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SkyMall Files for Bankruptcy: 5 Lessons for Business Owners

Say it ain't so! SkyMall, the ubiquitous in-flight shopping catalog, filed for bankruptcy protection Friday. While seat-back pockets will never be the same, the company's ordeal offers some legal lessons for business owners.

SkyMall's parent company, Phoenix-based Xhibit Corp., "suspended its retail catalog operations" last week, Reuters reports. Staff layoffs, meetings with creditors, and court hearings are on the itinerary as the company makes its way through the bankruptcy process.

What can small business owners learn from SkyMall's bankruptcy filing? Here are five takeaways:

  1. What is a Chapter 11 bankruptcy? SkyMall is seeking Chapter 11 bankruptcy protection. A Chapter 11 bankruptcy is typically used by indebted corporations that hope to reorganize and become profitable again. Small businesses (those with fewer than 500 employees) make up the majority of Chapter 11 bankruptcy filings.
  2. What's the procedure for a Chapter 11 bankruptcy? After a Chapter 11 bankruptcy case is filed, it triggers an automatic stay on all collections actions. The company seeking Chapter 11 protection then meets with its creditors to either partially repay its debts, or get its debts discharged. Creditors get to vote on the company's reorganization plan, which must also be approved by a court.
  3. For business bankruptcies, Chapter 11 is not the only option. Chapter 11 bankruptcies are sometimes converted into Chapter 7 filings, if a court deems a company has little or no chance of becoming profitable again. In a Chapter 7 bankruptcy, a trustee is appointed, a business shuts down, and its assets are sold off to repay creditors. Small business owners may also be able to file for Chapter 13 bankruptcy; you can learn more about the differences between these types of bankruptcy by clicking here.
  4. Know how to handle layoffs. SkyMall plans to lay off 47 of its 150 employees, Reuters reports. If you're also considering layoffs, you may want to answer these five questions first.
  5. The company blames digital devices, online rivals for its demise. As more passengers turn to digital devices for in-flight entertainment, SkyMall says it just couldn't compete. Don't let your business get left behind in the digital era; now's the time to go mobile and update your e-commerce website.

To learn more about bankruptcies, layoffs, and other small business legal issues, check out FindLaw's section on Small Business Law.

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