Canwest's creditor protection extended

http://www.vancouversun.com/sports/Canwest+creditor+protection+extended/2877691/story.html

----- an extension to remain under court-protection from creditors

Summary:

In the early January of this year, one of Canada’s biggest newspaper publishers was forced to declare bankruptcy. The main reason that caused the bankruptcy was CanWest Company cannot pay off its debts. A letter was send to their creditors saying that the company “profoundly disagrees” if their newspaper chain is pushed against “early filing” then this could harm the relationship between the company and suppliers. CanWest suffered $40 million revenue loss for the past three months and no it is under the bankrupt protection plan held by the government. Their debts reach $1.4 billion as of the beginning of April. Realizing the company could not pay back their creditors, they reach toward the court for help. CanWest was given a deadline for them to sell their company to bidders to obtain cash so they can repay the creditors. The deadline was said to expire on Wednesday but the Court granted an extension for them to finish their sales process. The Bank of Nova Scotia took the lead and put in $950 million floor bid to acquire CanWest. The assets will then be change to a new entity and take the “new firm public”.

Connection:

In chapter 5, we were introduced to the Cash Flow Statement and its importance in the business. Using the Cash-to-cash-cycle, we are able to analyze why the company would encounter bankruptcy. One of the biggest problems that companies face bankruptcy is because lack of cash on hand. CanWest was a daily newspaper supplier so their revenues based on the subscription and sales of the newspaper. For subscription, before revenues are collected they are mostly recorded as accounts receivable. Therefore, the lead/lag relation comes into place. The company does not get money immediately through the purchase of the newspaper but instead they must wait for the newspaper to deliver and the transaction will go through. This creates a period of time where they do not have sufficient funds to buy inventory and repay their creditors (the process of Operating). Consequently, they will go to get a line of credit and procrastinate the interest payment to later day. After a period of time, the company’s revenues could no longer support the expense associated with it. This is what results in net loss and the loss of $40 million in revenues.

Reflection:

Newspaper and magazines are becoming necessities for our lives. This is why newspaper publishers are making millions of dollars of consumers every year but why is CanWest bankrupt? I think that when they are not sure that the subscription system will or will not be able to bring them sufficient revenues they should start to reduce the accounts receivable and shorten the lead/lag period. Also, CanWest should try to slow down the growth rate because it is easier to play safe and earn the revenues in the long-run; rather than taking the risk and borrow money from the bank. This taught credit owner a lesson, interest payments will build up over time and if an individual only pay for the minimal payment the debt will continues to grow so it is the best to pay the creditors as soon as possible to limit the consequences of bankruptcy.