Restoring a Company’s Financial Standing Post-Chapter 11 Bankruptcy

The purpose of going through a Chapter 11 bankruptcy is to get a company back on solid financial ground. Rather than liquidating the company’s assets (as in a Chapter 7 bankruptcy), the focus of a Chapter 11 bankruptcy is on reorganizing the company’s debts so that it can remain viable well into the future. However, maximizing a company’s chances of success post-bankruptcy requires an informed and strategic approach, and this makes it essential to work with an experienced Miami Chapter 11 bankruptcy lawyer who can help you address all pertinent legal, financial, and practical considerations.

Strategic Planning Considerations for a Chapter 11 Business Bankruptcy

Let’s say you are considering a business bankruptcy filing under Chapter 11. What are some of the key considerations you need to address? Here are seven strategic planning considerations for both (i) maximizing the benefits of the Chapter 11 bankruptcy process and (ii) maximizing a business’s chances of long-term success post-bankruptcy:

1. Make Sure Filing Under Chapter 11 is Your Company’s Best Option

First and foremost, you need to be confident that filing under Chapter 11 is your company’s best option. While filing under Chapter 7 generally isn’t an option for companies seeking to stay in business, there are alternatives to bankruptcy that will prove more beneficial in some cases. When you engage a Miami Chapter 11 bankruptcy lawyer, your lawyer should not only advise you regarding the benefits and limitations of reorganizing your company’s debts under Chapter 11 but also advise you regarding alternatives such as debt restructuring and seeking an infusion of additional capital.

2. Carefully Evaluate Your Company’s Assets and Liabilities

In this same vein, it is important to carefully evaluate your company’s assets and liabilities. Does your company have assets that it no longer needs—and that could be sold to free up capital or pay down outstanding liabilities? Does your company have ongoing payment obligations that are unnecessary to its core operations and that it may be possible to wind down? Even if these types of options do not eliminate the need for a Chapter 11 filing, taking steps such as these can reduce the scope of the bankruptcy process while providing the same (if not greater) financial benefits.

3. Make Sure You Have a Clear Understanding of Creditors’ Rights Under Chapter 11

Before initiating a Chapter 11 business bankruptcy, it is also critical to ensure that you have a clear understanding of your company’s creditors’ rights under Chapter 11. Broadly speaking, for federal bankruptcy purposes, creditors will fall into one of two categories—secured or unsecured. Secured and unsecured creditors hold very different positions in Chapter 11 bankruptcy proceedings (particularly small business bankruptcy proceedings under Subchapter V), so knowing each creditor’s status will be critical for making sound decisions.

Considering creditor relationships at the individual level can be important as well. If your company has key lenders or key vendors, doing everything you can to keep these entities happy should be a priority. With that said, companies going through the bankruptcy process must be careful not to unduly favor certain creditors over others. Not only can doing so lead to acrimony during the bankruptcy process, but it can potentially lead to litigation outside of the company’s Chapter 11 bankruptcy proceedings as well.

4. Consider Relevant Market Factors and Forces

When considering a Chapter 11 filing, it is important not to focus solely on the potential effects (both positive and negative) of reorganizing your company’s debts. Relevant market factors and forces require careful consideration as well. Are your company’s finances struggling because of new competition, and if so, do you have a plan for regaining your company’s market share? Are rising interest rates to blame, and with the Fed’s recent rate cut, could refinancing be a viable long-term solution? Before committing to a Chapter 11 bankruptcy, it is important to have a clear understanding of the issues that led to your company’s current financial situation and what you can do to overcome them.

5. Consider the Need for (and Benefits of) Debtor-in-Possession Financing

In many cases, companies that could benefit from a Chapter 11 filing will need additional funding to get them through the bankruptcy process. This is where debtor-in-possession financing comes into play. While taking on additional debt when pursuing bankruptcy may seem counterintuitive, this is a common approach, and there are lenders that specialize in providing debtor-in-possession financing to financially distressed companies.

6. Have a Plan for the Future

Along with considering what it will take to get through the Chapter 11 bankruptcy process, it is also important to consider what it will take to maintain your company’s viability in the future. This includes not only understanding what is manageable in terms of a reorganized payment plan but also having a clear strategy for avoiding similar financial circumstances in the future. While there are, of course, no guarantees, companies that follow a strategic plan are far less likely to find themselves facing the need to consider another Chapter 11 filing (or perhaps a Chapter 7 filing) down the line.

7. Move Forward Once You Have a Plan in Place

Finally, once you have a plan in place, it is time to move forward. At this stage, unnecessary delays can lead to unnecessary challenges, and starting the Chapter 11 bankruptcy process will provide access to all of the benefits the process entails. Likewise, if a Chapter 11 filing is not your company’s best option, then efficiently pursuing an appropriate alternative will afford the opportunity to move on from your company’s current financial challenges as soon as possible.

Schedule an Appointment with a Miami Chapter 11 Bankruptcy Lawyer

If you have questions about the Chapter 11 bankruptcy process and the alternatives that are available, we invite you to get in touch. To schedule a free and confidential consultation with an experienced Miami Chapter 11 bankruptcy lawyer at Edelboim Lieberman, give us a call at 305-768-9909 or tell us how we can reach you online today.