A strategic bankruptcy may occur when an otherwise solvent company makes use of the bankruptcy laws for some specific business purpose. For example, in 2002 K-Mart filed chapter 11 for protection from creditors; however one of the main problems affecting K-Marts cash flow and therefore liquidity was that they were locked into long term leases at premium rates with respect to various unprofitable stores. While in chapter 11 reorganization, K-Mart was able to renegotiate or rescind those particular leases.
Category:Bankruptcy