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Help, My Business is in Trouble! (Series: Restructuring, Insolvency & Troubled Companies 2020)

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Help, My Business is in Trouble! (Series: Restructuring, Insolvency & Troubled Companies 2020)

When a business becomes financially troubled, the business owner often experiences denial, paralysis, or both. Lenders commonly lose confidence and then trust in the business, as communications tend to break down, deadlines are missed, and promises are broken. Small business owners commonly have issued personal guarantees, so business failure can often lead to personal financial stress. The good news is the business and business owner usually has some options, and even some leverage. This webinar explains what a business owner should- and should not- consider and do when dealing with financial trouble. Specific topics include discussion of bankruptcy (Chapters 7 and 11); assignments for the benefit of creditors; and friendly foreclosures. This webinar provides the business owner and her advisors with an overview of various restructuring and liquidation methods, a framework for how to decide between them, and practical tips for traversing the difficult environment that is financial distress.

To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/help-my-business-is-in-trouble-2020/

When a business becomes financially troubled, the business owner often experiences denial, paralysis, or both. Lenders commonly lose confidence and then trust in the business, as communications tend to break down, deadlines are missed, and promises are broken. Small business owners commonly have issued personal guarantees, so business failure can often lead to personal financial stress. The good news is the business and business owner usually has some options, and even some leverage. This webinar explains what a business owner should- and should not- consider and do when dealing with financial trouble. Specific topics include discussion of bankruptcy (Chapters 7 and 11); assignments for the benefit of creditors; and friendly foreclosures. This webinar provides the business owner and her advisors with an overview of various restructuring and liquidation methods, a framework for how to decide between them, and practical tips for traversing the difficult environment that is financial distress.

To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/help-my-business-is-in-trouble-2020/

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Help, My Business is in Trouble! (Series: Restructuring, Insolvency & Troubled Companies 2020)

  1. 1. 1
  2. 2. 2 Practical and entertaining education for attorneys, accountants, business owners and executives, and investors.
  3. 3. 3 Thank You To Our Sponsors
  4. 4. Disclaimer The material in this webinar is for informational purposes only. It should not be considered legal, financial or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. 5
  5. 5. Meet the Faculty MODERATOR: Thad Wilson - King & Spalding LLP PANELISTS: Jonathan Friedland - Sugar Felsenthal Grais & Helsinger LLP Jonathan Carson - Stretto Shanté George - Baker Tilly Virchow Krause, LLP 6
  6. 6. About This Webinar – Help, My Business is in Trouble! When a business becomes financially troubled, the business owner often experiences denial, paralysis, or both. Lenders commonly lose confidence and then trust in the business, as communications tend to break down, deadlines are missed, and promises are broken. Small business owners commonly have issued personal guarantees, so business failure can often lead to personal financial stress. The good news is the business and business owner usually has some options, and even some leverage. This webinar explains what a business owner should- and should not- consider and do when dealing with financial trouble. Specific topics include discussion of bankruptcy (Chapters 7 and 11); assignments for the benefit of creditors; and friendly foreclosures. This webinar provides the business owner and her advisors with an overview of various restructuring and liquidation methods, a framework for how to decide between them, and practical tips for traversing the difficult environment that is financial distress. 7
  7. 7. About This Series – Restructuring, Insolvency & Troubled Companies Companies fail all the time, for all sorts of reasons. Some companies become distressed, or even insolvent, because of mismanagement; others because of fraud; others for myriad other reasons- some intrinsic to the company and some extrinsic. Regardless of the cause, failing or failed companies create a unique set of issues, risks, and even opportunities for all involved. This area of law and finance has become so specialized that no fewer than five (American Bankruptcy Institute; Association of Insolvency & Restructuring Advisors; Commercial Law League of America; National Association of Federal Equity Receivers; Turnaround Management Association) national organizations exist to help those who specialize in the field to stay up to date on the latest developments, strategies, and tactics in the area. Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and executives without much background in these areas, yet is of primary value to attorneys, accountants, and other seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that participants will enhance their knowledge of this area whether they attend one, some, or all episodes. 8
  8. 8. Episodes in this Series #1: Help, My Business is In Trouble! Premiere date: 8/19/20 #2: Opportunity Amidst Crisis- Buying Distressed Assets, Claims, and Securities for Fun & Profit Premiere date: 9/16/20 #3: Bad Debtor Owes Me Money! Premiere date: 10/14/20 9
  9. 9. Episode #1 Help, My Business is In Trouble! 10
  10. 10. Strategic Alternatives for Distressed Businesses 11
  11. 11. Strategic Alternatives Against Distressed Businesses 12
  12. 12. Factors Affecting a Decision 13
  13. 13. Key Considerations Driving Strategy  Senior secured creditors’ desired path  Potential buyer’s desired path  Presence of personal guaranties  Whether customers care about company’s financial problems  Status of company’s relationship to key vendors  Whether any vendors are irreplaceable as supply sources  Competition level of company’s industry  Broader industry trends, particularly in commodity-based industries  Whether entities affiliated/related to company are not troubled 14
  14. 14. Additional Key Considerations Driving Strategy  Secured debt  Real property leases  Contracts  Union liabilities  Environmental liabilities  Pending litigation  Prior transactions and related limitations periods  Government bailouts and restrictions 15
  15. 15. Constituencies to Consider  Equity sponsor / Shareholders  Secured lenders  Vendors  Customers  Landlords  Asset purchaser / Competitors  Government  Unions / Employees 16
  16. 16. Fiduciary Duties 17
  17. 17. Fiduciary Duties: Gheewalla 18
  18. 18. A Buyer’s Perspective  Buyers like to buy cheap & want to avoid risk. But when dealing with troubled companies:  Some options are cheaper but carry higher risk  Some carry lower risk but are more expensive • Buyers generally do not like the prospect of an open auction, which is mandated by the bankruptcy process • Third-party buyers are wary of credit bidding by secured lenders, so support from secured lender is usually critical to a successful process 19
  19. 19. A Buyer’s Perspective 20 What Risks?
  20. 20. Chapter 11 Bankruptcy Filings  US Bankruptcy Code: Title 11 of the United States Code  Basics of Chapter 11:  Petition filed with bankruptcy court (voluntarily or involuntarily)  The debtor, as “debtor-in-possession,” acts as trustee of the business (a “debtor”)  Fixed priority order for creditor distributions  Automatic stay of creditor actions to collect debts  Ability to seek debtor-in-possession (“DIP”) financing  Ability to reject certain executory contracts & leases  Recognized sale process allowing buyers to buy “free and clear” of liens, claims and encumbrances 21
  21. 21. Chapter 11 Advantages 22
  22. 22. Chapter 11 Disadvantages 23
  23. 23. Assignments for Benefit of Creditors (“ABCs”) 24
  24. 24. Assignments for Benefit of Creditors (“ABCs”)  ABC is a state law remedy, so form of ABC will vary depending on laws of relevant jurisdiction  Statutory vs. Common Law ABCs  States may adopt statutes to govern ABCs (e.g., California, Delaware, New York)  State law sets specific requirements Assignee must follow (e.g., claims bar dates for creditors, form of notice of ABC to creditors, etc.)  Others may have no statutory framework, but case law exists to govern ABCs (“Common Law” ABC) (e.g., Illinois)  Under common law ABC, Assignment is simply a contract between debtor to transfers title, custody, and control of property to Assignee for sale/liquidation 25
  25. 25. ABC Advantages 26
  26. 26. ABC Disadvantages 27
  27. 27. Creditor Composition / Composition Agreements  Sometimes referred to as “Compositions,” “Creditor Compositions,” or out-of-court chapter 11s  Composition Agreement is a contract between a debtor and its creditors  Participating creditors agree to accept payments specified under agreement in full satisfaction of their claims against debtor  Appropriate where business is only capable of reorganizing by a reduction in overall debt, and creditor body is unified or small enough to make negotiating feasible 28
  28. 28. Creditor Composition Advantages 29
  29. 29. Creditor Composition Disadvantages 30
  30. 30. Workouts  May be difficult to obtain consent of nearly all creditors as required for a composition, so company may opt to seek concessions solely from financial creditors (bank, equipment lessors, bondholders, etc.)  Workout Agreement restructures debt of a particular creditor (e.g., secured loan) or tranche of creditors (e.g., notes or bonds) 31
  31. 31. Workouts Advantages 32
  32. 32. Workouts Disadvantages 33
  33. 33. “Naked” Sale by Debtor  Debtor sells assets, generally to secured lender or 3rd party (potentially its own shareholders) with consent of secured lender.  Advantages:  Quick and relatively inexpensive method of liquidating a business  May also serve as a quick method for the sale of a company as a going concern  Disadvantages:  Requires consent of all lienholders  Treatment of, and impact on, unsecured creditors  Possibility of being deemed a fraudulent/voidable transfer  Breach of fiduciary duty concerns for board of directors of debtor 34
  34. 34. Article 9 Sales  Fast & inexpensive way to sell secured creditor’s collateral  Uniform Commercial Code (“UCC”) permits secured party to take possession of its collateral &, without removing collateral from the debtor’s premises, dispose of it  Sale must be “commercially reasonable”  Secured party may purchase the collateral at public sale but not at private sale unless the collateral has a public market where price can be readily ascertained 35
  35. 35. Article 9 Sales  Secured party must notify debtor, any other guarantors or obligors, & other junior secured parties  When rules are followed, all of debtor’s rights in collateral are transferred to buyer and subordinate security interests are discharged.  Good faith purchaser for value takes title free and clear even when secured party fails to strictly comply with statutes 36
  36. 36. Article 9 Sales  Process basics:  Notice of Default and Acceleration of Debt provided by secured party to debtor and guarantors  Voluntary Repossession Agreement, Replevin Lawsuit or “Self Help” Repossession (no trespass or breach of peace such as use of physical force or threats; replevin bonds)  10-day UCC Notice of Private or Public Foreclosure Sale and Affidavit of Mailing provided by secured party to each debtor, guarantors, & lienholders identified from current UCC and tax lien search & potential interested purchasers  Special procedures for tax liens (e.g. federal tax liens require 25-day notice) 37
  37. 37. Article 9 Sales  Additional documentation needed:  Proof of Advertising of UCC foreclosure sale in local newspaper or other relevant publication (including online)  Power of Attorney from secured party for bidding at UCC public sale  Script of UCC Public Foreclosure Sale or audio/video recording of sale  Bill of Sale from secured party to purchaser 38
  38. 38. About the Faculty 39
  39. 39. About The Faculty Thad Wilson - ThadWilson@KSLAW.com Thad Wilson is a Partner in the Atlanta office of King & Spalding LLP and a member of its Financial Restructuring Practice Group. Ranked by Chambers USA 2020 as a “Rising Star” in Bankruptcy, Thad represents a broad spectrum of clients in financial restructuring, corporate and insolvency matters, including debtors, secured and unsecured creditors, and other parties in interest in major Chapter 11 bankruptcy cases. He has extensive experience representing clients in insolvency-related litigation and disputes. Thad is a member of the American Bankruptcy Institute, the Turnaround Management Association (currently a board member of its Atlanta chapter), and the State Bar of Georgia. In 2014, Thad was elected to the initial class of Barristers of the W. Homer Drake, Jr. Georgia Bankruptcy American Inn of Court, of which he is currently a member. 40
  40. 40. About The Faculty Jonathan Friedland - jfriedland@sfgh.com Jonathan Friedland, a senior partner with Sugar Felsenthal Grais & Helsinger, LLP, views his job simply: to make money for clients whenever possible and to protect their interests at every turn. Licensed in four states, Jonathan’s transactional work focuses on representing private funds and other owners of private businesses, and the businesses they own. He regularly advises on M&A activities, structuring new ventures and restructuring old ones, and on other commercial relationships. Jonathan is rated AV® Preeminent™ by Martindale-Hubbell, 10/10 by AVVO, and enjoys several other similar distinctions. Jonathan graduated from the State University of New York at Albany, magna cum laude (in three years) and from the University of Pennsylvania Law School. He clerked for a federal judge before entering private practice and served for several years as an Adjunct Professor of Strategic Management at the University of Chicago’s Graduate School of Business. Jonathan is lead author and editor of several significant treatises, several chapters in other treatises, and scores of articles on law and business. 41
  41. 41. About The Faculty Jonathan Carson - jonathan.carson@stretto.com Jonathan serves as Chief Executive Officer of Stretto, leading the charge in outlining go-to market strategies and tactics geared toward company growth. As co-founder of Kurtzman Carson Consultants LLC, Jonathan is recognized as a trailblazer in the bankruptcy industry. With more than 20 years of bankruptcy experience, Jonathan leads the Executive Management Team’s efforts to drive market-share growth, and successfully enter new business lines in furthering Stretto’s overall market strategy as a leader in bankruptcy services and technology. Working together to identify, target and pursue various industry sectors, Jonathan instructs this talented group across departments on best practices for increasing market share and solidifying Stretto’s position as a leading provider of bankruptcy administration services. 42
  42. 42. About The Faculty Shanté George - shante.george@bakertilly.com Shanté George has consulting experience in the areas of bankruptcy, financial and operational restructuring, transactional due diligence and forensic investigations. She has extensive experience advising companies, unsecured creditors, trustees and examiners in both bankruptcy and out-of-court proceedings. She leads large engagement teams in analyzing liquidity and stabilizing cash flow, preparing and critiquing business plans, assessing feasibility issues, and conducting claims analyses. Shante also regularly conducts complex forensic and financial analyses relating to the evaluation of potential causes of action, asset misappropriation and cash tracing, earnings manipulation, and other forensic accounting matters 43
  43. 43. Questions or Comments? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education. 44
  44. 44. ABOUT DailyDAC DailyDAC.com is the leading source of information about assignments, article 9, bankruptcy, receiverships, out-of-court workouts and vulture investing, designed for business owners and vulture investors. Visit us at www.dailydac.com. Premium Public Notice Service DailyDAC’s Premium Public Notice Service helps market asset sales on behalf of fiduciaries (e.g., Chapter 11 debtors- in-possession and committees, trustees, receivers, assignees), secured lenders selling collateral under UCC Article 9, and auctioneers to a very large and self-selected group of potential bidders and their advisors. The Service also assists with noticing other events, deadlines, and milestones – including tombstones and other press releases. Our free weekly newsletter, DailyDAC contains our latest bankruptcy article, current Public Notices and all opportunistic deals added to our proprietary database that week. Sign up at: https://www.dailydac.com/dacyak-weekly-newsletter-signup/
  45. 45. About Financial Poise 48 Financial Poise™ has one mission: to provide reliable plain English business, financial, and legal education to individual investors, entrepreneurs, business owners and executives. Visit us at www.financialpoise.com Our free weekly newsletter, Financial Poise Weekly, updates you on new articles published on our website and Upcoming Webinars you may be interested in. To join our email list, please visit: https://www.financialpoise.com/subscribe/

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