Those were the words of former Apollo 8 commander Frank Borman, speaking as chairman of Eastern Airlines in the United States in the early 1980s.
That company later entered Chapter 11 bankruptcy itself in an attempt to deal with a staggering amount of debt.
We all know what it means to run out of money, but what exactly is bankruptcy? It’s certainly been in the news a lot.
Tupperware filed for it last month. Two Australian airlines have become insolvent this year, and other Australian businesses have been going under at record rates.
So how do companies go bankrupt – and what is bankruptcy protection under the law? What’s the famous Chapter 11? And is bankruptcy the end of the road?
What exactly is bankruptcy?
Sometimes, a person or company can’t pay all of their debts as they arise. In legal terms, we call this being “insolvent”.
Receiving a large bill (such as a large tax bill) that you can’t pay on the day doesn’t necessarily make you insolvent. The law allows for a reasonable time to pay bills after receiving an invoice.
But if large numbers of bills remain unpaid weeks or months after their due dates, it begins to suggest a person or business isn’t paying them because they actually can’t.
Being unable to pay all of your debts makes you an insolvent debtor. Bankruptcy is the legal process that allows insolvent debtors to fairly resolve these debts.
In Australia, insolvent individuals can file a bankruptcy petition with the Official Receiver in bankruptcy, a statutory office that is part of the Australian Financial Security Authority.
A creditor who is owed at least $10,000 can also force another person into bankruptcy by suing them in court and obtaining an order to make them bankrupt.
For companies that can’t pay their debts, there are several options, including liquidation, voluntary administration and restructuring. More on these later.
We let an expert take control
When a person or company goes bankrupt, an independent external expert (or team of experts) is appointed to manage their assets and debt.
For individuals, we call this person a registered bankruptcy trustee. In the case of corporate bankruptcies, we call them a registered liquidator.
In both cases, the expert will take control of the debtor’s assets and affairs. They’ll be looking closely at why the debtor needed to declare bankruptcy in the first place, and whether anything can be sold to generate cash so at least some of the debt can be repaid.