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RadioShack bankruptcy complicated by lawsuit against Sprint

You don't see many RadioShack stores anymore, and there's a reason for that. A couple of years ago, the company filed for bankruptcy, and they filed for bankruptcy again (a Chapter 11 filing) in March. As part of that filing, they teamed up with Sprint to ensure the company's future, but it came with a cost. The physical space that RadioShack had amassed over the years had to be shared with Sprint.

This agreement was tied into the reorganization plan RadioShack was working on in their Chapter 11 bankruptcy. A judge has given preliminary approval to the plan, but it has been complicated by a lawsuit from some of RadioShack's unsecured creditors. They have filed suit against Sprint, alleging that the company hasn't provided the support it is contractually obligated to provide to RadioShack. They have requested damages to the tune of $500 million. This lawsuit is also in the reorganization plan for the bankruptcy filing, as RadioShack claims the damages of the lawsuit will be used as a primary source of recovery for the creditors.

It is a circular lawsuit, and one that bring to mind the concept of a "snake eating it's own tail." But it also highlights the complications of business litigation and bankruptcy approval in the world of business.

It also shows how a bankruptcy filing can be used by a business to address it's debts and also reorganize itself in the wake of crippling debt. The company can restructure under a Chapter 11 bankruptcy, or even plan an exit strategy to close up shop.

Source: Kansas City Business Journal, "RadioShack reorganization hinges on Sprint lawsuit," Elise Reuter, Sept. 7, 2017

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