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Counseling Financially Distressed Businesses Business Law 101


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A ppt on how to counsel a financially distressed business client.

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Counseling Financially Distressed Businesses Business Law 101

  1. 1. Counseling Financially Distressed Businesses Bankruptcy in 30 Minutes
  2. 2. What is Bankruptcy <ul><li>a “fresh start” which has been defined as a “new opportunity in life and clear field for future efforts.” </li></ul><ul><li>With regard to businesses, Congress sought to give business debtors immediate, if short term, relief from claims of creditors’ so as to allow the orderly liquidation of a debtor’s property, or the consensual repayment of claims pursuant to modified terms. </li></ul><ul><li>A tool that can be utilized to protect and reorganize viable businesses which are experiences short term financial problems, or an acute business issue. </li></ul>
  3. 3. Financial Issues That Faces Businesses <ul><li>Cash Flow </li></ul><ul><li>Trade Debt </li></ul><ul><li>Onerous Vendor Contracts and Leases </li></ul><ul><li>Lawsuits </li></ul><ul><li>High Interest Rate on Debts </li></ul>
  4. 4. What Bankruptcy Can Help <ul><li>Bad Contracts and leases 11 U.S.C. § 364 </li></ul><ul><li>Trade Debt </li></ul><ul><li>Foreclosures 11 U.S.C. § 362 </li></ul><ul><li>Taxes </li></ul><ul><li>Orderly Liquidation </li></ul>
  5. 5. What Bankruptcy Can’t Help <ul><li>Lack of Revenue </li></ul><ul><li>Uninterested Investors </li></ul>
  6. 6. Cool Things Bankruptcy Can Do <ul><li>Automatic Stay 11 U.S.C. §362 </li></ul><ul><li>Terminate Executory Contracts and Leases 11 U.S.C. §364 </li></ul><ul><li>Term out Unsecured debt </li></ul><ul><li>Term out tax debt </li></ul><ul><li>Avoidance Powers </li></ul>
  7. 7. Automatic Stay <ul><li>Stops any and all collection efforts of third parties </li></ul><ul><ul><li>Foreclosures </li></ul></ul><ul><ul><li>Lawsuits </li></ul></ul><ul><ul><li>Discovery </li></ul></ul><ul><li>Protects all property, even encumbered property. </li></ul><ul><li>Effectively preserves the value of the property of the Debtor. Allows Debtor the breathing spell in which to reorganize without having to deal with ongoing collection actions. </li></ul><ul><li>Often comes under immediate attack from secured creditors who seek to continue foreclosure proceedings. A secured creditor’s relief from the stay can end the reorganization process. </li></ul>
  8. 8. Relief From The Stay <ul><li>(1) Under 11 U.S.C. § 362(d)(1), courts will grant relief from the automatic stay for “cause.” </li></ul><ul><li>(2) Lack of “adequate protection” is an express ground for relief from the automatic stay. Lack of “adequate protection” is not defined; however, 11 U S.C. § 361 provides non-exclusive examples of what constitutes adequate protection, and therefore, a failure of adequate protection. </li></ul>
  9. 9. Executory Contracts And Leases <ul><li>(1) Determination of interest - </li></ul><ul><ul><li>a. Lease and executory contracts are handled pursuant to 11 U.S.C. § 365. </li></ul></ul><ul><ul><li>b. Secured interests cannot be rejected, and adequate protection must be provided. </li></ul></ul><ul><li>(2) Timing - Executory contracts and unexpired leases are subject to very rigid time limitations. The determination of the nature of a contract will have an impact on the timing of assumption or rejection. </li></ul><ul><li>(3) Procedure - In all but one situation it is necessary to have a court determination of assumption and/or rejection of a lease or executory contract. </li></ul>
  10. 10. Avoidance Powers <ul><li>Fraudulent Conveyance Actions 11 U.S.C. §§544, 548 </li></ul><ul><li>Preferences 11 U.S.C. §547 </li></ul><ul><li>Overall goal is to avoid the stripping of a company by one zealous creditor </li></ul>
  11. 11. Term Out of Unsecured Debt <ul><li>Put forth a plan to pay back </li></ul><ul><li>Plan replaces pre-petition obligations with a new agreement to pay </li></ul>
  12. 12. Real Estate BK <ul><li>Look for potential cash flow. </li></ul><ul><li>Look at ability to retain some property and get rid of property with negative equity. </li></ul>