Bankruptcy. For many, the word conjures up images of shuttered businesses, empty storefronts, and financial ruin. But the reality is more nuanced. Bankruptcy is not always the end; often, it’s a strategic decision aimed at survival and long-term viability. Companies facing financial distress may file for bankruptcy as a way to restructure debt, reorganize operations, and ultimately emerge stronger. While the process is complex, one thing is clear: maintaining a company’s reputation during bankruptcy is crucial. This is where public relations agencies step in, playing a pivotal role in managing the narrative and guiding companies through turbulent times.

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Bankruptcy as a Strategic Business Decision

How Public Relations Firms Help Companies during the Bankruptcy Process

Corporate Communications During Bankruptcy: What to Say, When, and How

Case Study: Mattress Firm’s Bankruptcy Communication Strategy

Best Communication Practices During Bankruptcy

Frequently Asked Questions: Bankruptcy Public Relations

Bankruptcy as a Strategic Business Decision

Bankruptcy isn’t synonymous with failure. In fact, companies file for bankruptcy for a variety of reasons—ranging from overwhelming debt and declining sales to unforeseen events like economic downturns or global pandemics. It’s a legal mechanism that allows businesses to reorganize, shed liabilities, and emerge with a cleaner slate. Some companies might shut down, but many use bankruptcy as a stepping stone to regain stability. For instance, Mattress Firm, Diesel USA, and Nine West are notable examples of companies that have successfully navigated bankruptcy and continued operations. When companies follow a well-managed bankruptcy process, with strategic communication as a key component, not only can they preserve their brand, but they often emerge stronger and better positioned for growth in the years ahead.

How Public Relations Firms Help Companies during the Bankruptcy Process

When a company files for bankruptcy, the stakes are incredibly high. Employees worry about job security, vendors are concerned about payments, and customers wonder if the business they trust will disappear. This uncertainty can lead to a crisis of confidence, which, if left unchecked, can be more damaging than the financial woes themselves. That’s why companies often retain public relations firms, like Red Banyan, to help them navigate the communication challenges that come with bankruptcy.

PR agencies help companies craft clear, consistent messages that resonate with all stakeholders. They guide the timing, tone, and channels of communication, ensuring that the right information reaches the right audience at the right time. Effective communication during bankruptcy not only helps to preserve the company’s brand but also mitigates the risk of misinformation and speculation that can exacerbate an already delicate situation.

Corporate Communications During Bankruptcy: What to Say, When, and How

Navigating the communications landscape during bankruptcy requires a careful, strategic approach. Companies must address a wide range of stakeholders—employees, customers, investors, vendors, and the media—all of whom have different concerns and levels of involvement.

• Employees: They are often the most directly affected by bankruptcy. Companies need to be transparent about the reasons for the filing and what it means for the future. For example, during its Chapter 11 process in 2018, Mattress Firm communicated openly about the need to close underperforming stores, emphasizing that this was part of a broader strategy to stabilize the business and protect jobs in the long term.
• Customers: They need reassurance that the business will continue to operate and that their trust is not misplaced. Clear, positive messaging about the company’s plans for restructuring and growth can help maintain customer loyalty.
• Investors and Vendors: These groups are concerned about financial stability and the likelihood of being paid. Consistent updates on the progress of the restructuring and clear communication about the company’s commitment to honoring obligations where possible are critical.
• Media: The media will likely cover the bankruptcy, and it’s important to control the narrative. A designated spokesperson, typically advised by the PR team, should handle all inquiries to ensure consistency and prevent the spread of misinformation.

Case Study: Mattress Firm’s Bankruptcy Communication Strategy

In 2018, Mattress Firm filed for Chapter 11 bankruptcy, a process that involved significant restructuring, including the closure of many stores. Recognizing the potential impact on employees, the company took several steps to manage the situation effectively:

• Transparency: Mattress Firm was open about the reasons for the bankruptcy and the steps it was taking to emerge stronger. This transparency helped to manage employee expectations and reduce uncertainty during a difficult period.
• Strategic Messaging: The company emphasized that the store closures were necessary to optimize operations and secure long-term stability. By framing the closures as a strategic decision rather than a sign of failure, Mattress Firm was able to maintain a more positive outlook.
• Leadership Engagement: CEO John Eck played a key role in stabilizing the company post-bankruptcy. By engaging directly with employees and sharing a clear vision for the future, Eck helped to rebuild trust and morale within the organization.

Best Communication Practices During Bankruptcy

1. Communicate Transparently: Honesty is crucial. Stakeholders need to understand the reasons behind the bankruptcy and what it means for them. Transparency builds trust and can prevent the spread of rumors and misinformation.
2. Use Positive Messaging: Reframe the narrative from one of failure to one of proactive management. Terms like “reorganization” and “restructuring” convey a forward-looking approach that emphasizes recovery and growth.
3. Engage Stakeholders Early: Don’t wait for the rumor mill to start turning. Engage with stakeholders from the beginning, providing clear and consistent updates. This helps to manage expectations and build a sense of involvement and trust.
4. Highlight a Vision for the Future: Communicating a clear, optimistic vision can inspire confidence. Stakeholders are more likely to remain supportive if they believe the company has a solid plan for overcoming challenges and leveraging new opportunities.

Bankruptcies are undoubtedly challenging. They can create uncertainty, anxiety, and doubt among employees, vendors, and the public. However, with the right crisis communication strategy and the support of a skilled PR team, companies can navigate these rough waters and preserve their brand. Red Banyan has extensive experience helping clients through the Chapter 11 process, ensuring that their true story is told and their reputation remains intact. If your company is facing bankruptcy, let Red Banyan help you manage your communication strategy and protect your brand during this critical time.

Frequently Asked Questions: Bankruptcy Public Relations

1. What are some common communication mistakes companies make during bankruptcy?

• Lack of Transparency: Companies may withhold information or be vague about their situation, leading to speculation and mistrust among stakeholders.
• Delayed Communication: Failing to communicate promptly can create confusion and allow rumors to spread, damaging the company’s reputation further.
• Ignoring Key Stakeholders: Not keeping employees, creditors, customers, and investors informed can lead to dissatisfaction, loss of trust, and potential legal issues.
• Overly Optimistic Messaging: Downplaying the severity of the situation or promising unrealistic outcomes can backfire when the reality becomes apparent.
• Inconsistent Messaging: Providing different information to different audiences can create confusion and reduce credibility.
• Failing to Prepare for Media Scrutiny: Not anticipating media interest or responding inadequately to press inquiries can result in negative coverage and a loss of control over the narrative.
• Neglecting Employee Communication: Not addressing employees’ concerns and questions can lead to low morale, reduced productivity, and high turnover.
• Legalese in Public Statements: Overloading communications with legal jargon can make it difficult for the general public and stakeholders to understand the company’s messages.
• Ignoring Social Media: Not monitoring or responding to social media discussions can allow misinformation to spread unchecked.
• Not Planning for Recovery: Failing to communicate a clear plan for post-bankruptcy recovery can erode stakeholder confidence in the company’s future.

2. How do PR agencies tailor communication strategies for different types of bankruptcies?

PR agencies customize communication strategies based on the type of bankruptcy (e.g., Chapter 11, Chapter 7) and the specific circumstances of the company. For Chapter 11, which involves restructuring and continuing operations, the focus is often on conveying a message of recovery and future growth. In contrast, for Chapter 7, where liquidation is involved, the communication may focus on minimizing the impact on stakeholders and managing the orderly wind-down of operations.

3. What are some common misconceptions about companies that file for bankruptcy?

One common misconception is that bankruptcy always means a company is going out of business. In reality, many companies use bankruptcy as a strategic tool to restructure and eliminate debt, allowing them to emerge stronger. Another misconception is that bankruptcy is solely a financial issue, when in fact, it often involves complex operational and strategic considerations that require careful communication management.

4. Can PR help in rebuilding a company’s reputation post-bankruptcy?

Yes, PR plays a vital role in rebuilding a company’s reputation after bankruptcy. Once the legal and financial restructuring is underway, PR efforts can focus on highlighting the company’s new strategies, successes, and commitment to stakeholders. By engaging with the media, customers, and the broader community, PR can help reshape public perception and restore confidence in the company.

5. How do PR agencies handle media inquiries during bankruptcy?

During a bankruptcy, media interest can be intense. PR agencies manage media inquiries by designating a spokesperson, preparing key messages in advance, and controlling the narrative. They ensure that all communications are consistent, factual, and aligned with the company’s overall strategy. Additionally, they monitor media coverage closely to address any inaccuracies or negative portrayals quickly.

6. What role does internal communication play during a bankruptcy?

Internal communication is critical during bankruptcy to maintain employee morale, reduce uncertainty, and ensure that staff are informed about the process. PR agencies help craft internal messages that explain the situation clearly, outline what employees can expect, and provide reassurance about the company’s future. Effective internal communication can help prevent rumors and keep the workforce focused during challenging times.

7. When should a company start involving a PR agency in the bankruptcy process?

A company should involve a PR agency as early as possible in the bankruptcy process—ideally, as soon as the decision to file for bankruptcy is made. Early involvement allows the PR team to develop a comprehensive communication plan, prepare messaging, and begin stakeholder engagement before the bankruptcy becomes public knowledge. This proactive approach helps to manage the initial reaction and set the tone for the company’s communications throughout the process.