Reference no: EM131025034

You are CEO of All-American Coal Corporation. Business has been tough lately, with other energy sources gaining increasing advantage over coal, because they are "cleaner". As a matter of fact, AAC faces the distinct possibility of going out of business, even though it successfully operates dozens of mines with thousands of employees. You are actually making a profit on these mining operations, but you are getting killed by so-called "legacy" expenses. These primarily consist of obligations to pay for the medical expenses of retired employees.

These are contractual obligations, which the company entered into 20-30 years ago with the mine workers union. Mining coal is hard and dangerous work, often leading to long-term medical problems. By offering very generous medical coverage extending into retirement, the company could obtain and keep the employees it needed.
Because of the nature of their work, coal miners tend to retire early. On top of this, AAC's operations have shrunk in recent years. The result of these two factors is that your company has almost as many retirees as currently employed workers. It is a crushing burden for the company to cover the medical expenses of these retirees.

There is a way out of this predicament, namely, bankruptcy. Recent court decisions indicate that, if your company declares bankruptcy, it can be released from its legacy obligations. That's the nature of the bankruptcy process. Debtors-whether individuals, companies or municipalities-are enabled to start over by the cancellation of much of their debt.

The thought of letting down these retired miners, many of whom have serious medical issues, really bothers your conscience. On the other hand, you are not sure that AAC can survive unless it resorts to bankruptcy. Given the difficulties that the coal industry is facing, you're not sure it can survive under any circumstances.
Explain and justify your decision about whether to resort to bankruptcy.
[If all this sounds familiar, it is because a similar case involving a real coal company (Patriot) has been in the news lately. This case is a lot more complicated than the hypothetical situation that I have asked you to write about. Patriot was spun off a few years ago from Peabody Coal, and both companies have been in prolonged controversy with the United Mine Workers of America. You might get some insights by researching this controversy, but you should base your essay on the hypothetical company described above.]