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A California trend -- another solar company files for Chapter 11

It happened again: another solar power company in California recently filed for bankruptcy. NovaSolar, Inc., a company that grew out of an earlier solar power firm known as OptiSolar, filed for Chapter 11 bankruptcy protection on June 15. OptiSolar, which was previously based in Hayward, California, was in business from 2006 until 2009, at which point it stopped production.

When OptiSolar ended operations in 2009, NovaSolar was formed from OptiSolar's management and intellectual property assets. A Chinese company was the sole shareholder in this new enterprise, and management, production, research and development were all to occur at different locations in both China and California. NovaSolar, however, kept most of the business structure of its predecessor. It appears that the inability to adapt and change to the realities of the solar power sector is what led NovaSolar to the current bankruptcy filing.

The bankruptcy documents listed $14 million in liabilities and $6 million in assets. But according to other reports, the company laid off 52 of its 60 employees back in February, and NovaSolar has also stopped construction of new facilities. Of the $14 million listed in liabilities, approximately $3.5 million consists of unpaid wages to employees.

When a company files for Chapter 11 protection, the goal is usually to put a temporary pause on creditor claims while the company reorganizes its business structure. The value of time can be the biggest reason to file for Chapter 11. Through such an action, companies are given the breathing room they need to make necessary changes to personnel and operations.

As NovaSolar goes through the Chapter 11 process, eventually we will see whether or not the company is able to put forward a feasible plan to stay in business.

Source: Bloomberg Businessweek, "Solar Firm NovaSolar Files for Chapter 11 Bankruptcy," Stephanie Gleason, June 18, 2012

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