Here’s a moneymaking idea. Let’s make a TV network. It’s on 24 hours a day, seven days a week.

And what will we put on this network? How do we make money from it? Lot’s of commercials, right?

Nah. Let’s skip commercials.

No commercials? What about content? What are we going to put on this “free” TV channel?

Well… usually just a couple of people… talking. And that’s it.

Really? That’s it? I’m not so sure this is going to work out for you. Maybe don’t quit your day job!

But wait. It’s two people talking – talking and selling.

Selling what?

Well.. they sell virtually anything. And there’s a clock in the corner. The deals are only available for a limited time – and there’s a limited number of whatever it is that they are selling. You just call in, or hop online and buy it. And there’s pressure. It’s a limited supply. There’s a limited time to get the deal. It’s an impulse buy. There’s nothing you really need – but there’s always something you want – even at three in the morning. Just watch, call, and it arrives in the mail. Just like that.

But wait… if I’m up at three in the morning, can’t I just go on Amazon and buy whatever I want?

Wouldn’t this conversation have been wildly different in 1995 than it is now?

True enough. And maybe that’s why QVC is contemplating bankruptcy.

Say It Ain’t So QVC

It has been widely reported that QVC might file for Chapter 11 bankruptcy, which would essentially be a restructuring of its debt. Starting back in the late 1980’s, QVC has been a well-known retail brand that has been a fixture on cable television and internet. Millions of people have bought products from QVC over the decades.

Just like we can see from the conversation above, things have changed a lot since QVC began. We didn’t have Amazon shopping, or even the internet. There’s so much competition these days for QVC thanks to internet retail, that it’s not a surprise that news reports – from Phoenix, Arizona to the rest of the USA – show a decline for QVC. They cite factors such as declining viewership on cable, increased competition (like Amazon and the like), and corporate debt that is in the billions. All of this has allegedly caused QVC to negotiate with creditors in an attempt to restructure the debt it owes.

At Meyer Law, we have been practicing bankruptcy law for over 20 years. We have clients in Gilbert, Mesa, Scottsdale, Phoenix, Chandler, and beyond. So with that much experience, we have our fingers on the pulse of current bankruptcy trends. We’ve seen the same trend that QVC is experiencing with countless other retailers. It’s an unfortunate side-effect of the changing landscape for retail business.

What QVC is experiencing is an object-lesson in how corporate restructuring takes place. Let’s take a look at how corporate restructuring works, and how this can be done through Chapter 11 bankruptcy. It’s a chance to avoid shutting down, and to instead reorganize and become a leaner but more profitable company.

Why Do Large Businesses File For Chapter 11 Bankruptcy?

When you hear about a business filing for bankruptcy, the typical assumption you make is that the business is closing for good. However, this is rarely the case. Usually, when a company files for chapter 11 bankruptcy, they do so with the intention to reorganize the business and continue operating.

Through chapter 11, a company can continue operating while restructuring its debts under the supervision of the court. This is done with the end goal of giving the company enough time and tools to legally stabilize its financial situation.

There’s a lot of reason for a company like QVC to continue operating rather than closing altogether. It has recognizable brand equity, infrastructure for distribution, a loyal customer base, and relationships with vendors.

Because of this, Chapter 11 offers a structured process that allows the business to: renegotiate debts with lenders, reduce financial obligations, restructure operations, eliminate unprofitable contracts, preserve jobs and vendor relationships, renegotiate debts with lenders, reduce financial obligations, restructure operations, and eliminate unprofitable contracts.

Financial Pressures For QVC

QVC was the king of the mountain when it came to television retail. It made billions of dollars using live demos and popular hosts who customers found entertaining enough to watch even without buying anything. But they tried their best to get them to buy products – even products they didn’t necessarily need.

Unfortunately for QVC, shoppers have gradually made a move towards online platforms such as Amazon and social media marketplaces. At the same time, cable TV has experienced rapid decline while viewers move from cable to streaming.

On top of everything else, it has been reported that the QVC Group is carrying outstanding debt that totals into the billions. This would be deemed a “highly-leveraged” business position that could make it sensitive to economic downturn. This is also the perfect opportunity for a chapter 11 to be filed and restructure this outstanding debt.

With their revenue on the decline and a huge debt load, GVC is being pushed towards filing for Chapter 11 bankruptcy. Unless one (or both) of the elements change, chapter 11 may be inevitable in the near future.

How Does Corporate Debt Affect Bankruptcy

Corporate Debt

Corporate debts are one of the major issues at play when it comes to a corporate bankruptcy. There are a few, different categories of corporate debt.

Secured debt is debt that is backed by collateral. In a business like QVC, it would include things like inventory, intellectual property, real estate, or other company assets.

Secured creditors have the strongest legal position since their loans are tied to specific assets.

Unsecured Debt

Unsecured creditors are creditors that don’t have collateral to back up their claims against QVC. Typically bondholders, vendors, and service providers fall into this category.

In bankruptcy, unsecured creditors are usually paid only after secured claims are paid.

Subordinated Debt

This category has less to do with the type of debt and more the priority of the creditor for QVC. These creditors receive payment only after higher-priority claims are paid.

Equity Holders

These are the shareholders of QVC. If the company’s debts exceed its assets (a common scenario when billions of dollars are leveraged), shareholders may receive little or no recovery.

One of the biggest tasks during a chapter 11 bankruptcy is determining how debts are prioritized and the amount of money each receives.

Pre-Bankruptcy Negotiations With QVC Creditors

Many companies that file chapter 11 will work with lenders to create a restructuring agreement that can be put into action once the bankruptcy filing takes place. These extensive negotiations take place before the case is filed.

This strategy offers several advantages: shorter bankruptcy timelines, reduced legal cost, greater operational stability, and less uncertainty for vendors and employees.

If QVC still has to file Chapter 11 after reaching agreements with some creditors, the restructuring process could move relatively quickly thanks to the pre-bankruptcy process.

Special Financing Via Chapter 11

Chapter 11 bankruptcy almost always requires access to new financing in order for a company like QVC to successfully restructure its business.

There are loans that receive special legal protections under bankruptcy law, including priority repayment status. This makes lenders more willing to provide money to companies that are restructuring.

This special financing would be used by QVC to purchase inventory, pay employees, maintain broadcasting operations, fulfill customer orders, and maintain vendor relationships.

Contract Cancellation

Chapter 11 allows a company that is in trouble to assume or reject executory contracts, which are agreements where both parties still have ongoing obligations.

Examples of executory contracts that QVC likely has are: vendor agreements, product licensing deals, broadcasting contracts, warehouse leases and technology agreements.

With the approval of the bankruptcy court, an agreement can be terminated and the creditor is treated as an unsecured creditor. This would allow QVC to eliminate contracts that no longer make financial sense.

Chapter 11 Issues With Vendors And Suppliers

Doing business with a large company like QVC can cause vendors and suppliers to become somewhat dependent on this business relationship. When QVC reorganizes via chapter 11 bankruptcy, it can put these relationships at risk because there is a potential for large, financial loss for both vendors and suppliers.

Debts that existed before the bankruptcy filing become what are called “pre-petition claims.” The restructuring plan can make it so these claims are repaid in full, partially repaid, or converted into new debt.

Vendors who continue to supply goods after the bankruptcy filing often receive priority as a creditor. This encourages vendors and suppliers to continue working with the business -while making the transition out of chapter 11 bankruptcy.

Intellectual Property and Brand Value

Brand recognition and intellectual property are intangible, and yet can be more valuable than the physical assets of a company. This is especially true with a well-known brand like QVC that likely doesn’t store a lot of inventory.

This brand recognition doesn’t come overnight. It took QVC years to become a household name. The great cost of achieving this brand recognition has enduring value that is difficult on which to put a price.

Because of the value of QVC’s intellectual property and brand value, it makes sense for QVC to preserve the business rather than force liquidation because liquidation could destroy much of that brand value. Consequently, corporate bankruptcy often focuses on restructuring debt while preserving the company in a way that preserves these intangible assets..

What QVC’s Bankruptcy Means for Customers

Consumers sometimes worry that a company’s bankruptcy will affect their purchases. For the average customer, dealing with a company that has filed for chapter 11 bankruptcy is business as usual. From a technical standpoint, consumer orders placed after a bankruptcy filing are protected because of what we already discussed. A company’s post-petition obligations are not eliminated in bankruptcy.

If QVC files for bankruptcy, it will continue to be responsible for fulfilling orders, honoring returns, and providing customer service. Maintaining consumer confidence is very important to the success of a Chapter 11 restructuring – especially one where brand recognition is so valuable.

Final Thoughts From a Bankruptcy Attorney

Your bankruptcy attorney should be on top of the trends. Any bankruptcy lawyer – not just in Phoenix, or Gilbert, or even beyond Arizona, should know at least a bit about chapter 11 bankruptcy. So here’s our summary.

If QVC decides to pursue chapter 11  bankruptcy, it will be able to renegotiate billions of dollars in debt, restructure operations, protect valuable assets, continue serving customers, and preserve jobs and vendor relationships.
If it does file chapter 11, there is no guarantee that it will survive. However, in most situations bankruptcy does not kill a company. Instead, it provides a fresh start.