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Fight or Flight: Restructuring vs. Bankruptcy?

Fight or Flight: Restructuring vs. Bankruptcy?

When faced with tough times, many companies are quick to look at Bankruptcy as the solution to their problems.  Sometimes, this turns out to be the only answer.  Many times, there is another option.  Corporate finance restructuring can accomplish the same end but at a much lower personal and financial cost.

Bankruptcy has drawbacks…

With a bankruptcy, there are devastating, permanent consequences for both trade and customer relationships as well as personal credit.  The process is protracted, out of the businesses’ control, with a significant amount of money spent on legal and administrative costs associated with a Chapter 11, before any creditors are paid.

According to the American Bankruptcy Institute (ABI), filings of commercial bankruptcies fell in 2011 nationwide compared to the previous year.  This, after a series of significant rises in the years just after the recession. A poll by the ABI found that most respondents expected commercial bankruptcies to increase in 2012 due to continued fallout of the recession, with too much debt and restricted access to capital cited as the main reasons for more commercial filings this year.

Settling out of court has benefits…

There are bankruptcy alternatives. A voluntary business debt restructuring program addresses both:  reducing debt and thereby making a company more qualified for recapitalization.  An out of court, commercial debt restructuring can be much faster and more cost effective than filing for bankruptcy. New terms with vendors and suppliers can be worked out to avoid bankruptcy and maintain relationships that are vital to any business.  By reducing the amount of debt owed and/or extending debt payment terms, corporate debt can be restructured to position a rapid return to profitability.  Or, in the case of a business wind down, restructuring debt can provide a clean exit and avoid the long term personal fallout of bankruptcy filing.

Denial and Procrastination are not your friends.

Not admitting a problem and waiting to engage outside help will often leave a company without the option to settle out of court. In order to have a shot at commercial debt restructuring and remaining in business, it is important to act as quickly as possible.

In addition to timing, getting the right partner is key.  Companies interested in the possibility of a business debt restructuring verses filing Chapter 11, should shop around and find a firm best suited to their needs, then check references, history and other credible sources (like the BBB) in the vetting process.