Bankruptcy should be viewed by a troubled or crisis stage
company as a last resort after all other options have been totally exhausted. In our view,
the economic value of a troubled company is maximized when agreement can be reached on an
out of court or non-bankruptcy restructuring. A non-bankruptcy restructuring is based on a
sound and credible turnaround plan which has the input and agreement of all the
constituent stakeholder groups.
In the final analysis, a bankruptcy filing means that the
constituent groups could not agree on a turnaround plan and that the courts have been
asked to do what they could not agree on.
The protection provided under a Chapter 11 bankruptcy filing are well
understood and, in some cases, is the best available alternative. A Chapter 11
filing provides the debtor with the opportunity to negotiate settlements with creditors
and the time to develop a plan of reorganization to emerge from bankruptcy. However, any
company contemplating a bankruptcy filing must recognize that this process has some
inherent disadvantages, including:
- The high direct costs associated with a bankruptcy including the professional
costs of attorneys, turnaround professionals, accountants, creditor committees and others.
- The additional time and expense associated with the onerous rules and reporting
regulations and the additional distraction to management's efforts to save the business.
- The stigma associated with a chapter filing on customers, suppliers and
employees and the competitive disadvantage it creates in the company's markets.
- The fact that many companies emerging from bankruptcy find themselves seeking
court protection again as a result of the financial strains of the previous bankruptcy
filing.
