In a recent Law360 article, Thompson Coburn partner Mark Indelicato examined the increasing shift toward streamlined restructuring processes, as companies facing rising costs and economic uncertainty look to move through reorganizations more quickly and increasingly favor alternatives to traditional Chapter 11 bankruptcy.
A key factor behind this shift is the rising cost of Chapter 11 cases. Professional fees have steadily increased over time, and the complexity of many bankruptcy matters often requires multiple teams of advisors, significantly increasing the overall cost of the process.
“In any given bankruptcy of any significant size, you could have six pairs of professionals being paid for by debtors,” said Mark. “You have accountants, lawyers and investment bankers for the debtor, and you may have that on the creditor committee side as well.”
One way to combat those costs is to begin planning for a restructuring as early as possible and explore all the potential options with sufficient lead time to make the best decision for the company. Mark said eliminating the stigma associated with a possible restructuring would enable companies to begin that examination at an appropriate stage.
“I think we have to get rid of this concept that restructuring is a bad word,” he said. “You can save a company by attempting to restructure earlier rather than later. … If you tackle the problems earlier you can address them, hopefully, in a way that saves the business, saves the jobs and saves the company.”
Mark said that optimistic debtors planning to move swiftly through a Chapter 11 may not properly anticipate factors that could lead to delays in administration or macroeconomic headwinds that could eat up liquidity at a much more rapid pace than was planned.
“Because of the speed with which they’re moving, the geopolitical issues affecting some of the businesses have actually become a problem,” he said.
Read the full article here.
