Serious Corporate Debt
As we’ve seen, debt is something common to individuals, companies and even States. No entity is insulated from the possibility of acquiring a debt load. For many Americans, debt has become something of a staple of modern life. Americans commonly take on debt for college, automobiles, homes and other major purchases. If we just take even a cursory glance at the statistics, we see that debt is all too common in America. Credit card debt, for instance, exceeds $1 trillion owed; the same is also true for student loan debt. Ambitious business people take on business debts in order to pursue their dream of building a successful company. Accordingly, today we’ll look at serious corporate debt.
Teachings From Serious Corporate Debt
Specifically, we’ll look at a few corporations which have had severe debt issues. These debts may be among the biggest in history. The sheer sums are enough to cause shock and awe. Most corporations strive to reach the point where they’re bringing in multi-million or even billion dollar revenues. The companies we’re going to look at, though, had debt levels in those ranges! Today, we’ll try to learn from their past mistakes. If we can learn from what these corporations did wrong, hopefully, we can avoid their fates.
Established all the way back in the 1890s, Kodak rose to become one of the dominant players in the camera and photography industries. However, as the era of digital photography emerged, the company began to experience an economic downturn. Kodak has relied on sales of physical cameras and photography equipment for the bulk of its income. As smartphones came to be used more and more frequently in place of cameras, Kodak was hit hard. In 2012, with its credit rating plummeting, the company filed for bankruptcy. The company saw a sharp decrease in its stock price just prior to the declaration. By the time of its bankruptcy, the corporation had accumulated approximately $6.75 billion in debt. That’s quite a staggering figure! Kodak’s decline and fall is more evidence that no industry is stable forever. As technology changes, even a giant can be brought down as consumers steer away and make new choices.
We’ve mentioned Enron on our blog before, in several different contexts. The downfall of Enron contains many different messages for entrepreneurs, attorneys, accountants and others. On more than one occasion, Enron won the “most innovative company” award given by Fortune magazine. Enron rose to prominence as it developed new ways to trade energy in the financial markets, particularly natural gas. The company had strong positions in various energy markets throughout the country. However, the company’s top executives became consumed with greed, and many had ethical compasses which were less than ideal. Enron hid mountains of debt by various means, such as dishonest accounting and off the books entities.
When the company eventually filed for bankruptcy in 2001, it became clear that a massive scandal had occurred. The company’s top executives sold millions and millions of stock before exiting. After the bankruptcy, a number of Enron’s former executives were facing criminal charges, including the corporation’s former CEO, Jeffrey Skilling.
A Scandal So Large It Took Down a “Big Five” Accounting Firm
Enron’s collapse was so calamitous, its accounting firm, Arthur Andersen, also went under. Arthur Andersen was among the oldest public accounting firms in the country and one of the “Big Five.” However, it was clear that Arthur had conspired with Enron to cook its balance sheet and make it appear more financially sound than it was. Arthur destroyed thousands of potentially incriminating documents before they could be subpoenaed.
At one time the fourth largest U.S. investment bank, Lehman Brothers, much like Goldman Sachs, was once a prime example of successful American capitalism. Among other things, the Lehman story shows that unchecked greed can bring down even a promising enterprise. The company used deceptive accounting practices to give a false impression of financial stability. As a consequence, the company declared bankruptcy as the global financial crisis unfolded. At the time of the declaration, the company had amassed an astounding $613 billion in bank debts. On top of this, the company also had $155 billion in corporate bond debt. Lehman’s bankruptcy is among the largest in U.S. history. As numerous documentaries and other media have shown, the corporation was caught up in the hype surrounding pooled mortgage securities. These securities ultimately collapsed and left holders with insurmountable quantities of low grade debt.
Call Us to Learn More
As these stories show, corporations which reach dazzling heights can have equally bitter and ugly downfalls. In a sense, great downfalls are always preceded by a great rise. There is actually an interconnectedness between the two. These stories also show that money management is essential in all stages of a company’s life. And they show that accurate financial reporting is critical. When money isn’t properly managed, debt is usually not far off. Here at Mackay, Caswell & Callahan, P.C., we understand issues related to debt better than any other firm. We specialize in assisting our clients with their debt problems, especially tax debt. If you need help resolving a debt, give one of our top New York City tax attorneys a call today for assistance.