the failures of these businesses, but in reality, much was out of Trump's control -- such as a struggling casino industry. But Trump is certainly not blameless.
The creditors get paid.
Now, as to restructuring the company, sometimes it must lay off employees, restructure contracts with suppliers, etc.
Pursuing the same business plan would almost always be rejected by the courts, and certainly by the creditors.
Kinda like Cruz crawling in bed with Beck?
Nah, couldn’t be.
Based upon that logic..he is really not responsible for the bankruptcies either.
Think about it.
You can’t have it both ways.
The Chapter 11 form of bankruptcy allows the company to keep operating, protecting the jobs of the little people -- the waiters, cleaners, dealers, chefs, cooks, valets, managers, etc. The loss is in projected revenues, and is shared by all the investors.
Trump hires managers to run his companies, but I think he is a bit more than a figurehead. Hey Donald, you can't fire me. Your just a figurehead.
Right, he hires the managers who run each of those companies.
Sure he does. He sits through interviews for 500 positions. yep, indeed
Re: “Making statements like that show your ignorance of business and how EVERYONE in business plays the game when push comes to shove.”
My statement was made in the context of the utterly false claim that no Trump creditor has lost money in Trump’s four bankruptcies.
The only reason a creditor goes into litigation is because the creditor is certain he is going to lose money, but the creditor is hoping he will be able to limit that loss in a courtroom.
If no Trump creditor ever lost money in a Trump Chapter 11 company, why doesn’t Trump state that publicly?
I know how the Chapter 11 case was resolved.
I have no idea what happened to the hotel and Trump's remaining equity after that.
And, as far as I know, the hotel's financial accounts have never been made public.
Re: “Did you vote for Romney?”
Yes, I did.
And, yes, I know Romney negotiated a $10 million debt reduction for Bain and Company with the FDIC.
But, Romney was hired by Bain and Company after that debt crisis began.
Before that, Romney was a partner at Bain Capital, a completely separate company, and he had no involvement at all in the decisions that nearly bankrupted Bain and Company.
Re: “Example, my business has $1M note due in 6 months but does not have $1M, but I do have $250K in excess income. So, I file for Chapter 11...”
No, you would not file for Chapter 11.
Chapter 11 is major surgery on a critically ill business.
If this was the first time you had ever struggled to make a payment, you would immediately look for other sources of financing, or attempt to sell some part of your equity.
Or, you would sit down with your current banker and do your best to change your payment schedule.
You do not pay lawyers to negotiate a settlement you could negotiate yourself.
If you filed a Chapter 11 case on your two examples, the judge would say exactly the same thing I said: “Why are you wasting the Court’s time if you have a realistic plan to make everyone whole?”
It only goes to Chapter 11 when there is no realistic plan - and everybody takes a financial haircut.
Total BS. It goes to Chapter 7 when there is no realistic plan.
OK - it’s total BS.
So, tell me the names of some successful corporations that have emerged from Chapter 11 and have made all their creditors whole.
Good Luck - since only about 1% of Chapter 11 plans call for full payment to all creditors.
In fact, less than 15% of companies actually emerge from Chapter 11.
The other 85% either go to Chapter 7, or the debtors and creditors reach an out of court settlement.
In other words, in 99% of Chapter 11 cases, the creditors take some kind of haircut, which was my main point from my very first post.
My purpose in these Comments is not to slap you around, Andy.
Hopefully, this slightly unpleasant experience with a fellow Conservative will give you and other Trump supporters some idea what the MSM and the Democratic election professionals are going to do to Trump if he gets nominated.
Hopefully, you will have a better argument with them than you did with me.
A search around the internet demonstrates that commonly held shiboleth to be combination of a lie, a damn lie and the misuse of statistics. There are numerous law review articles on this, such as THE SUCCESS OF CHAPTER 11: A CHALLENGE TO THE CRITICS" or this paper by the office of the US Trustees OUTCOMES OF CHAPTER 11 CASES: U.S. TRUSTEE DATABASE SHEDS NEW LIGHT ON OLD QUESTIONS
Here is the problem with your damn lies. According to the U.S. Trustees, about 30% of reorganizations are affirmed (a successful plan filed and accepted); some 20% or so are converted to chapter 7; and 41% are dismissed after an out of court settlement is reached AFTER FILING.
Dimsissal after an out of court settlement would be a success. In fact a few of Trump's bankruptcies were resolved in exactly this manner.
You haven't slapped me around, and not it isn't "unpleasant." I just would hope that you would have learned your lesson to go do your own goddamned research.
Think about the question you just stated and asked.
It answers itself, because the rules of the game, prior to playing, dictate there WILL BE gains and loses. It is the nature of business.
The goal, naturally, is to try to WIN all the time. That is VERY difficult to do. Ask the Carolina Panthers about that.
On the other hand, you have the Tennessee Titans who won only 3 of 13 games are still in the league and have renewed hopes for 2016.
Trump's business record is "ALL in the GAME." Accept it!.. it's water under the bridge.
Only for someone who believes - like you - that a “dismissal” means that all creditors have been, or will be, made whole.
Once again, in my initial post, I stated this:
(1) Trump needs to release all documents related to his four Chapter 11 companies.
(2) And Trump needs to use his $4 billion net worth to make all his former creditors whole.
If he does not make all his creditors whole, I stated he is morally unfit to be president.
Andy, Trump has written books and bragged about ripping off the banks!
What do you think the MSM and the Democrats, and quite possibly Cruz and the Republicans, are going to do with those quotes in the coming elections?
Re: “Here is the problem with your damn lies. According to the U.S. Trustees, about 30% of reorganizations are affirmed (a successful plan filed and accepted)...”
How does that contradict what I said?
I said less than 15% of Chapter 11 companies “emerge” from Chapter 11.
From memory...
About 15,000 new Chapter 11 cases are filed each year.
About 100 to 200 Chapter 11 companies complete the entire Chapter 11 process each year.
All the other companies either move into Chapter 7, or the creditors accept an out-of-court haircut.
Let's give Donald Trump the last word in this discussion.
From Trump's book Think BIG and Kick Ass in Business and Life:
“I figured it was the bank's problem, not mine. What the hell did I care? I actually told one bank, “I told you you shouldn't have loaned me that money. I told you the goddamn deal was no good.”
Bye, Andy.
Nice chatting with you.
Best short summary by lawyers on this.
DONALD TRUMP HAS NEVER FILED PERSONAL BANKRUPTCY. NONE of the hundreds of companies he acquired ever filed liquidation bankruptcy. FOUR of them filed for REORGANIZATION where the creditors AGREE to a repayment plan.
Let an expert explain it to you.
Law Dictionary: How is Donald Trump Able to File for Bankruptcy So Many Times?
http://thelawdictionary.org/article/how-is-donald-trump-able-to-file-for-bankruptcy-so-many-times/
Written by James Hirby Fact checked by The Law Dictionary staff
People might ask “How is Donald Trump able to file for bankruptcy so many times?” The answer is “He didn’t.” Trump himself has never filed for bankruptcy. His corporations have filed for Chapter 11 bankruptcy four times. By filing for Chapter 11 bankruptcy, the corporation is allowed to continue running while restructuring and reducing its debt. By allowing the business to continue, employees still have their jobs and the business is still making money. Corporate debts still need to be repaid but they may be reduced. The corporation must develop a repayment plan and corporate budget. Both must be approved by the creditors and by the bankruptcy court.
Exactly. Contrary to Rubio’s lies and Cruz’s lies about Trump and Bko’s, MOST people only know about the kind of BKO they file to escape all debt (like most here on FR.... how many of them have filed??!)
Cruz is a LAWYER...he KNOWS he lied about this.
“https://en.wikipedia.org/wiki/Category:Companies_that_have_filed_for_Chapter_11_bankruptcy";
Thanks, that is very interesting.
” Owning casinos actually says something about a person’s character imo.”
Yeah? Does it show anything about character to take their $$$? Cruz certainly wooed casino owner Sheldon Adelson and others long enough.
“Las Vegas casino titans Sheldon Adelson and Steve Wynn both gave the maximum they could to the campaign during the last campaign fundraising quarter,”
http://www.cnn.com/2016/02/11/politics/ted-cruz-marco-rubio-2016/index.html
Keep repeating the lie....Saul Alinsky??
Fact-checking claims about Donald Trump’s four bankruptcies
http://freerepublic.com/focus/news/3396218/posts?page=96#96
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