A Closer Look at Five Potential Alternatives to Reorganizing Under Chapter 11
We’ve talked previously about some potential alternatives to reorganizing under Chapter 11, and for businesses that are in financial distress, it is critical to consider all options that are on the table. While working with a Miami Chapter 11 bankruptcy lawyer to formally reorganize a business’s debts will be a viable—and necessary—solution in many cases, there are other options that can prove effective in many cases as well.
As with all aspects of business ownership and management, when it comes to dealing with financial distress, informed decision-making is critical. By giving due consideration to all of the options that are on the table, business owners and executives can ensure that they are making confident and strategic decisions with their businesses’ long-term best interests in mind.
5 Alternatives for Florida Businesses Considering a Chapter 11 Bankruptcy
With this in mind, what are the alternatives that business owners and executives should consider when they are contemplating reorganization under Chapter 11? Here are five key examples:
1. Forbearance Agreements
Forbearance agreements provide businesses with an opportunity to come current on past-due debts without facing the consequences of default. These are agreements entered into between businesses and their creditors outside of the formal bankruptcy process.
In exchange for agreeing not to foreclose or pursue other collection action as the result of the default at issue, creditors will typically require various protections. For example, creditors will want their forbearance agreements to clearly state that they are not waiving their right to repayment or to declare a default in the future. In this scenario, creditors also need to be careful to avoid establishing a “course of conduct” of not taking action in response to defaults.
As a result, when negotiating forbearance agreements, it is imperative that businesses not focus solely on the financial relief they are seeking—the entire agreement requires careful consideration. In addition to helping business owners and executives decide whether seeking a forbearance agreement is a viable option, an experienced Miami Chapter 11 bankruptcy lawyer should also be able to assist with negotiating appropriate protections.
2. Informal Debt Restructuring
Along with entering into forbearance agreements, other forms of informal debt restructuring can also serve as viable alternatives to reorganization under Chapter 11 in appropriate circumstances. In many cases, when a business is struggling to meet its financial obligations as they come due, it will be in both parties’ best interests to find a solution that preserves the relationship without the need for reorganization or litigation.
There are various ways to approach restructuring a company’s existing debts outside of the formal bankruptcy process. Timing is often a key consideration as well—as businesses must be able to demonstrate the need for (and shared interest in) restructuring their debts without waiting so long that their creditors choose to pursue collection or an involuntary bankruptcy petition. Here too, an experienced Miami Chapter 11 bankruptcy lawyer should be able to assist with strategic decision-making.
3. Renegotiating Contracts with Lenders, Vendors and Customers
In addition to, or in lieu of, seeking to restructure their outstanding liabilities, financially distressed businesses can often improve their financial circumstances by renegotiating contracts with lenders, vendors and customers. By seeking to renegotiate before going into default, businesses can often improve their posture in renegotiations, and this type of proactive approach can often help to preserve essential commercial relationships as well.
Of course, these parties are not required to renegotiate, and some may be unwilling to do so—at least initially. Additionally, businesses often need to be careful when disclosing their financial struggles, particularly to customers who may not be interested in granting concessions or taking a wait-and-see approach. But, with the right approach, efforts to renegotiate before going into default will prove beneficial for all parties involved in many cases.
4. Internal Corporate Restructuring
Before seeking to address their financial concerns externally, businesses may want to consider whether they can make changes internally as well. From streamlining their operations to increase output to implementing artificial intelligence (AI) technologies and conducting reductions in force, businesses may have various options for reducing their costs, increasing their revenue or both. In many cases, these types of changes can have both immediate and long-term effects—and, if successful, they can eliminate (or, at the very least, reduce) the need to seek concessions from outside parties.
5. Assignment for the Benefit of Creditors
Finally, if there isn’t a solution to a business’s financial woes that allows it to continue operating, an assignment for the benefit of creditors can serve as an efficient means of winding down the business’s operations without the need for a formal bankruptcy filing. With an assignment for the benefit of creditors (commonly referred to as an “ABC”), the business transfers its assets and debts to an intermediary—which is typically a law firm experienced in insolvency matters—that then sells its assets in order to resolve its debt obligations.
While an assignment for the benefit of creditors is similar to a Chapter 7 bankruptcy filing in its ultimate outcome, an ABC can be both quicker and cheaper than a Chapter 7 filing. Pursuing an ABC also allows the process to take place behind the scenes without any public filings, and it avoids the credit-related consequences of a formal liquidation. As a result, when the best approach is to wind down a business’s operations and move on, an ABC will often be a viable and desirable (under the circumstances) path forward for all parties involved.
Request a Free Consultation with a Miami Chapter 11 Bankruptcy Lawyer at Edelboim Lieberman
If your business is struggling financially and you have questions about the options you have available, we invite you to get in touch. An experienced Miami Chapter 11 bankruptcy lawyer at Edelboim Lieberman can explain everything you need to know and help you chart a strategic path forward. To get started with a free and confidential consultation, give us a call at 305-768-9909 or tell us how we can contact you online today.
