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Russia: U.S. Firm Demonstrates Bankruptcy Can Help Business

Bellingham, Wash., 9 January 1998 (RFE/RL) -- Friday will be an official victory celebration day for the embattled staff of Richardson International Limited, a small company based in the Seattle suburb of Bellevue, Washington, that operates fishing boats with Russian and Polish partners and sells the fish they catch around the world.

The party marks the company's triumph over financial adversity that had threatened to kill a profitable and daring East-West concern, one created by Lynn Richardson and her husband Dick Richardson a decade ago, even before the end of the Cold War.

Victory did not come easily after the company's banker -- for reasons having little to do with Richardson International -- abruptly canceled the planned renewal of the company's continuing $14.5-million line of credit. Access to those loaned funds had made possible Richardson International's meteoric growth since 1988, to sales worth $80 million in 1995.

Without that loan, the company had no way of repaying eight million dollars advanced to them by a Dutch bank. Suddenly, the future looked dark. Loss of those funds left the Richardsons with a stark choice: Go out of business, or fight for survival.

Looking back today to that life-or-death decision of 15 months ago, Lynn Richardson, the firm's founder and chief executive, told RFE/RL that, "I wasn't about to just roll over" and die. So the company took advantage of a time-honored process created within U.S. law to deal with such situations, which are not uncommon in a market economy. Thus, on October 22, 1996, Richardson International declared bankruptcy.

Bankruptcy simply means that a person or a company owes more than they have. And without its $14.5-million line of credit to draw upon, this was literally true of Richardson International -- despite the continuing profitability of its fish-trading business with its Russian and Polish fishing partners.

But the U.S. Bankruptcy Code distinguishes between several forms of bankruptcy.

The most easily understood form is "liquidation" -- shutting down a failed company and selling off everything that it owns to raise what money it can to pay off all or part of its debts. This form of bankruptcy is known in the United States as a "Chapter 7 Bankruptcy," referring to the section in the bankruptcy code that spells out how a liquidation must proceed.

Richardson International was -- and is -- a profitable concern, however.

So when it declared bankruptcy, the company invoked Chapter 11 of. the U.S. Bankruptcy Code. Under this form of bankruptcy, a company submits a list of its debts to a federal judge, along with a plan showing how it will be able to pay off all its debts, if the judge grants it temporary protection from creditors so that the company can continue to operate.

Chapter 11 bankruptcy, allowing a firm to continue in business, offers the bankrupt firm's creditors, the prospect of full repayment -- eventually. The key to a successful Chapter 11 bankruptcy is to convince the company's creditors and the bankruptcy judge that, given a chance, the company will in fact be able to reorganize and work itself out of debt.

For creditors, liquidation may mean receiving little or no repayment, depending on how much money closing the company can generate. Usually, a failed company's debts cannot be fully repaid -- far from it.

But U.S. Bankruptcy Judge Thomas Glover ruled in favor of the Richardsons' plan of reorganization. Glover granted the company temporary protection from its creditors' demands for immediate repayment of their debts.

That, however, proved to be just Round One of fight to regain financial solvency. As Lynn Richardson tells it, some of her Russian partners, who owned the fishing boats managed by Richardson International, heard the word "bankruptcy" and assumed that the company had been put out of business. This was, of course, far from the case. Richardson says "we had a difficult time explaining to them that we were still in business and still profitable."

She appealed for help to Judge Glover. The judge supplied the company with an official statement, complete with gold seals and a blue ribbon, certifying that the company was indeed in business. Richardson said this court document "bought us some confidence" among its partners.

In the meantime, however, Richardson International, without the benefit of the bank funds, had to curtail its trading efforts considerably -- since buying fish for sale to markets around the world requires operating capital and a lot of time. The company, absorbed by its bankruptcy proceedings, had little of either. As a result, sales plunged from the $80 million realized in its last full year before all the trouble to just $20 million last year.

After today's victory celebration, Lynn Richardson -- free again to devote her time to her business instead of court proceedings -- heads back to Russia next week to spread the good news and begin rebuilding the company's trading operations. She expects sales to more than double this year.

Under terms of the Chapter 11 reorganization plan approved by Judge Glover, however, 85 percent of the company's profits will be directed to the creditors, who voted unanimously to approve the repayment program. Lynn Richardson says she expects to pay off all debts well within the two years allowed by the court-approved plan.

What then, she was asked.

Her reply: "Then we'll get growing again." But this time, she says, Richardson International expects to finance its own expansion from the proceeds generated by its continuing business.

Dick Richardson, the firm's president, sums up the long battle by saying that "there are easier ways to make money. We've had successful negotiations," he adds, "but it was tough."