The Examiners: Good Business Sense Should Protect Shoppers

Do shoppers suffer too much in bankruptcy, or should they be expected to share the pain?

All bankruptcy filings follow an orderly, court-driven process designed to fairly address the claims of all stakeholders. Unfortunately, companies don’t have the power to favor consumers over other creditors. However, consumers are better served by measures that smart business owners will take to keep customers happy.

Ultimately, the future viability of a business emerging from bankruptcy will rest in the hands of its customers. While the law itself is generally focused on the settlement of creditor claims, maintaining customer goodwill should be of paramount concern to any potential successor owner. Thus, most of the protections afforded to customers during the bankruptcy process don’t stem from a legal obligation, but rather from practical considerations.

Throughout more than two decades of turnaround investing, I’ve worked with many businesses emerging from the bankruptcy process to chart a successful course forward. In each of these situations, customer relationships have been critical to success. This has meant extending courtesies to customers such as preserving gift card balances, ensuring on-time delivery of pending orders, honoring existing service contracts, fulfilling existing loyalty programs and similar customer issues.

It’s simply not good business ever intentionally to inflict pain or suffering on a customer—even if the bankruptcy code may make it legally permissible. As investors who frequently work with businesses going through the bankruptcy process will attest, the customers’ engagement following the reorganization is critical for future success. Customers’ pain today—even if legally permissible—will be the company’s pain tomorrow. As some have learned the hard way, the bankruptcy process can provide many protections, but it won’t provide protection from an alienated customer base.

Marc Leder, co-chief executive of Sun Capital Partners Inc. of Boca Raton, Fla., has been engaged in leveraged buyouts, investment banking and business operations for more than 25 years.