Workout and Turnaround Case Studies
Our typical client is a small businessman who perceives that his business is failing, and who has been advised by other professionals to seek bankruptcy advice.
We have learned over the years that bankruptcy protection is seldom the first choice of remedy. There are many reasons for this.
First, the only reorganization protection for businesses is under chapter 11 of the Bankruptcy Code. This statute is designed for large businesses. Smaller companies simply cannot afford the special legal, accounting, and management costs (typically $50 - $150,000) that formal bankruptcy reorganization entails. Moreover, a company that is losing money prior to bankruptcy will, if not "repaired," continue to lose money while under court protection.
The Bankruptcy Court will not allow itself to be used as a shield to allow a company to run up more debt, and such a company will be (at least in this district) converted to chapter 7 liquidation, which is the worst possible result for the business, its creditors, its customers, and its owners. Conversely, if a business CAN be made profitable, we can almost always negotiate forbearances and payment arrangements with the creditors, which makes bankruptcy protection unnecessary.
Bankruptcy Averted by Threat of Same
A specialty machine shop in the Twin Citie suffered a decline in sales due to the general economy. Its fixed costs -- primarily occupancy, bank debt, and equipment leases -- were not sustainable at the lower revenue level.
Under threat of a chapter 11 reorganization, the client's major creditors reduced their claims by approximately 50%. The client was able to find a new lender to provide blanket financing in this reduced amount, resolving the debts and making bankruptcy unnecessary.