SOMETIMES companies get into financial trouble. They have leadership issues, they have failures by suppliers, and they have cash flow problems. Companies have a lot of problems, often every day. Most of the time, companies get past their problems and move on, they continue to make money, pay their employees and the owners take home some money.
Sometimes the problems are just too big to fix without serious legal assistance. That is where Chapter 11 reorganization can allow a company to rebuild. Her are some examples of what Chapter 11 reorganization can do:
– Creditors cannot demand payment of past due debts. The threatening letters and phone calls stop.
– Most creditors cannot be paid without permission of a United States bankruptcy judge.
– Creditors have to wait while the company reorganizes itself, takes care of its problems and then announces a financial plan to pay creditors money.
– Unprofitable contracts and leases (including building leases) can be rejected.
– A company can rebuild itself and can bring in new employees, new products, new ideas and new vendors.
– In some instances, a company can sell its assets free and clear of creditors to third parties who take over the company’s business.
The third parties can be the owners of the companies. With disclosure of this fact, and a fair price for the circumstances, a federal can approve the sale.
– While there are things about Chapter 11 that are not good, e.g., the reorganization may fail, a Chapter 11 gives a chance to a struggling company to rise from failure to the road to success.
Here are some signs of a business headed toward either failure and shutting down or toward reorganization, a second chance:
• Product/service quality declines; customer complaints rise.
• Over expansion leads to working capital shortage.
• Stale inventory;
• Sales stagnate;
• Profit margin erodes;
• Aging of receivables increases;
• Payables paid with difficulty;
• Advertising and sales budgets cut;
• Payment of payroll taxes deferred;
• Cash balance declines; float played;
• Credit difficult to obtain;
• Creditor lawsuits begin;
• Lender turns matter over to problem loan department;
• Employee morale low; key employees seek new jobs;
• Layoffs begin;
• Business failure imminent;
• Company leaders do not want to go to work, they not want to hear about the problems and it hurts to go to work. Their families are nervous or scared. They are having their own financial problems.
Chapter 11 is serious business. To win, that is to reorganize the company under an order of a United States bankruptcy judge, certain things must happen:
• A plan must be confirmed. Creditors may be paid in part or in full at one time or in payments over time.
• A careful strategy must be put into place before the Chapter 11 case begins. Some of the issues are:
• How does the company go into the Chapter 11?
• Who are the important creditors and vendors?
• How much money does the company need to have in the bank?
• With whom does the company ally?
• Who will the problem creditors be? And
• How does the company get out of Chapter 11? In other words, before going into Chapter 11, the company and its legal team
Develop what they believe is the company’s best exit strategy?
“For to us a Child is born, to us a Son is given, and the government will be on His shoulders. And He will be called Wonderful Counselor, Mighty God, Everlasting Father, Prince of Peace.” — Isaiah 9:6
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Lawrence Bautista Yang and Steven R. Fox are experienced attorneys with deep bankruptcy experience.
Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave, Mailstop 58, Building A-1 Suite 1125, Alhambra, CA 91803, OR at 20274 Carrey Road, Walnut, CA 91789.
Steven R. Fox has represented companies and individuals in Chapter 11 for over 25 years both locally and nationally, representing businesses and business creditors. He is a well-known writer and speaker on bankruptcy issues. His office is located at 17835 Ventura Blvd., Suite 306, Encino, CA 91316. Tel (818) 774-3545 Fax (818) 774-3707. His website is www.foxlaw.com.
