Financially Troubled Companies have Alternatives to Bankruptcy



Financially Troubled Companies have Alternatives to Bankruptcy 
By Gary Wartik
March 9, 2014

The Great Recession pulled down tens of thousands of businesses around the nation, clogging the bankruptcy courts, costing investors billions of dollars and the economy several million jobs.  It was not a pretty picture, especially if you were associated with any of the companies forced to close.

Even in improved economic times such as we are experiencing now, a certain number of companies fail to perform well for a variety of reasons.  At issue is what to do about company debt while holding off creditors and seeking approaches to improve the business operations.  After all, the goal should be to save the business, shareholder investments and employee’s jobs.

Management often waits too long to call for professional help in turning around a financially challenged company.   Those who believe that they are able to “right the ship” on their own, often referred to as the “ever-optimistic debtor,” wait too long to seek outside professional assistance.   Instead, they may end up engaging bankruptcy counsel to protect them from creditors.  With some proper timing, guidance from legal counsel, cooperation from creditors and some luck, filing a bankruptcy proceeding to help save a business may be unnecessary.

For more than 30 years, Vision Economics has offered a viable alternative to the formal bankruptcy process.  Often referred to as the “out of court arrangement,” or the “informal arrangement,” this process has a great record in working with a company and its creditors in avoiding a costly bankruptcy proceeding.  The out of court arrangement is often faster, much less expensive; it provides a better mechanism for dialog between management and creditors and it provides for increased input by creditors into the rehabilitation of the company.  In a future article, we will discuss those situations in which a business liquidation is necessary, and the alternatives in those situations to a formal bankruptcy liquidation.

Here are some of the keys to making the informal arrangement successful;

  • Early recognition by management that a problem exists and working with creditors can improve the chances the company will be able to successfully reorganize;
  • If management and creditors meet earlier rather than later, it is easier for both sides to find common ground that may enable each to recognize the mutual benefit of cooperation with each other;
  • Communication with all creditors is part of the process.  This office is able to host a meeting of the creditors or, working with management and a small group of creditors who form a creditors’ committee, then regularly report to creditors in writing the progress being made to help turn around the business and move towards getting creditors repaid.

During the last thirty years, Vision Economics and its predecessors have worked with more than 200 companies in out of court arrangements.  In the April or May newsletter, an additional article will reflect on some of the other details of an out of court arrangement, and also provide information about those instances when a business cannot be saved, and liquidation alternatives need to be considered.

For additional information, or a phone consultation, please call Vision Economics at 805-9878-7322, or email me at gw@visioneconomics.net.

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