Summary of the Article
It’s important to remember that Chapter 11 bankruptcy filings are reserved for those situations where the money has run out. Businesses don’t opt for …
- Marc Leder
As I noted in a previous Examiners response, unnecessarily high professional fees can certainly hinder the Chapter 11 process, particularly for smaller and mid-sized businesses. But while this is an issue that should be addressed, I wouldn’t say that it’s causing the drop off in Chapter 11 filings. Fees aren’t a decision driver, and there are more relevant issues in play.
It’s important to remember that Chapter 11 bankruptcy filings are reserved for those situations where the money has run out. Businesses don’t opt for the Chapter 11 process just to retool their business model; they do so when the cash flow has left them no other choice.
Thus, with the capital markets flush, it should be of no real surprise that Chapter 11 bankruptcy filings have trended downward. Unfortunately, these robust markets allow some troubled companies to kick the can down the road. Of course, there will come a time in the capital-market lifecycle when those who have not addressed their systemic issues will run out of time. The next liquidity crunch will again force challenged businesses to pursue a Chapter 11 solution.
In addition, there are a number of mechanisms besides a Chapter 11 filing available for restructuring the operational capabilities and balance sheet of a company that has fallen on troubled times. In fact, these alternative restructuring paths can often be achieved more quickly and with more cost-effectiveness.
Even though professional fees aren’t currently stymieing in-court restructurings, as restructuring professionals, we should raise awareness of this chronic issue now, so future filers will be afforded the ability to emerge from the Chapter 11 process with as equal an opportunity for success as those who didn’t face such a disproportionate fee burden.
Marc Leder, co-chief executive officer of Sun Capital Partners Inc. of Boca Raton, Fla., has been engaged in leveraged buyouts, investment banking, and business operations for more than 25 years.
first published: 2015-02-03 18:22:30