Charities Seek Bankruptcy Protection
Under Chapter 11 of the federal bankruptcy code, charities can get relief from creditors, obtain emergency financing, renegotiate leases and draw up a reorganization plan to let them emerge as financially viable.
Some charities, however, have resorted to Chapter 7 of the code, under which organizations liquidate. The American Musical Theater of San Jose, Calif., for instance, took that route.
Michael Miller, the theater’s chief executive and executive producer, said it had used the bankruptcy code rather than simply dissolve itself because it had loans it could not repay and needed a way to deal with creditors, including some 16,500 subscription ticket holders.
“That’s one difference,” Mr. Miller said. “Even a large corporation might have only 100 or 200 creditors, while we have tens of thousands.”
He took over the theater company about four years ago, when it had a $2 million deficit. It worked to increase donations and received a $1 million line of credit from the City of San Jose.
Then it struck a deal to co-produce “Tarzan” and advanced $225,000 to Theater of the Stars in Atlanta, as did Dallas Summer Musicals, a theater company in Dallas.
The Atlanta company “called us in late November and said not only that it didn’t have any money left, it had no production to deliver,” Mr. Miller said.
Nick Manos, president of the Theater of the Stars in Atlanta, said his organization’s own financial straits had forced it to cancel the production. “We have returned all the money to Dallas and made an offer to San Jose to return the money, and they declined,” Mr. Manos said.
But the San Jose theater had already sold more than $800,000 worth of tickets to the show, so recouping its initial investment would not begin to repair the damage, Mr. Miller said. With its subscription renewal period looming and two other shows falling short of revenue goals, the board decided to go dark.
