COUPLES There's an Assumption in Bankruptcy Law That All Parties Involved Would Be Better Served If the Debtor Could Be Allowed to Emerge from the Proceedings as a Going Concern. in Many Ways, It's Hard to Argue with This Logic. Companies That File Bankruptcy Will, in Most Instances, Generate More Profit for Their Suppliers If They Manage to Reorganize Their Debts and Continue Operating Than If They Were to Dissolve Completely. Implicit in This Assumption Is the Idea That the Best, Most Profitable Business relationI Ships Are the Ones That Continue. Business There's an Assumption in Bankruptcy Law That All Parties Involved Would Be Better Served If the Debtor Could Be Allowed to Emerge from the Proceedings as a Going Concern. in Many Ways, It's Hard to Argue with This Logic. Companies That File Bankruptcy Will, in Most Instances, Generate More Profit for Their Suppliers If They Manage to Reorganize Their Debts and Continue Operating Than If They Were to Dissolve Completely. Implicit in This Assumption Is
Barron, Jacob, Business Credit
Last Resort Cteditor-Driven Payment Remedies, from the Friendly to the Unfriendly
There's an assumption in bankruptcy law that all parties involved would be better served if the debtor could be allowed to emerge from the proceedings as a going concern. In many ways, it's hard to argue with this logic. Companies that file bankruptcy will, in most instances, generate more profit for their suppliers if they manage to reorganize their debts and continue operating than if they were to dissolve completely.
Implicit in this assumption is the idea that the best, most profitable business relationI ships are the ones that continue. Business relationships that come to a close aren't taboo, nor are they uncommon, but they're perceived to be born of dysfunction >n the part of the buyer or the seller. A mutually beneficial iiness arrangement works because of each party's commitment to the other's success, or at least that's how it should work.
Of course, this isn't always the case, and trade credit professionals facing a debtor that's Ming to live up to their promises can respond on their own using several options, tailored to the nature of the debtor's delinquency. Each option comes with different expectations about what the business relationship between the creditor and the debtor will look like after the proceedings are completed, whether that means a hopefully prosperous continued business arrangement or the preclusion of any future dealings, and even the end of the debtor company as a business entity.
There are a number of options available to unsecured trade creditors that essentially have the same goal as a debtor's bankruptcy filing. Some of these leave room for a future business relationship, others dont and others fall somewhere in between that spectrum. Deciding which approach to use comes down to the creditor, their company and, really, how much faith they have in their debtor and their debtor's management.
Working out a customer's debt requires a worthy candidate, but it offers the best chance of a lasting business relationship, as long as both sides are willing to compromise. The term can simply mean an agreement between a debtor and a single creditor, with certain concessions made by each in order to . work down an outstanding balance, or it could involve a single debtor and a group of creditors- basically bankruptcy without the bankruptcy court.
"The debtor will hire a workout professional, usually a nonlawyer," said Lucían Murley, Esq., an attorney with Saul Ewing LLP. "Sometimes it'll be someone recommended by their lender, and through the workout you could do something like, 'all of the unsecured creditors are agreeing to a haircut,"* he noted. "If you can get everyone to agree to that, you can accomplish what you would in a bankruptcy plan of reorganization. You can emerge from that with less unsecured debt or a reorganization of the claims against you."
While this process is cheaper than the onerous filing costs of bankruptcy, risks arise when the entire group of creditors is unable to agree on a plan. "Let's just say that you get all of your creditors in the room together and everyone agrees to take 25 cents on the dollar except for one," said Murley. "If that creditor doesn't agree to it, it doesn't necessarily blow up the deal that everyone else has, but part of what a creditor would agree to in connection with a workout is to not pursue any other kind of remedy. It would agree that [they] wouldn't run into state court and somehow get the sheriff to levy the debtor's property."
"If you have one creditor that is threatening tö do tfcat, it caft^ really mess up the whole arrangement," he added.
Much of this risk depends on whether the workout professional is aiming for a grand bargain or something more nuanced. "If you're the debtor, your workout professional is running the workout and will do some meeting and say 'here's the deal we're willing to offer to everyone,' but a lot of times it doesn't work like that. …