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High competition often cause of bankruptcy for manufacturers

| Jul 3, 2012 | Chapter 7 |

In any industry, outside competition that drives down prices can cause financial problems for companies who are unable to compete. Recently, companies that manufacture products for the renewable energy industry have been experiencing exactly this. As Essex County residents may know, in the last few years competitive pricing has caused solar manufacturers such as Solyndra and Konarka to pursue bankruptcy, and has brought increasing financial difficulty for others.

Now, another manufacturer will be filing for bankruptcy under similar causes. Abound Solar, a start-up manufacturer of solar panels, encountered problems when it was unable to compete with pricing with foreign manufacturers of similar products. As a result, the company was unable to maintain financial responsibilities to a loan agreement that funded the new company. This led to suspension of disbursements of the loan, and the company was unable to find other funding to maintain operation.

The agreement built into the loan was intended to protect taxpayers from loss, yet the collapse of Abound Solar, based in Colorado, will cost taxpayers some $40 million to $60 million. This is approximately 10 to 15 percent of the $400 million loan from the U.S. Department of Energy. At the time disbursements were halted, Abound Solar had already drawn $70 million of the loan.

When competitors from outside the United States, in this case China, can afford to offer their products at extremely low prices, many companies within the U.S. are simply unable to compete. There is a recently imposed import tariff that seeks to prevent some of this competition from causing similar financial trouble in the future, as Essex County residents may be aware; however, it is too late for Abound Solar. For companies like this, the remaining answer lies in bankruptcy protection. Though it is unclear what form of bankruptcy Abound Solar will file, conditions may be favorable for Chapter 7 liquidation as opposed to Chapter 11 reorganization. For a company that has experienced difficulty finding additional funding to maintain business, liquidation in Chapter 7 bankruptcy will allow it to more easily settle up debt and move on.

Source: Northern Colorado Business Report, “Abound Solar bankruptcy to cost taxpayers up to $60 million,” Steve Lynn, June 28, 2012

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