Can Bankruptcy Strengthen A Business? - Canterbury Law Group

Can Bankruptcy Strengthen A Business?

12 Situations A Business Can Benefit From A Bankruptcy Filing

© 2015 Canterbury Law Group , LLP. All Rights

(480) 240.0040 | www.canterburylawgroup.com

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For years, businesses have taken advantage of bankruptcy laws to overcome a variety of business challenges. The bankruptcy code can be used strategically to strengthen a business and position it for long-term growth. Astute business owners should know of the tools and options available through the Bankruptcy Code because it can often make the difference between long-term success and financial collapse. The attorneys at Canterbury Law Group are well versed in bankruptcy strategies for organizations large and small, from fortune 500 companies to family owned businesses. With Canterbury Law Group, you’ll benefit from “Big Law Firm” expertise at a fraction of the expense.

SUCCESSFUL PEOPLE WHO HAVE FILED BANKRUPTCY: Donald Trump, Real Estate Developer • Henry Ford, Founder Food Motors • Walt Disney, Founder of Disney Burt Reynolds, Actor • H.J. Heinz, Founder of Heinz • Anna Nicole Smith, Actress, Model • George Foreman, Boxer, Grill Spokesman • Larry King, News Anchor

SUCCESSFUL COMPANIES PREVIOUSLY SERVED BY THE BANKRUPTCY ATTORNEYS AT CANTERBURY LAW GROUP LLC:

In order from left to right: Grubb & Ellis Company, International Real Estate Brokerage and Property Management, Betsey Johnson, Major Fashion Retailer, Dexter Distributing, National Distributor For Major Publishers, Ellen Tracy LLC, High End Clothing Wholesaler / Retailer, Phoenix Coyotes, Professional NHL Hockey Team, Dewey & LeBoeuf LLP, Filed The Largest Law Firm Bankruptcy Ever, Cabrini Medical Center, $100 Million Major Hospital



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1. A business-sale is halted due to a lien or other liability The sale of a business or asset such as piece of real estate becomes stuck in limbo due to a lien, clouded title issues, litigation claims or other liability that make the acquisition unappealing to potential buyers. However, the Bankruptcy Code permits the sale of assets “free and clear” of liens, claims, and interest. A bankruptcy sale can therefore “sanitize” assets helping to facilitate a clean transfer to a third party buyer. The attorneys at Canterbury Law Group are experienced in leveraging Bankruptcy laws to free up your business or real estate investment enabling a sale to move forward and close.



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2. A lawsuit is looming When most businesses get sued, their first reaction is that they need to vigorously defend the suit. At the initial stages, little thought is given to the potential legal fees and costs associated with defending the lawsuit. Often, counterclaims are filed against the party suing expanding the size of the case. Bankruptcy can be used tactically to limit litigation costs and obtain results not available outside of bankruptcy. Once a bankruptcy is filed, the “automatic stay” provision of the Bankruptcy Code freezes all pending lawsuits and prevents new suit filings. At the time of the filing, all of a company’s assets become property of the bankruptcy estate, while obligations (e.g. a third party lawsuit) become claims. This provides a great benefit over merely defending a suit outside of bankruptcy. For instance, unperfected security interests would be pooled with all other unsecured creditors and that creditor could not deprive the debtor from using the secured creditors’ collateral. In essence, the bankruptcy estate can keep an asset, which may have otherwise been subject to a security interest, while the related claim can then be relegated to general unsecured status, and paid pennies on the dollar. Put another way, a threatening third-party lawsuit is not only frozen in bankruptcy but the assets otherwise at risk from the lawsuit might be preserved through the bankruptcy process. Bankruptcy can therefore be a tool to ‘firewall’ certain assets otherwise potentially at risk when the litigation commenced.



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3. The business is encumbered by short-term debt In Chapter 11 plans, the primary goal is to reorganize a business to enable it to continue to operate without the looming threat that creditors will shut the business down for good. In simple terms, this means restructuring the company’s debts so it can continue to operate. Businesses can convert debt due in coming weeks to be paid out over an extended time. The automatic stay provision in the Bankruptcy Code requires creditors to wait for repayment until a reorganization plan is confirmed. However, it’s important to contact a bankruptcy attorney early. One of the worst things a business can do is to wait until it has drained of all resources, because then its bankruptcy options would likely be limited.



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4. Tax penalties are piling up While as a general rule, taxes cannot be eliminated through bankruptcy a Chapter 13 bankruptcy reorganization plan can provide damage control by eliminating the continued accrual of penalties and excessive interest. While certain priority tax liabilities must be paid with interest, the interest rate can be reduced to a market rate and sky-high penalties can be reduced from what would otherwise be required by the IRS outside of bankruptcy. This alone can save a business thousands of dollars. The Bankruptcy Code also provides an expedited procedure for determination of tax liability. Dealing with the IRS is not known to be expeditious, however, a bankruptcy filing can speed up the process, shortening the worry while waiting for resolution.



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5. New capital is obtained to fuel growth A troubled business can often overcome hurdles with the injection of new capital, but only if that capital is allocated to address the problem. Sometimes a business owner can acquire new funding, but the money is used to satisfy old obligations instead of initiatives that can propel the company forward. In stark contrast, the Bankruptcy Code allows a business to restructure its balance sheet, prior to obtaining new capital. This plan converts old debt to a long-term payout, allowing the new money to be used to as operating capital to help the company progress. A recapitalization plan also provides motivation and reassurance to secured lenders to make concessions in the repayment of their obligations, interest rates, amortization terms, etc.



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6. A business wants to transfer assets to a new entity Many times Chapter 11 bankruptcy reorganization is filed with the sole purpose of efficiently selling over-leveraged company assets to another business. Although such participation is closely examined, owners of the over-leveraged assets sometimes participate in the acquiring entity. It’s a way for businesses to get out from under excessive debt and move its assets onto a new business. Known as liquidation sales, these sales require public notice and the opportunity for others to bid. This is a strategic use of the Bankruptcy Code that can keep businesses moving forward.



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7. Above market interest rates are hampering growth Interest payments can be huge burden to a business, especially when a business was financed when interest rates were skyhigh. If a creditor is not willing to renegotiate, relief can be achieved in a bankruptcy proceeding. The Bankruptcy Code permits the repayment of secured debts over time at the market interest rate (rather than contract rate). Depending on the bankruptcy plan, unsecured creditors may not be entitled to any interest on the debt repaid over time. In a situation where the collateral that secures the debt is worth less than its debt, the claim will be divided into a secured portion and an unsecured portion. The secured portion would accrue interest at market rate and the unsecured portion would not accrue any interest. This tactic can make a huge difference to a business and free up funds to pay wages, invest in capital and position the company for a stronger future. In other words, you can resolve your high interest rate problems through a well thought out bankruptcy.



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8. Working capital is needed Chapter 11 bankruptcy provides a respite to businesses from the demands of paying obligations for a period of time allowing the business time to reorganize and to accumulate needed capital. Plans are made to pay debts over an extended period time providing relief to a business with the goal of positioning the business from long-term viability. Many businesses have emerged successfully from Chapter 11 filings including Continental Airlines, General Motors, Texaco, Abercrombie and Fitch, Harry & David, Marvel and many more.



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9. Financing is needed when company is in distress When a creditor sees signs a business is in distress, they are often unwilling to provide a much-needed loan or extend a line of credit in fear the business cannot honor the debt. This can immediately cripple a business that has run into a cash-flow issue. However, in most situations a Chapter 11 bankruptcy can give the creditor the assurance they need to approve the loan. This is accomplished through a motion seeking bankruptcy court approval of DIP financing (Debtor In Possession). DIP financing terms often provide a first priority security interest, an approved budget, and other protections that safeguard the lender and motivate them to provide the much-needed loan to the cash starved entity. Put in another way, DIP financing obtained through bankruptcy can often give companies the cash flow shot in the arm needed to save and ultimately recover the business.



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10. Leases or contracts must be renegotiated While not the primary motivation for a bankruptcy filing, a business can often remove itself from leases or continuing contractual obligations through a bankruptcy plan. Certain leases, union contracts, and personal service contracts have restrictions, but businesses are encouraged to use the opportunity as leverage to renegotiate a lease or contract that is detrimental to the business long term. If you believe you are “stuck” in an overpriced long term lease that is blocking your company’s long term viability, think again. Bankruptcy might be a powerful tool to renegotiate or cancel the lease entirely.



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11. Desire to diminish criminal behavior A Chapter 11 repayment plan has been used by perpetrators of fraud to address the complaints of investors and customers prior to entering the criminal justice system. The Bankruptcy Code is not a replacement for criminal prosecution. However, authorities can be dissuaded from getting involved in complex white-collar crimes when victims have been provided “restitution” payments under a reorganization plan. Note that the Bankruptcy Code’s automatic stay does not prevent state authorities from prosecuting crimes or acting in the state’s interest concerning health and welfare.



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12. It’s time for management change As start-ups and new business ventures grow, it sometimes becomes apparent that current management is ineffective at running a larger company. But it can be difficult to replace management under certain limited partnership agreements and operating agreements, which may require unanimity or vast majorities to make sweeping management changes. In bankruptcy reorganization, general partners may be substituted; turnaround professionals, or a new management team can be put in place if they are acceptable to the equity sources. A trustee can also control the business, while the plan is pending, “for cause” including fraud, dishonesty, incompetence or gross mismanagement. The bankruptcy laws provide for both an immediate and a permanent remedy for ineffective management. Knowing your business is a critical key to success. Likewise, knowing how bankruptcy can be used to further your business’s interests is also critical. Just like any other business strategy, bankruptcy should be considered early to determine whether it may be a viable strategy to preserve the business’s assets and help it continue as a going concern. The bankruptcy attorneys at Canterbury Law Group will counsel and help you understand the many issues you may encounter during the bankruptcy process. If you have questions about whether bankruptcy is right for your business, call us for a complimentary initial consultation: 480-240-0040.



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About Us: Jonathan Ibsen, Esq. Jonathan Ibsen is well versed in bankruptcy, litigation and business law and is licensed in Arizona and New York. He has represented debtors, official committees of creditors, secured creditors, receivers, landlords, trade creditors, buyers and sellers of distressed assets, boards of directors Chapter 7 trustees, and individuals in sophisticated matters throughout the United States. His representations have encompassed a wide variety of industries, including: real estate, brokerage, retail, healthcare, energy, telecommunications, sports and entertainment. His bankruptcy experience transcends a broad cross of section of services including: counseling and advising clients, the commencement of bankruptcy cases and the confirmation of plans of reorganization or liquidation. He has also negotiated DIP financing credit facilities and cash collateral agreements, drafted and negotiated plans of reorganization and disclosure statements, litigated adversary proceedings and contested claims, and represented his clients in arbitrations, mediations and appeals. AREAS OF PRACTICE:

EDUCATION:

COURT ADMISSIONS:

• Bankruptcy • Insolvency • Corporate Reorganization • Creditors’ Rights • Commercial Litigation • General Business Law • Federal Litigation

• New York Law School Juris Doctor 1994 Honors: Order of the Barrister

Arizona, New York, United States District Court for the District of Arizona, United States District Court for the Southern, District of New York, United States District Court for the Eastern, District of New York, United States Second Circuit Court of Appeals, United States Ninth Circuit Court of Appeals


• Fordham University Bachelor of Science 1987 Accounting/Finance


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About Us: Craig Cherney, Esq. Craig Cherney has practiced law for 19 years and is actively licensed in three states: Arizona, California and Nevada. In addition to his term as a Big Law associate, Craig has served as in house corporate counsel, and Director and Vice President for two large real estate development firms. This multistate perspective and business acumen brings a comprehensive and advanced approach to your legal issues uncommon among many practitioners. He brings a federal practitioner’s skills and years of private sector business experience to you -- skills that can give your case a distinct advantage.

AREAS OF PRACTICE:

EDUCATION:

COURT ADMISSIONS:

• Federal Litigation • Real Estate • Family Law • Labor & Employment • False Claims Act • Americans with Disabilities Act

• University of San Diego School of Law 1996

Arizona State Bar, California State Bar, Nevada State Bar, U.S. District Court for the District of Arizona, U.S. District Court for the District of Nevada, U.S. District Court for the Southern District of California, U.S. District Court for the Central District of California, U.S. District Court for the Eastern District of California

• San Diego Law Review • University of Virginia Bachelor of Arts 1993

- U.S. Court Ninth Circuit Court of Appeals



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Contact us for a complimentary consultation (480) 240-0040

14300 N. Northsight Blvd. Suite 129, Scottsdale, Arizona 85260 Phone (480) 240-0040 | Fax (480) 656-5966 | [email protected]



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