Kmart - Forced Towards Bankruptcy?

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In January 2002, leading US-based retailing company Kmart filed for bankruptcy protection under Chapter 11 after it was unable to meet its payment obligations to suppliers due to severe financial problems. The company, which was the second-largest discount retailer and the third-largest general merchandise retailer in the US, had suffered losses of $ 2.45 billion in 2001. Since Kmart was the largest retailer in US history to declare bankruptcy (2114 stores at the time of the declaration), the news came as a major shock to industry observers, customers and employees.

The problems associated with the day-to-day running of businesses alone did not lead Kmart towards bankruptcy. Reportedly, a host of unethical business practices resorted to by its top executives had played a major role in its downfall. Foremost among these executives were former Chairman Chuck Conaway (Conaway) and former President Mark Schwartz (Schwartz). They were accused of misusing the company’s funds and facilities, misrepresenting financial statements to hide losses, and receiving improper payments from various parties.

Many other executives of the company were also reported to have misappropriated company funds and facilities for personal purposes. Even as Kmart struggled with financial problems, the company’s board had agreed to give out a substantial sum of money as special loans and bonuses to a few top executives.

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