Closed Business Bankruptcy or ABC

Closing Up Shop: How an ABC May Be a Better Alternative to Chapter 7


An underperforming $223 million revenue family office investment (mall-based beauty salons) was originally acquired from a public company with the expectation that its store operations could be improved. The goal was to increase profitability by significantly streamlining back office costs and improving gross margins through a lower-cost supply chain.

  • The Company had been rationalizing its salon footprint, closing underperforming locations.
  • Company could not easily improve customer traffic “across the board” as performance at each salon was heavily dependent on the stylists at each location and also foot traffic at the mall.
  • The Company continued to use the prior owner’s POS system which was used for inventory replenishment and payroll tracking.
  • Because the prior owner had “rolled up” various salons and concepts, there were nearly as many compensation programs as there were salons.
  • The family office was capital-constrained; thus, it was not able to update the décor of the salons, many of which were “tired” in appearance.
  • The company was in violation of certain financial and operating metrics required under the sale agreement with the prior owner.


  • In some malls, the company operated multiple locations under different formats. By closing underperforming locations, the company hoped that those stylists and customers would relocate to the other location in the same mall or relocate to a mall in the general vicinity. However, consolidating stylists (and their customers) proved to be difficult. Because the other mall location was a different format, this was unattractive to the stylist. And, the next closest salon may not have been convenient for the stylist and/or their customers. Closing locations caused too much dilution in revenues.
  • Replicating performance of the higher-performing locations was dependent upon the quality and number of stylists at each location. The artistic talent of the stylists is not something which can easily be transmitted across the salon base.
  • As the client rationalized its locations, regional and district managers were stretched thin across a broader coverage area, reducing their effectiveness at training and sharing “best practices.”
  • The Company was never able to wean itself off the prior owner’s POS system which was used for inventory replenishment and payroll; thus, the savings on shifting to a lower-cost supply chain never materialized.
  • Management was not able to transition the employees to a single compensation program through a lower-cost third-party payroll service.


EMA’s significant experience in the retail, consumer products and personal services industries was highly beneficial to this particular situation and enabled EMA to quickly make assessments.

  • EMA reviewed the financial and operational data, including the detailed 4-wall cash models prepared by the management company’s analysts. EMA was able to analyze trends from comparable historic performance and project the company’s results under various scenarios. Further, EMA assisted the company in developing various materials used to introduce the company to potential investors.
  • EMA outlined options for exiting the investment, identified potential wind down liabilities to the management team and the family office under various scenarios, prepared a path which ended the cash outlays by the family office, liquidated the excess salons without wanted publicity and met the terms of the settlement agreement.
  • A settlement was reached with the prior owner which required certain of the salons to be sold. The form of the sale was subject to further negotiation.
  • After presenting various options for exiting the remaining business and effecting the sale under the settlement agreement, the company agreed to use an ABC to transact the sale and wind down the excess salons. The secured lender agreed to the transaction and the structure did not require assignment of leases. By using an ABC instead of a Chapter 7 liquidation, the transaction closed without any disruption to approximately 250 salons which meant about 1,500 jobs were saved. Further, the family office was able to immediately stop funding operations when the assignment occurred.


An ABC is an effective process to liquidate a business in a timely, cost-effective manner while avoiding unwanted publicity. While bankruptcy provides helpful features, such as the automatic stay, assignment provisions for executory contracts, and cram down on secured lenders, it is also cumbersome, expensive and public. Owners seeking to quickly wind down an investment or transition the business to buyer with minimal disruption may find an ABC to be the right process.

EMAGroup advises companies in transition, focusing on Special Situations, Capital Solutions, Enterprise Performance Improvement, and Insolvency Strategies to create value-driven solutions. For more information, visit:

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