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What Chapter 11 bankruptcy means for Haggen

Haggen CEO John Clougher, right, talks with Haggen Barkley store manager Chris Sharick in Bellingham on Sept. 19, 2014, about one month after Clougher was hired. Haggen said Tuesday, Sept. 9, 2015 that the company has filed for Chapter 11 bankruptcy protection.
Haggen CEO John Clougher, right, talks with Haggen Barkley store manager Chris Sharick in Bellingham on Sept. 19, 2014, about one month after Clougher was hired. Haggen said Tuesday, Sept. 9, 2015 that the company has filed for Chapter 11 bankruptcy protection. The Bellingham Herald

Shoppers shouldn’t see many changes right away inside Haggen’s Whatcom County stores, following its Tuesday, Sept. 8 Chapter 11 bankruptcy filing. But the company will be burning through a significant amount of money to get back on track.

This type of bankruptcy allows Haggen a bit of breathing room from creditors while it reorganizes its finances, said Bellingham attorney Steven Hathaway. It’s also a way for a company to continue functioning with the same management in place while working through its financial woes, with the goal of emerging in better shape than when it went into bankruptcy. Typically, a company filing for Chapter 11 will have 120 days to come up with a reorganization plan, which must be accepted by a majority of its creditors.

“This (bankruptcy filing) shouldn’t affect employees right away and most customers won’t even notice a change,” Hathaway said.

A spokesman for Haggen did not respond to an email message about the status of employees at the company, which has more than 10,880 workers and a payroll of about $26.4 million a month, according to court documents. In a news release, the company did say that it has engaged Sagent Advisors to market for sale some of the locations and the selling of some of the company’s assets.

The drawback of a Chapter 11 bankruptcy filing is that it is a very expensive process. Hathaway isn’t working on the Haggen case, but said large companies typically spend hundreds of thousands of dollars on attorney fees to get through a process that can take years to complete. It is also possible the Bellingham-based company won’t be able to reorganize and would have to liquidate.

In its initial filing, Haggen listed its 30 largest creditors. The companies and individuals owed the most money from Haggen were Unified Grocers, which is owed about $14.9 million, retail food company Topco Associates (owed $5.7 million), real estate investment firm Merlone Geier ($5.7 million), former Haggen CEO Dale Henley ($4.9 million) and Charlie’s Produce of Seattle ($3.5 million). Other creditors on the list include Pepsi, Coca Cola, Frito Lay, Starbucks and Albertsons.

The ultimate goal of a Chapter 11 filing is for someone, typically a company, to pay back creditors over a period of time. It’s much different from a Chapter 7 filing, which usually leads to the liquidation of the company. Those who are owed money usually prefer a Chapter 11 filing because they have a better chance of getting paid in full, while a Chapter 7 filing usually means getting pennies on the dollar, according to a report about bankruptcies by the Internal Revenue Service.

Moving forward, the case will have to go through a series of steps before Haggen can exit this filing. This including meeting with creditors, putting together a reorganization plan and going through a myriad of litigation.

“It’s a very labor-intensive process,” Hathaway said.

Reach Dave Gallagher at 360-715-2269 or dave.gallagher@bellinghamherald.com. Follow him on Twitter at @BhamHeraldBiz and on Facebook at BellinghamHeraldBusiness.

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