Atari Video Games Files for Bankruptcy Protection
Iconic video game maker Atari is heading into Chapter 11 bankruptcy, reports say, in a plan to cease affiliation with its French parent company, which is facing similar financial woes.
The decades-old company responsible for putting Pong games in America’s arcades and bars in the 1970’s and bringing Space Invaders and Centipede to household TV screens, has now lost its foothold in the rapidly advancing world of mobile and digital video games. Even after creating mobile-friendly versions of classic games and seeing some success in 2011 and 2012, both Atari in the U.S. and Atari S.A. of France face heavy debts and insufficient funding, leading to a Chapter 11 filing for Atari and what’s called a Book 6 for the French affiliate. With a Chapter 11, businesses are able to continue operations while restructuring debts and drafting a repayment plan.
Many are speculating that even if the old-school video game creator was able to bounce back in the United States, it would have to generate some fresh ideas. Merely creating iOS and Android renditions of Atari’s Greatest Hits is not likely to revive the floundering company.
Why Chapter 11?
When companies file a Chapter 11 bankruptcy, it’s essentially implicating that their current business model is no longer working; it is either outdated and is in need of sprucing up or because of extenuating circumstances or investment changes, a new approach is needed. While Chapter 11 is also available to individual consumers, it is more common among businesses; consumers are more likely to submit a Chapter 13 petition for their debt concerns.
During a Chapter 11, business proceeds as usual; sometimes with a reduced operations or downsized workforce, but the goal is to stay afloat while determining how best to emerge from the filing. This generally requires help from the appointed Bankruptcy Trustee and could take months or years to accomplish. Once completed, the bankruptcy repayment plan will be carried out over the years following the filing.
During the filing itself, creditors are prohibited from trying to collect debts from the debtor company, from bringing suit, or from foreclosing on business property, through a Bankruptcy Court order called an automatic stay. In addition, the company in bankruptcy can sell assets for more than they might if they were not in bankruptcy because the assets will be clear of any liens (the right of a creditor to take property as collateral), giving the buyer less liability.
Bankruptcy can be a postitive move for a company in trouble. It allows them to get on track without being overwhelmed with debt collections; and ideally come out with a better portfolio for investments. Atari is far from the only big-name company in recent years to head down the Chapter 11 path, hoping to emerge more financially stable. Video game maker THQ filed recently, photo giant Kodak emerged from their long-running bankruptcy a few months back, and Twinkie's Hostess filed just last year. Read more about these companies' filings here: