Gibson Guitars Files for Bankruptcy: What Does This Mean For You?

In a move reminiscent of The Who’s Pete Townshend smashing his guitar (which, incidentally, were usually Gibsons), Nashville based Gibson Guitars, the venerable manufacturer of the Les Paul, Firebird, Flying V, SG and countless other guitars made famous worldwide by a host of great artists, filed for bankruptcy protection under Chapter 11 in Delaware on May 1, 2018. Why should you care?

You should care if you are a musician, or even a music fan, who would like to see Gibson continue to sell excellent guitars to be played, collected, and seen and heard on stage. You should also care if you are a landlord, supplier, parts manufacturer, distributor, warehouseman or retailer which does business with Gibson. If you are a competitor of Gibson, you may be smiling in part and view Gibson’s predicament as an opportunity to gain market share. Guitar collectors are probably wondering whether the bankruptcy filing will make their vintage Gibson guitars worth more on the open market.

It is important for Gibson to succeed in reorganizing its affairs, not only for itself but for the music industry as a whole. The failure of a giant like Gibson could cause enormous fissures in other sectors of the music industry. It would certainly send a bad signal and could cause more strain on the retailing side of the music business which, in turn, would hurt shopping centers which lease to large music stores.

The Gibson name is iconic. The list of guitarists who have plied their trade on Gibson guitars is a who’s-who of the most famous rock, blues, jazz and pop artists of the past century. The guitar that Robert Johnson played on after trading his soul to the Devil in exchange for his legendary picking talents was a Gibson. B.B. King’s “Lucille” was a Gibson. The guitar that Elvis shook his hips to was a Gibson. Devil Gibson guitars have been played by such legendary talents as Eric Clapton, Duane Allman, Jimi Hendrix, Chuck Berry, Jimmy Page, Neil Young and David Bowie.

At the outset of the case, it appears that Gibson has lined up enough of the important players to put through a reorganization plan although the case is just beginning. In fact, Gibson could come out of the reorganization process stronger, shedding its unprofitable divisions unrelated to its core business of making guitars.

Gibson’s success in the reorganization process also means that certain people are going to be hurt. A debtor cannot shed debt without concomitantly not paying the other side. Being on the wrong side of a chapter 11 case can be daunting. Chapter 11 cases are akin to a chess match where each move by a player causes another player to make a counter move. Much of the process requires specialized knowledge and negotiation skills in the context of a moving target under the Bankruptcy Code.

Whether or not you are connected to the music industry or have an actual stake in the Gibson bankruptcy case, it is important to know your legal rights when a company files for chapter 11 bankruptcy. If you are a landlord, you must quickly move to protect your interest in court proceedings or risk losing valuable rights. If you are a supplier, you must make quick decisions as to whether to continue to supply the debtor post-petition.

Even though landlords and suppliers in the ordinary course can receive administrative claim treatment on a post-petition basis for supplying the debtor, that does not necessarily translate into payment on time or at all. Even though suppliers of goods can obtain priority treatment arising from the delivery of goods within twenty days prior to the bankruptcy filing under 11 U.S.C. 503(b)(9), the right to this preferential treatment is not self-executing and is often contested by the debtor. Debtors rarely pay landlords on time post-petition without a push from landlord’s counsel.

Bankruptcy is a complicated area of the law where it pays to have good legal advice in a timely manner. We, at Earp Cohn, P.C., represent both suppliers and commercial landlords in chapter 11 proceedings and help advise them of their rights and guide them through the process to achieve the best possible result. Contact Richard M. Schlaifer, Esquire (RSchlaifer@earpcohn.com) or Allen A. Etish, Esquire (AEtish@earpcohn.com) at Earp Cohn, P.C. at (856) 354-7700 to discuss how the firm can be of benefit to your company.