It’s an enticing strategy, but a cautionary tale. Charter has been hit with a $19 million fine for false advertising during the Windstream bankruptcy reorganization. Windstream filed for bankruptcy in 2019 but has since restructured and emerged from it.
Charter launched an advertising campaign targeting Windstream customers, encouraging them to switch to Spectrum so they wouldn’t lose internet and TV services during Windstream’s reorganization. Apparently Charter even mimicked the color scheme used by Windstream with some of the advertising pieces.
The U.S. Bankruptcy Court of the Southern District of New York has fined Charter $19 million, citing false and intentionally misleading advertising. According to a Wall Street Journal report about the Charter Windstream bankruptcy fine, the decision represents the largest compensatory damages award a bankruptcy court has awarded for violating the bankruptcy stay. Charter will likely appeal the ruling from Judge Robert Drain.
Windstream continued to operate after filing for bankruptcy in 2019, securing $1 billion in debtor-in-possession (DIP) financing at the beginning of the process for ongoing operations. Windstream’s bankruptcy was driven more by losing a legal fight with a hedge fund over its controversial REIT spinoff strategy with Uniti Group, than through operational or financial failure, the company argued in court.
Companies often look to capitalize on a competitor’s bankruptcy filing, seeing it as an opportunity to poach away customers in the process. But it’s a fine balancing act between trying to instill fear and enticing people to switch versus just normal marketing practices.
In fact bankruptcy law says competitors are forbidden from meddling with customers of a firm that has filed for chapter 11 bankruptcy.