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More than 25 million Americans have lost their jobs and filed for unemployment since the start of the Covid-19 crisis as businesses shut down.
The first major corporate casualty in this affair, Neiman Marcus is headed for bankruptcy, and it looks like others will surely follow, with JC Penny, Macy’s, and many other retailers also under duress . Even the telecom sector has been hit with Tampa’s Frontier communications’ bankruptcy in spite of the work from home wave.
As these and other corporations file for bankruptcy, many of their assets are forfeit. One of the largest chunks, electronics and technology comprised close to $4 Trillion dollars of corporate spending in 2019.
Bankruptcy Nuances for Electronics Assets
As businesses fail what will happen to the IT equipment of all the failing businesses? It depends on how the business files for bankruptcy or if they merely restructure.
Chapter 11 Bankruptcy
In a chapter 11 bankruptcy, the courts have control of and final say on all assets of the debtor company.
That being said, the debtor company, referred to simply as the debtor from here on out, can propose a “reorganization plan” wherein they reorganize and/or liquidate assets as needed per the court’s approval. In most cases, the returns for creditors are higher by simply allowing the company to continue operating, rather than simply liquidating all of the assets.
With that said, most reorganization efforts fail, leading to asset selloffs, and in the case of fraud or similar circumstances a trustee can be appointed to manage the process.
Chapter 7 Bankruptcy
This brings us to chapter 7 bankruptcy. In a standard chapter 7 all assets will be listed as part of the bankruptcy estate. Afterwards, a trustee of the creditor will evaluate and then liquidate the debtor’s assets – where sensible- with some exemptions.
The point of a bankruptcy is to provide a blank slate, not leave one destitute, so exemptions are chosen with that in mind.The profits of the non-exempt asset sales go partly to the trustee and then in majority to the creditor. Those assets which the trustee doesn’t designate as non-exempt will default back to the debtor.
Keep in mind that a Chapter 7 business bankruptcy is distinct from a chapter 7 personal bankruptcy. While chapter 7s are common for individuals, they are rare for corporations. The reason being that corporations do not receive a discharge of debt when they file for chapter 7.
The only benefit of a chapter 7 bankruptcy for a corporation is the theoretically easier asset liquidation process, as the burden would be placed upon the trustee, not the owners. Unfortunately though, rushed bankruptcy auctions will generate very little capital, and so most companies would be better served by selling the assets themselves and working down their debt to creditors.
Difficulties with Information Technology Liquidation
While it may be more advantageous for the debtor to sell off IT assets themselves, this is easier said than done. The staggering rate of IT asset depreciation and cost to maintain running enterprise equipment can be prohibitive in many cases.
Additionally, the valuation of enterprise hardware is complex and highly specific to the equipment in question. For example, between big-name OEMs like Dell EMC and more niche server suppliers like Supermicro, there are thousands of hardware model numbers. Each server, workstation, or storage array has its own unique rate of market value decline and secondhand desirability.
For some systems, like Pure Storage’s, there are software licensing conflicts to account for. These conflicts can limit resale ability.
Another concern is liability in the case of assets sold prior to bankruptcy. According to bankruptcy law, assets should all be included within the bankruptcy estate. To sell off IT assets and siphon off the funds prior to bankruptcy and deprive creditors of that capital could open one up to litigation.
If that wasn’t enough, system hard drives can contain data which is material to the bankruptcy case. If they’re retained, systems may not be as desirable if they’re incomplete sans kept drives. When drives are resold later on, customer and employee data must be securely wiped. Specifically, they must be sanitized to standards like those of the National Institute of Standards and Technology or HIPAA. This isn’t necessarily a tall order, but can be time-consuming and risky for those who are uninitiated with the process.
Even More IT Asset Liquidation Hassles
So, how do the assets get liquidated? In some cases, another corporation, usually in a similar vertical, agrees to buy out the debtor. This is typically the most desirable outcome, though difficult to negotiate, and less likely in the currently tenuous economic climate. As stated earlier, IT assets depreciate rapidly, and even if the corporation did decide to move forward with a bankruptcy fire sale in the hands of a trustee, bankruptcy courts are strained, albeit with more preparation than was present during the 2008 crisis.
Some liquidations are not possible due to the inventory-holding stores being closed. Thankfully, data centers and server rooms are generally essential, relieving them of similar blockades. Regardless, the IT industry is all hands on deck and short-staffed at the moment, and so recruiting IT human resources for the task of selling off enterprise IT assets could be a challenge.
Bankruptcy IT Asset Disposition for Data Center and IT Selloffs
To ease the aforementioned concerns and difficulties, some businesses will be able to take advantage of IT Asset Disposition (ITAD) services.
Exit Technologies is working with a number of corporations to liquidate their IT assets.
We have a wide range of contacts to remarket electronics to. As a result, we can purchase corporate IT equipment to help return value for it fairly quickly. We are also R2 certified to responsibly recycle any equipment which is no longer viable.
During our last 3rd party audit, we had zero noncompliances; i.e., our organization has followed the R2 responsible recycling standard without a single act in conflict with its guidelines.
We are also industry-leading in our data erasure capabilities. We can contain all data necessary for litigation securely in a locked cage on-site until the data is needed.
Finally, if IT staff can not be spared, we are capable of remote hands decommissioning, palletization, and logistics. We can do all the work to take the equipment off your hands. In doing so, we will remain in compliance with any company policies, whether you’re in the healthcare industry or the finance industry.
Reach out today for expert assistance with any bankruptcy related IT asset liquidation needs.
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