Surviving the death_of_the_old_e[1]

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How to use bankruptcy to deal with the new economic reality.

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Surviving the death_of_the_old_e[1]

  1. 1. Surviving the Death of the Old Economy How Bankruptcy can give your Business New Life Thomas Wallrich, Esq. Steven H. Silton, Esq. Hinshaw & Culbertson, PLLP
  2. 2. Definition of an Old Economy Business <ul><li>Brand based on industrial products. </li></ul><ul><li>  </li></ul><ul><li>  </li></ul>
  3. 3. Definition of New Economy <ul><li>Brands based on it's complex interaction with the consumer. </li></ul>
  4. 4. Examples of Value Indicators <ul><li>Old Economy                 </li></ul><ul><li>  </li></ul><ul><li>Scarcity drives value Requires control Proximity is important Value is measurable Assembly line focused The masses Predictive Statistics Clear boundaries and definitions </li></ul><ul><li>New Economy </li></ul><ul><li>  </li></ul><ul><li>Wide use drives value Requires collaboration Location less significant Value is emergent Community focused The personal Experimental Memory and pattern recognition Shifting borders and consensus meaning </li></ul>
  5. 5. When Did It Shift? <ul><li>1992-2000 and 2007 on. </li></ul>
  6. 6. Bankruptcy Tools <ul><li>Using Modern Weapons for Modern Times </li></ul><ul><li>  </li></ul><ul><li>  </li></ul>
  7. 7. Automatic Stay <ul><li>1.  Universal Injunction on almost all actions. </li></ul><ul><li>2.  Maintains status quo. </li></ul>
  8. 8. Executory Contracts-Unexpired Leases <ul><ul><li>Section 365. </li></ul></ul><ul><ul><li>Debtor has absolute right to assume or reject executory contracts and leases. </li></ul></ul><ul><ul><li>Breathing spell following filing to review which leases and contracts are profitable and or necessary for the business operations. </li></ul></ul><ul><ul><li>Debtor may unilaterally choose to reject. </li></ul></ul>
  9. 9. Cash Collateral and Adequate Protection   <ul><li>1.      Allows a debtor to continue to use </li></ul><ul><li>         cash. </li></ul><ul><li>  </li></ul><ul><li>2.      Requires the debtor to show that the secured claim is </li></ul><ul><li>         protected from continued dimunition in value. </li></ul>
  10. 10. Adequate Protection <ul><ul><li>Section 361. All interest in non-cash assets must be protected against loss or diminution in value in Chapter 11. </li></ul></ul><ul><ul><li>Manners of adequate protection: </li></ul></ul><ul><ul><ul><li>Periodic cash payments; </li></ul></ul></ul><ul><ul><ul><li>Replacement lien; </li></ul></ul></ul><ul><ul><ul><li>Other relief. </li></ul></ul></ul>
  11. 11. Sales of Property of the Estate <ul><ul><li>Section 363(f). </li></ul></ul><ul><ul><li>Allows the debtor to sell property free and clear of liens if: </li></ul></ul><ul><ul><ul><li>Sale does not violate non-bankruptcy law; </li></ul></ul></ul><ul><ul><ul><li>Entity consents; </li></ul></ul></ul><ul><ul><ul><li>Sale price is in excess of outstanding liens; </li></ul></ul></ul><ul><ul><ul><li>Such interest is in a bona fide dispute; or, </li></ul></ul></ul><ul><ul><ul><li>Such entity could compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest. </li></ul></ul></ul>
  12. 12. Section 363 and Beyond <ul><ul><li>Additional property can be sold, including: </li></ul></ul><ul><ul><ul><li>A life estate; </li></ul></ul></ul><ul><ul><ul><li>Licenses (i.e. Liquor license, profits, etc.); </li></ul></ul></ul><ul><ul><ul><li>Claims. </li></ul></ul></ul><ul><ul><ul><li>Reorganization often exists of the sale of property out of a bankruptcy and distribution of proceeds (commonly referred to as a 363 Bankruptcy) </li></ul></ul></ul>
  13. 13. Jurisdiction and International Bankruptcy <ul><li>Jurisdiction is national. </li></ul><ul><li>Chapter 15 </li></ul>
  14. 14. Plan of Reorganization <ul><li>  </li></ul>
  15. 15. Understanding what worked in the past.. Can help assess what will work now.. <ul><li>The Past..     </li></ul><ul><li>Reduction of interest rates. </li></ul><ul><li>Term out of unsecured debt. </li></ul><ul><li>Modification of tax debt. </li></ul><ul><li>Rejection of contracts.  </li></ul><ul><li>Modification of equity classes. Modification of contracts.    </li></ul><ul><li>The future..     </li></ul><ul><li>Not generally effective. </li></ul><ul><li>Still works. </li></ul><ul><li>Still works. </li></ul><ul><li>More important now. </li></ul><ul><li>More important tool. </li></ul><ul><li>Emerging tool. </li></ul>
  16. 16.   <ul><li>The Rise of the 'Empty Creditor' </li></ul><ul><li>They'd rather drive good companies into bankruptcy than save them. Why? </li></ul><ul><li>  </li></ul><ul><li>One key economic assumption is that people act to preserve their economic interests. Those who have lent money to troubled companies, for example, generally prefer the company remain solvent; otherwise, they can't get paid back. Similarly, lenders to troubled firms frequently favor swift, out-of-court restructuring deals, in which they swap debt for stock, instead of pushing companies into Chapter 11 bankruptcy. That's because companies in Chapter 11 can languish there for years and waste scarce company assets on huge fees to lawyers, consultants, and accountants. </li></ul><ul><li>But if a lender or creditor believes it can profit more from a complete failure—i.e., if it has an insurance policy that pays off only in the event of utter devastation—that creditor might be more inclined to push a company toward bankruptcy. And thanks to the financial innovations of recent years—the rampant use of hedging and credit-default swaps, the ability of investors to purchase insurance on debt—that's exactly what seems to be happening. Creditors are acting to protect their economic self-interest by encouraging companies to destroy themselves. </li></ul><ul><li>  </li></ul><ul><li>                                                                                                     April 21, 2009 by Daniel Gross </li></ul>

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