Job-chopping Chipmaker Bites the Bankruptcy Bullet

Last week, Breaking News brought readers the sad and sordid news of Flash-memory manufacturer Spansion's decision to drop 35% of their workforce, while simultaneously rescinding a 10% pay cut on top executives, and granting the company's new CEO a massive pay package including non-refundable advances. Apparently, however, cutting more than a third of the workforce wasn't enough to cover the costs of retaining top executives, forcing the company to file for protection under Chapter 11 of the Bankruptcy Code.

The move came on Sunday — an indication, perhaps, of the company's haste to be rid of collection calls — and was filed in the United States Bankruptcy Court for the District of Delaware, a common location for big-business filings, given the high concentration of incorporation in the state due to Delaware's corporation-friendly taxation. Court filings cite an over-saturated memory market, bad investments to the tune of $122 million, and poor cash flow during the past two years, attributed to price drops and a "sharp decline" in demand, for its woes. The company's filing follows that of its Japanese subsidiary, which sought protection under Japan's bankruptcy laws in early February, bearing nearly a billion dollars in debts.

Still, the decision may well prove to be a fruitful one, as bankruptcy filings come with nothing if not intense scrutiny. As with any bankruptcy, a trustee will be appointed to oversee the company's undertakings, and if the system works as intended, will prevent the company from engaging in activities that could harm the company's creditors and prejudice its ability to emerge from court protection. Unlike the widely-known Chapter 7 proceedings available to individuals, which results in a surrender of assets in exchange for a discharge of debts, Spansion will be required to form a plan to reorganize its activities, repay its debts, and return to a sound fiscal position.

In what could perhaps be classed an amazingly fast karmic return, the bankruptcy filing may well cut the legs out from under the company's extravagant executive compensation plans. In a bankruptcy proceeding, all bets are off, and the company will now be forced to gain approval from the Bankruptcy Court to disburse funds, meaning someone will have to convince a stone-faced Bankruptcy Judge that the 10% reinstatement to top executives is warranted, not to mention that freshly-hired CEO John Kispert really should get the $75,000 per month he was promised. The $1.75 million bonus he was to get for offloading the company is history, however, unless he manages to make it happen before the Court appoints a trustee, a feat that would perhaps be worthy of such a princely sum.

Speaking of trustees, once one is appointed, Mr. Kispert may feel a lightening in his wallet, as that "nonrefundable" $300,000 he picked up on joining Spansion just became refundable — the bankruptcy trustee is entitled to compel the return of any funds paid out within the preceding ninety days that benefit one creditor over others. That would also, we believe, apply to the $751,274.94 Spansion dropped into former-CEO Bertrand Cambou's little red wagon as he ran screaming from the building.

If we've learned anything, however, from the SCO bankruptcy, it's that the system doesn't always work as intended. The possibility remains that Spansion's execs could get to keep their cake and eat it too, and that, like SCO's creditors, payment for the company's debts may be far away, if ever. And, of course, it does little to help the 3,000+ workers who found themselves without a job or a dime to dampen it — we hold out hope, however, that this is a sign their karmic rewards will be soon to follow.

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