The end we knew would come has finally begun. Colt Defense, LLC is set to file chapter 11 bankruptcy protection tomorrow, according to insider sources, reports marketwatch.com:

Gun maker Colt Defense LLC plans to file for chapter 11 bankruptcy protection by Monday, according to people familiar with the matter, amid business and accounting troubles.

The company has secured financing to continue operating while in bankruptcy and expects to remain in business after the restructuring, the people said.

The West Hartford, Conn.-based company, with a legacy dating to 17th century New England, developed a pistol it calls “the gun that won the West” and enjoyed a lucrative stretch in the late 1990s and early 2000s as the U.S. military’s sole supplier of the M4 line of firearms widely used by front-line troops.

But Colt has struggled in recent years with a slowdown in rifle sales and its 2013 loss of a key contract to supply the U.S. Army with the M4. The company has had accounting problems that caused it to revise prior years’ reported financial results and miss a creditor’s initial filing deadline for an annual report, according to regulatory filings.

Colt plans to try to reduce its debt burden via a court-supervised auction of its business, to generate proceeds to repay some of its lenders, the people familiar with the plans said.

Chapter 11 bankruptcy is the final admission that Colt can no longer outrun its creditors. It is the normal method by which large corporations restructure their debt, and the debtor is protected from collection efforts by its creditors. According to moranlaw.net:

Chapter 11 bankruptcy is a form of bankruptcy reorganization available to individuals, corporations and partnerships. It has no limits on the amount of debt, as Chapter 13 does. It is the usual choice for large businesses seeking to restructure their debt.

The debtor usually remains in possession of its assets, and operates the business under the supervision of the court and for the benefit of creditors. The debtor in possession is a fiduciary for the creditors. If the debtor’s management is ineffective or less than honest, a trustee may be appointed.

A creditors committee is usually appointed by the U.S.Trustee from among the 20 largest, unsecured creditors who are not insiders. The committee represents all of the creditors in providing oversight for the debtor’s operations and a body with whom the debtor can negotiate an acceptable plan of reorganization.

A Chapter 11 plan is confirmed only upon the affirmative votes of the creditors, who are divided by the plan into classes based on the characteristics of their claims, and whose votes are a function of the amount of their claim against the debtor.

If the debtor can’t get the votes to confirm a plan, the debtor can attempt to “cram down” a plan on creditors and get the plan confirmed despite creditor opposition, by meeting certain statutory tests.

Chapter 11 is probably the most flexible of all the chapters, and as such, it is the hardest to generalize about. Its flexibility makes it generally more expensive to the debtor. The rate of successful Chapter 11 reorganizations is depressingly low, sometimes estimated at 10% or less.

A more detailed look at what Chapter 11 bankruptcy means is available on the United States Courts website.

We at TFB have been covering Colt’s issues since they became apparent. Many bloggers already had called Colt’s race against debt, notably Hognose of WeaponsMan.com and Daniel Watters of The 5.56 Timeline.

Thanks to Daniel for the tip.

UPDATE: Colt has released a press release describing the bankruptcy process and how it will affect sales of their commercial offerings:

WEST HARTFORD, Conn.–(BUSINESS WIRE)–Colt Defense LLC (“Colt” and the “Company”) announced today in voluntary Chapter 11 materials filed in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) a process that will allow for an accelerated sale of Colt’s business operations in the US and Canada. Colt’s current sponsor, Sciens Capital Management LLC (“Sciens”), has agreed to act as a “stalking horse bidder” and has proposed to purchase substantially all of Colt’s assets and assume secured liabilities and all liabilities related to existing agreements with employees, customers, vendors, and trade creditors. Colt intends for the sale to ensure a smooth and swift transition of the business with all of its iconic brands, products, and operations supported by a stronger balance sheet due to a significantly lower debt burden. As part of the Sciens led bid, Colt will be able to reassure its employees and local community of its commitment to continued operations in West Hartford through a long term extension on the lease for its manufacturing facilities and campus in West Hartford. In accordance with the sale process under section 363 of the Bankruptcy Code, notice of the pending sale to Sciens will be given to third parties and competing bids will be solicited, with an independent committee of Colt’s board of managers established to manage the bidding process and evaluate bids. The Company intends to continue its normal business operations throughout the accelerated sale process and has asked the Bankruptcy Court to approve certain Company requests to protect trade creditors, vendors, and suppliers, thereby allowing for its operations to continue uninterrupted during the Bankruptcy Court supervised sale process. Union-related agreements will also be unaffected and employees will be paid all wages, salaries and benefits on a timely basis. The current management team, which has been led since October 2013 by President and CEO Dennis Veilleux, will remain in place throughout the process. “The plan we are announcing and have filed today will allow Colt to restructure its balance sheet while meeting all of its obligations to customers, vendors, suppliers and employees and providing for maximum continuity in the Company’s current and future business operations,” said Keith Maib, Chief Restructuring Officer of Colt Defense LLC. “While entering Chapter 11 protection in the absence of a consensual agreement with our noteholders was not our preference and we do not take it lightly, we are confident it is the best path going forward and will enable us to continue to gain traction on a challenging but achievable turnaround in our business performance and competitive positioning in the international, U.S. government and consumer marketplaces. Importantly, Colt remains open for business and our team will continue to be sharply focused on delivering for our customers and being a good commercial partner to our vendors and suppliers. We look forward to successfully executing on this plan, which provides a sound path of stewardship for an iconic American brand and the key stakeholders we serve.” Colt’s existing secured lenders have also agreed to provide, subject to approval of the Bankruptcy Court, $20 million in debtor in possession credit facilities to allow for continuation of operations in the ordinary course of business during the Chapter 11 process. The entire process is expected to be complete within 60-90 days. On June 12, 2015, Colt’s previously announced exchange offer, consent solicitation and solicitation of acceptances of a prepackaged plan of reorganization with respect to its 8.75% Senior Notes due 2017 expired. The conditions to the exchange offer, the consent solicitation and the prepackaged plan of reorganization were not satisfied and such conditions were not waived by Colt. All 8.75% Senior Notes due 2017 of Colt tendered and not validly withdrawn pursuant to such exchange offer will be returned promptly to the tendered holder thereof in accordance with the Offer to Exchange, Consent Solicitation Statement, and Disclosure Statement Soliciting Acceptances of a Prepackaged Plan of Reorganization, dated April 14, 2015, as supplemented, and applicable law. Perella Weinberg Partners L.P. is acting as financial advisor of the Company, Mackinac Partners LLC is acting as restructuring advisor of the Company and O’Melveny & Myers LLP is the Company’s legal counsel. For access to Court documents and other general information about the Chapter 11 cases, please visit: http://www.kccllc.net/coltdefense.

The press release indicates that Colt expects no interruptions in the sale of its commercial firearms, and expects this process to take 60-90 days.