Business owners in Maryland know that certain costs such as labor, pensions and medical benefits for workers sometimes amount to serious financial burdens that threaten the functioning of a company. In such cases, Chapter 11 bankruptcy can become a necessary protection while debtors make operational and financial adjustments to get business back on track. Recently, Hostess Brands Inc. re-entered Chapter 11 bankruptcy nearly three years after leaving it. The company attributed its economic problems to high legacy costs such as medical and pension benefits, overly strict labor rules and unsustainable debt.

Hostess initially filed for bankruptcy protection back in 2004. The company was able to leave Chapter 11 almost five years later in 2009. But since then, Hostess hasn't been able to keep up with the projections detailed in its restructuring plan. The company reported a net loss of $138 million for the 2010 fiscal year, and in the fiscal year that ended in May 2011, a $341 million net loss was reported.

A CEO with the company said that bankruptcy would help the company make operational and financial changes to address the problems of "declining performance, aging infrastructure, strained liquidity levels and excessive debt."

To fund its second Chapter 11 bankruptcy protection, Hostess has gotten a debtor-in-possession loan from several lenders. That loan amounts to $75 million.

The terms of the loan require Hostess to file a motion rejecting its collective bargaining rights, file a Chapter 11 restructuring plan by May 18, win approval of the plan by July 13, and leave Chapter 11 by July 27.

Clearly, Hostess is fighting hard not to close its doors, and it may well succeed. When a company in Maryland or elsewhere files for Chapter 11, it is important that the restructuring plan isn't generic. The plan should address the specific needs of the company so that business operations continue and debt is consolidated to free up money for necessary expenditures.

Source: thedeal.com, "PE-backed Hostess Brands returns to Ch. 11," Jamie Mason, Jan. 11, 2012