Is Bankruptcy Ahead for BP?

The photographs of oil-soaked pelicans, idle fishermen and formerly pristine beaches now covered with filth has turned all eyes to British Petroleum (BP), with speculation on whether the company is financially solvent enough to withstand the massive clean up costs, avalanche of claims/lawsuits that are yet to come and public boycotting of their products.

"In cases where a company faces unlimited losses and an avalanche of litigation, it is not uncommon for the need for a structured resolution to follow,” says Michael D. Sirota, co-managing shareholder of Cole, Schotz, Meisel, Forman & Leonard, P.A. (Hackensack, N.J.) and co-chair of the firm’s bankruptcy and corporate restructuring department. “While every company and the financial distress it confronts is different, it is not beyond the realm of possibility that BP would, at some point, consider the filing for bankruptcy protection to bring order to the uncontrollable environment they confront."

Mr. Sirota notes that while BP CEO Tony Hayward has stated that his company is committed to successfully righting the situation, it's easier said then done. GM, Chrysler, CIT and many companies thought they could control their destiny outside of Chapter 11 but ultimately elected to reorganize in Chapter 11.

“While we have never seen an oil spill as great as this one, the Valdez disaster in Alaska is the closest comparable situation,” he says. “In that case, Exxon was able to emerge as the most profitable oil company in the United States. The question is whether BP will be able to stem the bleeding and finance in the foreseeable future massive claims and obligations.” [06/11/2010]