Need to restructure? Try a

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But lawyers and consultants say companiesx that need to restructure could have a bettert route than filing Chapter11 it’s known as an out-of-court It costs less than filing Chapter 11, lets a firm avoixd the stigma of bankruptcy and ofteb takes less time than bankruptcy proceedings. “Thew biggest advantage is secrecy, but not in the negative (connotation) of the said insolvency attorneyLincoln Brooks. “Most companiess survive because they’ve just needed a little time to reorganizre their houseof cards.
Every party to a workoug gets a better deal than they wouldhave Brooks, founder of Palo Alto-based insolvency boutiquer , handles out-of-court workouts exclusively now, callintg the alternative a far more appealingf process for all involved. Workouts can take on any numbe rof permutations, but typically creditors agree to give the distressed companyh time to retool the business model, offload assets if necessarhy and fashion a plan for sustainabilityh so the company survives and creditors are eventuallg made whole. For the quarter endingb Sept.
30, Chapter 11 restructuring and Chapter 7 liquidation bankruptcy filings inthe ’s Northern District of Californi increased 21 percent, accordinh to data released this montu by the . A littlre more than 300 businesses in the districtr filed for bankruptcy inthe quarter, an increase from 251 in the previouz three-month period, with two-thirdsd being Chapter 7 filings. The Northern District of California stretches from Monterehy to theOregon border, and from the coastlind to Sacramento.
While Chapter 7 represents liquidation, the ultimatre demise of a distressed company, Chapter 11 in essence provides a forbearance on creditor activity and an opportunity to restructurew thebusiness — the goal being to save the companhy and pay off creditors. But the costws are high in the associated professiona l services andcourt fees, as well as to the credibilit y of the firm’s viability. During a long run of easy when banks wereoffering so-called “covenan light loans” to compete for lenders weren’t able to declare defaults as early on, said Michae l Murphy, San Francisco managing director of , an internationalo corporate performance consultancy.
“That’s why you see so many Murphy said. “In most cases, the restructuriny options were missed.” AlixPartners servef as restructuring adviserto Sunnyvale-based and San Jose-based Murphty is now working with San Diego-based broadband and wirelesws technology outfit to restructure that company and reduce debt. What court statisticsx don’t show is the number of troubled firms engagedc in these typesof workouts, a scenarioo that is becoming prevalent as the recessio n drags on. Experts say it’e a lower-key, cost-effective procese that is usually fasterthan court-structured workouts.
“It’xs like breathing room so the companyucan say, ‘I have a plan for salvaging this businessw and paying off my debts,’” said Sblend chair of the bankruptcy, restructuring and creditors’ rights practicr at San Jose-based Remaininv out of court eliminates the uncertainty of what can occue in a bankruptcy when all creditors are asserting theie claims before a and failure to reach an agreement can forcew the company into liquidation. More than two decadew ago, Brooks of Brooks & Raub was handlint Chapter 11 cases for some ofSilicob Valley’s early computer companies.
But the intended result a restructured, solvent debtor company and satisfiesdcreditors — was difficult to achieve. Customers immediatel lost confidence inthe companies’ leading to lost sales. “They simply weren’rt buying when the companie s went intoChapter 11, so they ended up failing,” Brook s said. Chapter 11 is an expensive say lawyers andworkout consultants. Nearly all turnaround specialistsa preferthe out-of-court alternative for that according to John Giovannis, principal of in Newark. Giovannis has aided about 20 companiea in as manydifferenf industries, including construction products, agri-chemical, and drillinhg and exploration.
He called 18 of them successful. “Yoj begin to lose flexibilityt in what you haveto accomplish” once the couryt gets involved, Giovannis said. “When you’re in court, you have an enormoue amount of repeat paperwork that you have to That doubles or triples the cost of doing aninformal workout.”