25 June 2010

Will BP file for bankruptcy?

There is a reasonably high chance that BP could file for Chapter 11 bankruptcy in the next few years, or even months, and the result would be an "absolute horror" for the government, according to a bankruptcy expert...

The specter of Chapter 11 bankruptcy terrifies Gulf residents because it could allow BP to delay, or even avoid, paying billions of dollars to businesses and individuals affected by the Gulf spill. The chapter is specifically for companies in temporary financial trouble who can reemerge as viable if they receive new funding, cancel burdensome contracts and delay, restructure, or wall off repayment obligations...

BP has a lot of cash and the ability to generate huge amounts of cash. But remember, just because BP can pay claims doesn't mean they should, or that they will, given that their primary obligation is to their shareholders...

They could cut loose BP America and it could be BP America that files for bankruptcy. My presumption is that it's BP America that's responsible for the spill. They can wall off the non-BP America assets from the Gulf -- which is about 50% of the company's net value --and try to reorganize BP America. That's likely to take a very long time, and BP would not make good on its promise for the 20 billion [in the escrow fund]...

It would be a mistake, in my judgment, to view BP as a political piñata that can be beat around the head repeatedly without consequences. It's not reasonable to expect BP to pay unlimited liabilities and face criminal charges, and the United States needs to understand the size of the gun BP can pull...
More at The Atlantic.


  1. It occurs to me that filing for bankruptcy (or even bankruptcy protection) may not go over that well.

    The courts don't automatically discharge debts just because the company says so, and the court could decide to liquidate BP's assets to satisfy the creditors instead.

    I'm also unclear why BP shouldn't be expected to pay "unlimited liabilities" to clean up the mess they created, one way or the other.

    Why shouldn't they be held liable?

  2. As I understand it, "bankruptcy" does not mean you are not liable. It just means you can't pay now. There's more at the link.

  3. Bankruptcy protection typically allows a company to attempt to restructure it's debt, although some debt may get written off in the process with the rest still needing to be repaid.

    A fully bankruptcy typically ceases operation and writes off some percentage of the debt and/or sells off whatever assets are remaining to repay debts and the creditors are left holding the bag. In some cases the company itself is sold in the process although certainly not always.

    The court isn't required to accept either though, nor are the courts required to discharge debts.

  4. My cynical side says that they will hide a huge amount of assets before declaring bankruptcy and then make a miraculous recovery after dodging all of their responsibility for this mess. I'm not sure why I don't trust these BP guys, but, I guess I am just a suspicious person.

  5. Big John, let me guess, you don't trust BP... because they're foreigners?

    I understand I might have been unfair to you personally, but the xenophobic comments from the US (from Sarah Palin saying "I don't trust foreign oil companies" to the US media dubbing BP "British Petroleum", name the company dropped in 1996) have been quite appalling.

    It'd be interesting to see the reaction of the American public and government had this mess been caused by an American company in foreign soil.

    Oh, hang on a minute, a name comes to mind: Bhopal, Union Carbide, remember?


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