What if Your Company’s Chapter 11 Reorganization Plan Isn’t Working Out?

When companies pursue reorganization under Chapter 11, they typically do so with optimism for the future. The purpose of reorganizing under Chapter 11 (as opposed to liquidating under Chapter 7) is to keep the company afloat while it pursues a path toward profitability. But, even with a strong plan and the best of intentions, reorganizing a company’s debts isn’t always enough. If your company’s reorganization plan isn’t working out, what do you need to know? Find out from an experienced Miami Chapter 11 bankruptcy lawyer at Edelboim Lieberman:

Dealing with Financial Strain After a Chapter 11 Reorganization

If your company is dealing with financial strain after a Chapter 11 reorganization, what options do you have available? The short answer, generally speaking, is that you have the same options you had previously. Reorganizing a company’s debts under Chapter 11 does not take any options off of the table—and, if your company’s financial struggles are continuing with its reorganization plan in place, you will want to perform the same analysis that you performed previously when you made the decision to file under Chapter 11.

This means that you will want to consider options such as:

• Internal Financial or Organizational Restructuring – In many cases, companies can improve their cash flow through internal financial or organizational restructuring. Liquidating company assets that are no longer needed may be an option for paying off creditors and reducing the company’s debt load as well. While “internal restructuring” is often viewed as a euphemism for conducting layoffs, this is not necessarily the only option that is available. Streamlining or overhauling a company’s operations can also lead to reductions in overhead in other areas, and they can potentially lead to increases in revenue as well.
• Informal Debt Restructuring – Informal debt restructuring involves working with individual creditors (or groups of creditors) to reduce a company’s ongoing financial obligations without going through the formal Chapter 11 reorganization process. In many cases, when faced with the choice of informally restructuring a company’s obligations or going through the Chapter 11 bankruptcy process, creditors will prefer the former option under the circumstances at hand. There are a variety of ways to approach informal debt restructuring, and an experienced Miami Chapter 11 bankruptcy lawyer should be able to assist with evaluating each of these options.
• Entering Into a Forbearance Agreement (or Multiple Forbearance Agreements) – Forbearance agreements provide companies with financial breathing room without the risk of being declared in default. A well-drafted forbearance agreement will clearly specify the protections afforded to the debtor while also clearly specifying the creditor’s remedies in the event of debtor non-compliance. When entering into forbearance agreements, companies must be careful to ensure that they are not taking on additional and undue risks for the future, and this makes it important to work closely with an experienced lawyer throughout the drafting and negotiation process.
• Renegotiating Contracts with Outstanding or Ongoing Liabilities – Another option that companies can consider in lieu of (or in addition to) negotiating forbearance agreements is renegotiating contracts with outstanding or ongoing liabilities. This is a common tactic for reducing companies’ financial obligations under leases, vendor agreements, and other commercial contracts. With that said, lessors, vendors, and other commercial parties are not required to negotiate, so a strategic approach that offers benefits for both sides is essential.
• Reorganizing Under Chapter 11 (a “Chapter 22” Bankruptcy) – There is nothing in the U.S. Bankruptcy Code that prevents companies from filing under Chapter 11 twice. In fact, this is common enough that it has its own term: a “Chapter 22” bankruptcy filing. If your company’s current financial struggles are due to a change in circumstances beyond your control, the best option could be to develop a new reorganization plan that is better-suited to the present circumstances.

Of course, winding down the company’s operations remains an option as well. In this type of scenario (when a company has debts it cannot afford to pay), winding down the company’s operations will typically involve either pursuing a liquidation bankruptcy under Chapter 7 or pursuing an assignment for the benefit of creditors. While pursuing an assignment for the benefit of creditors will often be preferable for a variety of reasons, once again, it is important to thoughtfully consider all of the options that are on the table.

Which Option Should You Choose to Address Your Company’s Financial Strain?

Given the various options that are available—and the significant differences between them—which option should you choose to address your company’s financial strain? As you have likely discerned already, there is no single “right” answer. Struggling companies’ circumstances vary widely, and company owners and executives must ultimately make informed and strategic decisions based on what they believe is both realistic and in their company’s best interests under the specific circumstances at hand.

To make these decisions, company owners and executives will want to thoughtfully consider questions such as:

• Does the company have overhead or assets that are no longer necessary (or that have never been necessary)?
• Are the company’s creditors likely to be receptive to renegotiating or entering into a forbearance agreement?
• If the answer to the prior question is “Yes,” which creditors are likely to be most receptive, and how much will they be willing to concede in order to maintain the relationship?
• If the company pursues a “Chapter 22” bankruptcy, will reorganizing its debts again provide long-term stability and an opportunity for growth based on what is foreseeable?
• Is the company’s leadership team committed to making the changes that are necessary to drive the company forward?

These are just examples. When companies are facing financial strain following a Chapter 11 reorganization, there are many other important considerations as well. To learn more, schedule a free consultation with an experienced Miami Chapter 11 bankruptcy lawyer at Edelboim Lieberman today.

Schedule a Free Consultation with a Miami Chapter 11 Bankruptcy Lawyer at Edelboim Lieberman

To schedule a free consultation with an experienced Miami Chapter 11 bankruptcy lawyer at Edelboim Lieberman, call us at 305-768-9909 or contact us online. We will make arrangements for you to speak with one of our lawyers in confidence as soon as possible.