Bankrupt businesses may spur rural economies

North Dakota State Roundup

Published October 1, 1994  | October 1994 issue

Small communities in rural North Dakota hope to receive an economic boost by luring formerly bankrupt businesses into town.

Lawyers David Crane and Tom Secrest formed Dakota Management Corp. earlier this year to bring businesses that have filed Chapter 11 bankruptcy to North Dakota. Dakota Management is in the process of acquiring three firms from California, Nevada and Texas, Crane says. The firms would bring up to 60 new jobs to the southwest communities of Mott, Elgin and Hettinger.

Fishing for Chapter 11 firms may sound risky, but it actually could prove better than starting businesses from scratch, according to Chuck Stroup, director of the state's Department of Economic Development and Finance. "Start-up businesses have many unknowns," Stroup says, "Chapter 11 businesses have gone through an excruciating period of time; the mistakes have already been made."

Newly arrived companies immediately stimulate local economies, important for a state losing people in rural areas, according to Crane. "We don't have much time," Crane says, "the infrastructure is still in fair shape; we must do something to maintain it."

Capital to purchase Chapter 11 businesses is raised by selling shares to local investors and securing loans from area banks and the Small Business Administration. Prospective companies must have an established market and be willing to move to North Dakota, Crane says. Dakota Management provides marketing and management for the businesses.

Stroup cites a well-educated and motivated work force, low wages, low crime and open prairies with clean air as reasons to locate in North Dakota. On the downside, producing in North Dakota includes higher transportation costs to and from coastal markets.

The current projects would bring a variety of industries to North Dakota. Dakota Management is bidding for a 51 percent share of a ready-to-assemble furniture manufacturer that plans to open a plant in Hettinger. Vitamin Research Products would move from Carson City, Nev., to Mott. A proposed factory in Elgin would turn cotton and Levi denim scraps into filling for mattresses and furniture padding.

With success from the first three projects, other communities may call for Dakota Management's expertise, Crane hopes. "The market is small towns in the Upper Midwest. We will take the same approach to other communities: You provide money, we'll provide you with the management," Crane says.

Rob Grunewald