Whatever You May Have Heard, Watchtower Firearms Isn’t Going Anywhere

There are significant differences between Chapter 11 and Chapter 7 bankruptcy filings. Watchtower Firearms‘ Chapter 11 filing does not mean the company’s failing. News last weekend that Texas-based Watchtower had filed bankruptcy kicked off the usual industry chatter. Rather than wonder what was up, I talked to Watchtower’s Jason Kolosky to get the straight version of just what’s happening with Watchtower.

Without violating a confidence, I can say that the reason behind their Chapter 11 reorganization filing — again, not a Chapter 7 liquidation filing — was for internal business reasons, not financial difficulties. Their filing says, “operational challenges, tax obligations, and significant vendor and service provider debt” led to the decision to seek Chapter 11 protections.

Under a Chapter 11 bankruptcy, Watchtower gets the opportunity for some breathing space while continuing operations and formulating their plan to emerge from the protections. If/when debtors accept the plan and the bankruptcy court approves it, the plan becomes an operating contract between the company and its debtors.

Only if the plan isn’t approved — or approved and the obligations not met — can a Chapter 11 filing convert into a Chapter 7. At that point, operations cease, and a company’s assets are liquidated to satisfy credit obligations.

I’ve been told financing is already in place and only some “legal/business issues” remain to be resolved. In fact, liquidation wasn’t even mentioned in our conversations.

According to Kolosky, the company’s operating at near capacity, orders are being filled, and they’ll be “coming out of it (Chapter 11) comfortably.” Debtors are being paid and Watchtower has never missed either a bank payment or a payroll. That would point to a Chapter 11 filing that’s meant to address internal, not external issues.

As always, we’ll keep you posted.