Telecommunications Company Avaya filed for Chapter 11 bankruptcy on January 19, 2017 and said the objective is to restructure its balance sheet to better position itself for the future. The Company’s foreign affiliates are not included in the filing and will continue normal operations.
Avaya is a global provider, offering contact centers, unified communications, and networking products and services. The company supports more than 200,000 direct and indirect customers. According to Avaya, these customers consist of multinational enterprises, small and medium-sized businesses and 9-1-1 services. The company today comprises 176 different entities and only 18 of these fall under the Chapter 11 filing, as disclosed in the filed paperwork.
The filing is intended to cut Avaya’s debt and interest expenses from a capital structure that dates back more than 10 years, to when the company was primarily a hardware vendor.
“We have conducted an extensive review of alternatives to address Avaya’s capital structure, and we believe pursuing a restructuring through chapter 11 is the best path forward at this time. Reducing the company’s current debt through the chapter 11 process will best position all of Avaya’s businesses for future success.”
Kevin Kennedy, CEO, Avaya
What is Chapter 11?
Chapter 11 is softer in America than it is in Canada. In the U.S., filing for Chapter 11 isn’t a ‘pack up your kit and go home’ affair, where all the investors end up fighting over the bones of a dead company. Rather, Chapter 11 is a form of structural improvement allowing a company to re-organise itself in order to extract itself from a setback.
According to the US Courts, Chapter 11:
“…provides for reorganisation, usually involving a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganisation to keep its business alive and pay creditors over time.”
So, this will likely mean Avaya management stays in place (with big decisions being approved by the bankruptcy court), and a new business plan is put in place to help revive the faltering organisation back to days of former glory – or at the very least to a position where they can continue to repay the creditors.
The new business plan needs the acceptance of creditors, shareholders, bankruptcy courts and other interested parties in order to move forward. It’s possible for the court to approve the plan even if creditors et al reject it – though this would need to satisfy the court that the plan is fair in its treatment of all interested parties.
All is Well for Avaya customers
If your enterprise relies on Avaya equipment and/or services, the best advice at this point is to stay the course. Despite claims you may hear from competitors, Avaya products and services are sustainable for now as well as the foreseeable future – particularly in the U.S.
Key indicators, particularly related to maintenance, repair, and overall service, will be critical in the next few months as the company attempts to right its own ship.
It’s important to remember that while the debt is significant, it’s manageable and Avaya will continue to create valuable products and services in the marketplace and remain an important player.
The reasons Avaya will emerge stronger from this setback include:
- Avaya’s business is healthy and performing well, as noted in its fourth quarter and fiscal year 2016 results.
- The company has over 5,500 patents and was named in 2012 as one of the most innovative companies in Silicon Valley.
- Avaya’s primary issue is long-term debt and interest expense.
- The company has called the move part of its transition from a hardware to a software-and-services company.
- Chapter 11 provides companies with the legal protections and breathing space to achieve a financial and, if necessary, operational restructuring.
- Avaya is working closely with key stakeholders and the Court to move through this process as quickly as possible.