The Missing Ingredient
Turning Distress into Opportunity: Exploring Prepackaged Bankruptcy & Out-of-Court Restructuring
For financially struggling companies that have already leaned on creditors and lenders for forbearance and for whom cost cutting only provided temporary relief, the inevitable path often leads to a grim choice: An assignment for the benefit of creditors (“ABC”), UCC Article 9, Chapter 11 or liquidation.
But there is good news: there are workable alternatives that offer escape routes from this seemingly one-way path. Two particularly effective options are prepackaged bankruptcy and out-of-court restructuring.
Prepackaged bankruptcy. At its core, a prepackaged bankruptcy is a plan prepared in cooperation with a company’s creditors that will take effect once the company enters Chapter 11. This option is generally less expensive and on a faster timeline than a traditional and costly Chapter 11 restructuring.
Out-of-court restructuring. In this scenario, which takes place outside the courtroom, a financially distressed company presents its go-forward plan to the company’s stakeholders with the aim of delivering the same or similar outcome than would be the case with a formal or prepackaged bankruptcy. If done well and under the right circumstances, this approach offers the greatest flexibility and can be accomplished on a faster timeline and at significantly lower cost than a prepackaged bankruptcy and a fraction of the cost of a Chapter 11 filing.
In both cases, a restructuring expert with hands-on operating experience helps develop a transformational strategic and tactical operating plan to return the company to positive cash flow and profitability while proactively renegotiating the capital structure (debt and equity) to align it with the company’s future operations.
Working with troubled companies over the last 30+ years as both an owner, advisor and operator, I’ve observed a remarkable commonality: all stakeholders, from owners and employees to creditors and investors, favor preserving the company’s future. Business relationships often run deep and the best prospect for a full recovery depends on a company’s successful restructuring (which typically isn’t in the cards in a bankruptcy or liquidation scenario).
Importantly, these choices are not mutually exclusive. However, an out-of-court restructuring should be the first port of call for companies facing financial distress looking to deliver a win-win for all stakeholders without the heavy cost and distraction of a court-mandated process.
To learn more about these options, contact the author at: gnacht@synergyllc.net or visit www.synergyllc.net
ABOUT SYNERGY ENTERPRISES AND SYNERGY ADVISORY SERVICES
Synergy Enterprises, LLC is a Boca Raton-based Advisory Services firm owned by Gary Nacht, its Chairman and CEO. Founded in 1995, Synergy has been acquiring and advising distressed and underperforming companies for over 25 years across a wide diversity of industries. Acquisitions have included Kmart Canada, Northern Reflections, Gemini Industries, Inc., DPI International and AmerTac Inc. In the fall of 2013, Synergy launched Synergy Advisory Services to focus on helping financial distressed and underperforming early-stage and mid-sized companies return to positive cash flow and profitability, as well as strategic and tactical mentoring for business owners and senior executives.