Babcock & Wilcox and Chapter 11: What does it really mean?

What is Chapter 11?

Many people have heard the term Chapter 11 before. However, not everyone knows exactly what it means.

When a company files for Chapter 11, it is permitted to continue operating while developing a plan to emerge as a stronger, healthier company. Most people, when they hear “bankruptcy,” think “liquidation” (that is, when a company sells off all its assets and inventory and goes out of business). That is a different kind of bankruptcy, called a Chapter 7. Chapter 11 does not mean liquidation.

B&W’s core business continues to be strong. B&W filed for protection under Chapter 11 because it offers the only viable legal process for determining and comprehensively resolving its asbestos claims.

During Chapter 11, B&W will remain in possession of its business, and its board of directors and officers continue to have control of its operations, subject to Court approval of certain actions.

Daily Operations

While in Chapter 11, the company has to get approval from the Court before it can take certain actions. Examples of actions that require the Court’s approval include: a sale of assets; the procurement of new loans; and the hiring of outside professional advisors.

However, the Court does not interfere in the normal business operations of the company and the company does not have to get Court approval for things done “in the ordinary course” of business, such as providing service to customers or continued sales and marketing efforts.

Reorganization - Coming Up With A Plan

One of the main objectives of a company that is in Chapter 11 is to deal with the cause of its financial problems and develop a plan to fix them. This plan then provides the basis for the final element of the Chapter 11 reorganization. For Babcock & Wilcox, the main point of entering Chapter 11 is to give the company enough protection to continue normal business operations while it develops a plan of reorganization to determine and resolve its asbestos-related liability. As part of a plan of reorganization to be filed at a later date, B&W intends to, pending Court [and other approvals], establish a trust that will provide a process through which current and future claims will be evaluated and resolved. The trust would be the sole source of payments for asbestos claims. Claims against B&W, B&W’s affiliates and others (such as directors and officers and insurers) would be enjoined.

Commonly Asked Questions

Q. Why did Babcock & Wilcox file for Chapter 11 protection?

B&W filed for Chapter 11 protection because it had no other viable way to deal with, and to seek a comprehensive resolution of, its asbestos related exposure. Chapter 11 provides a company with protection from creditors and gives the company breathing room to develop a plan that pays [any] legitimate asbestos claims and, at the end of the process, allows the company to emerge from Chapter 11 with both its present and future asbestos exposure resolved and the company’s financial standing sound.

Q. Why have asbestos claims suddenly become an undue burden?

In recent months, B&W has seen a sharp increase in the price demanded by some claimants’ lawyers to settle asbestos claims against B&W. Those increases were not justified by any change in the facts, the law, or in B&W’s liability posture.

Q. Is B&W going out of business?

No. B&W’s core operating business continues to be a solvent and strong business with a backlog totaling over $1 billion. B&W has filed for reorganization under Chapter 11 so that it can deal with the asbestos claims, which have recently become intolerable as B&W attempted to handle them through traditional litigation/settlement processes. Separate from these asbestos issues and the financial and management problems they have created, we have a very valuable and viable business that we expect to continue operating long after these issues have passed. In the interim, the Court’s protection gives us the only viable legal process to develop the procedures necessary to resolve the asbestos issue.

Q. What is expected to be the impact of a Chapter 11 on day-to-day operations?

There should be little impact on day-to-day operations. It’s business as usual. Project work will continue.

Q. Will I continue to be paid my salary and benefits during the Chapter 11 proceeding?

We expect there will be no effect on salaries, benefits or promotion opportunities.

Q. Will corporate expense accounts and corporate credit cards be affected by this filing?

A [ The company has requested court approval to continue its current programs with respect to corporate expense accounts and credit cards.]

Q. Have other companies successfully completed Chapter 11 proceedings?

Yes. The purpose of a Chapter 11 is to allow the company to continue normal business operations while a plan is being developed to restructure its finances. Even though their situations were somewhat different, many large, well-known companies, such as Dow Corning, Macy’s, Zenith, Continental Airlines, Texaco and Bloomingdale’s have been in Chapter 11 proceedings and emerged stronger and more competitive.