Enron, a Lesson to Learn About Bankruptcy

Sep 18

Enron, a Lesson to Learn About Bankruptcy

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Many of you remember the story of Enron. In the late 1990s, Enron was riding high accepting praise from entities like Fortune magazine which named Enron as America’s Most Innovative Company for every year between 1996 through 2001. They said it was one of the 100 Best Companies to Work for in America in 2000. All true, Enron had long been receiving accolades for its work ethics, management, and all-encompassing pension plans. With the perceived large earnings, it looked to be one of America’s top companies, but along came the scandals that shook our nation.

In August of 2000, Enron’s stock had skyrocketed to $90 per share. Little did the nation know that in reality, the company was experiencing huge losses. Enron’s executives, led by their public megaphone Ken Lay, hid the real value of the stock, and while encouraging the public to buy the stock promising exorbitant profits, the executives sold their own stock knowing the real condition of the company. By October of 2001, Enron’s stock had begun consistently falling in value. On November 28, 2001, two things happened the seal Enron’s ultimate collapse. Dynergy Inc. removed itself from possible acquisition of Enron, and the company’s credit rating dropped to junk status. Having very little cash with which to run its business or satisfy its debts, Enron imploded, and their stock price fell to $0.61 at the end of the day’s trading..

The company was forced to file for bankruptcy protection on December 2, 2001, and was liquidated rather than restructured. There are two forms of bankruptcies- voluntary and involuntary. Although rare, an involuntary bankruptcy occurs when a creditor legally forces bankruptcy proceedings onto a debtor. The greatest majority of bankruptcy legal proceedings are of the voluntary variety, but in the strange case of Enron, the Board of Directors on behalf shareholders, which are creditors, forced the CEOs into filing for bankruptcy.

As a result of Enron’s bankruptcy, thousands of employees, investors and shareholders received only a portion of what they were owed, and many other creditors received the same or none. Eventually, several of the CEOs of Enron were indicted on fraud, but two stood trial. Ken Lay and Jeff Skilling were both found guilty of fraud. Ken Lay died of heart failure before sentencing and Skilling got 25 years jail time for his part. Three other CEOs, including one who had been indicted but changed his plea, plead guilty and received jail terms. .

The strange story of Enron illustrates from a different angle that our bankruptcy laws work as they were intended. As a society, we have come a long way since the days of debtor prisons and states. The Constitution provided for our protection against those antiquated ways when it gave Congress the power to legislate bankruptcy law making the primary laws governing bankruptcy federal. The laws have been designed to protect both creditor and debtor making bankruptcy a legal proceeding designed to allow the honest person or business to work their way out of a bad financial situation.

The key word here is “honest.” Obviously, the executives entrusted with the business of Enron were anything but honest. They were punished for their crimes. What did work here is that the creditors forced Enron into bankruptcy to recover a portion of what they thought they had. Without the bankruptcy laws, the creditors would have received nothing. The temptation in this story is to blame the company’s filing for bankruptcy proceeding as the reason for the employees, investors, and shareholders’ losses. The bankruptcy proceeding was the only real fair way for the company to eventually go. In this case, the bankruptcy laws worked as designed.

There is no easy way out of a bad financial situation. They can happen to anyone, and the way out of them amounts to a lot of hard work and determination to overcome. Maybe you have found yourself in a difficult financial situation, and you are considering bankruptcy as an option. If this is the case, you are going to need a bankruptcy lawyer to properly help you understand how the complex bankruptcy laws may apply in your situation. So, if you determine you are in need of relief from the stress associated with debt and you live in or around the metropolitan area of Houston, Texas, contact us today and we will help you find a bankruptcy attorney in your area that will help you with any questions you may have on bankruptcy law.

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