Colt Defense, a gun manufacturer that has been in business since the 1800s, has announced that it is filing for Chapter 11 bankruptcy; the company will try to restructure its balance sheet, subject to court approval, while remaining in operation.
The current management team will remain in place.
The West Hartford, Conn., company, with a legacy dating to 17th century New England, developed a pistol it calls “the gun that won the West” and enjoyed a lucrative stretch in the late 1990s and early 2000s as a supplier to the US military of the M4 line of firearms, which are widely used by front-line troops.
The company, however, has struggled in recent years due to supply-chain and working capital issues, a slowdown in rifle sales and its 2013 loss of a key contract to supply the M4 to the US Army.
As a result of some of its operational issues, the company has had accounting problems that have caused it to revise prior years’ reported financial results and miss a creditor’s initial filing deadline for an annual report, according to regulatory filings.
Colt tried to restructure out of court, announcing in April an exchange offer for its senior notes. That expired on June 12 without its conditions being satisfied.
Chapter 11 of the United States Bankruptcy Code generally gets underway when major corporations have financial problems and turn to the bankruptcy courts for help.
Under Chapter 11, a debtor can restructure its finances through a plan of reorganization approved by the bankruptcy court. By reducing obligations and modifying payment terms, a Chapter 11 plan can help a debtor balance its income and expenses, regain profitability, and continue in operation. Under Chapter 11, a debtor can also sell some or all of its assets so it can downsize its business if necessary or pay down claims that it owes.
Chapter 11 is the only bankruptcy option for a business seeking to restructure and continue in operation.