Business Debt Restructuring

Instead of bankruptcy, business debt restructuring could be a better choice for companies struggling to stay afloat in a sea of economic uncertainty. American businesses are taking a beating due to high interest rates, slower GDP (gross domestic product) growth, and lower profit margins. As economic indicators point to a recession, some industries are certain to face demise. But a distressed enterprise doesn't have to file Chapter 11; corporate debt restructuring offers a lifeline to companies in crisis. Building a successful business takes years of sacrifice and sweat equity; and most owners would be hard pressed to submit to the humiliation of going broke after investing so much time, energy and money. Not to mention, the lengthy proceedings and creditors who can legally take ownership of a failing enterprise.

Chapter 11 commercial debt protection is a last ditch effort to keep the company running; but it's an expensive one. Attorney's fees can total $50,000 to $100,000; and court filing fees alone are over $1,000. Add the emotional stress and the time it takes to handle day-to-day operations while meeting with trustees and attorneys; and one can see why indebted entrepreneurs would want an alternative route to the harrowing process of commercial debt protection. Corporate debt restructuring is the debtor/business owner's way of escaping bankruptcy. According to the Holy Bible, there is always an alternative method of avoiding situations that threaten to destroy us: There hath no temptation taken you but such as is common to man; but God is faithful, who will not suffer you to be tempted above that ye are able; but will with the temptation also make a way to escape, that ye may be able to bear it (I Cor. 10:13).

Debt restructuring agencies can help facilitate corporate turnarounds, negotiate settlements, and put companies back on a more solid footing. Sole proprietors, partnerships, limited liability corporations, and larger conglomerates can all benefit from the professional expertise provided by corporate financial manangement agencies. Such companies act as financial consultants for business owners and essentially, come in and do a thorough assessment of the company's fiscal strengths and weaknesses. Services include reviewing outstanding accounts, vendor and creditor obligations, employee payroll, facility leases, advertising and marketing costs, vehicle and travel expenses, inventory, account receivables and account payables. The goal of the debt restructuring professional is to negotiate with creditors, vendors, suppliers, and state and federal governments to arrange an amicable settlement, reduction, or modification of contracts and terms of payment. In exchange for the creditor's agreement to reduce or settle delinquent accounts, debtor/owners grant creditors equity, or part ownership, in the struggling enterprise. Creditor equity or ownership is limited to the monetary value of past due settled accounts.

Unlike a Chapter 11 court-approved restructuring plan, in which creditors can actually take over day-to-day management of the company, business debt restructuring allows the owner to continue managing the enterprise. Entrepreneurs who have built successful businesses only to find themselves facing failure can breathe easier knowing that professional help exists. Corporate debt restructuring advisors may formulate better management policies to pull the company out of the red, or arrange financing to cover outstanding account payables. They assess the firm from stem to stern to ensure that every facet of the distressed enterprise is overhauled to minimize loss and maximize profits. Inventory, product and service lines, employee compensation, liability and labor insurance policies, and overhead expenses are all scrutinized to find ways to cut costs. Corporate financial consultants also negotiate with commercial landlords to reduce rent or lease payments; extend installment credit terms; re-negotiate existing contracts for better profitability; and find funding sources or investors to take over outstanding promissory notes or lend much needed capital. Corporate debt restructuring agencies will also collect outstanding monies and delinquent debts owed to debtor/owners.

In order to prepare for fiscal management modification, debtor/owners should gather up-to-date files, including accurate customer account records, payroll records, federal and state income tax returns from at least three years prior. A listing of past due creditor accounts, banking and financial statements, vehicle expense reports, and inventories would also be helpful. A financial balance sheet is like a fiscal blueprint of a commercial enterprise. Listing assets and liabilities, profit and losses, and income and expenses will give the business debt restructuring company a true sense of the debtor/owner's fiscal situation. Financial management agencies can easily assess where companies are losing money or need to cut costs by reviewing a profit and loss statement. Creditors' names and addresses, account payment histories, and telephone numbers are also necessary for the agency to negotiate delinquent account settlement or reduction. Commercial debt settlement agencies must also be given a legal right, or power of attorney, to represent debtor/owners in negotiating and corresponding with creditors. Once agencies have contracted with debtor/owners and begin the restructuring process, creditors are prohibited from contacting debtor/owners directly. All communication is handled through the agency. Owners are free to manage companies and leave the business of resurrecting what was once a near-lifeless enterprise in the capable hands of the corporate debt restructuring firm.

To find a reputable agency, debtor/owners may browse the Internet, ask associates who may have gone through the process, or consult the local business directory. Much is at stake, so debtor/owners will want to do a thorough background check on agencies to verify qualifications. Owners should never be so stressed that they forget to do some homework and check agency references. The last thing a near-bankrupt enterprise needs is to entrust the company to a disreputable or dishonest firm. Owners should obtain a signed contractual agreement with the business debt restructuring company stipulating an hourly, flat rate, retainer, or commission fee; the type of services offered; and the term or length of time the agency expects to perform on behalf of the owner. It won't hurt to check with the local Better Business Bureau to see if other clients have made complimentary or detrimental remarks about the agency. If there are questionable concerns, do not hesitate to seek legal counsel. If everything checks out, dealing with a reputable business debt restructuring firm can resuscitate a failing enterprise, help debtor/owners avoid bankruptcy, and keep the customers coming.

Business Bankruptcy Liquidation

Thousands of corporations file for business bankruptcy liquidation each month. Some give up entirely and file for Chapter 7 bankruptcy, in which the business is effectively ended and assets are sold to repay creditors. Others attempt to file for Chapter 11 bankruptcy, where an effort is made to reorganize an ailing organization so that creditors may be repaid and the corporation returned to profitability. Under Chapter 11 filings, committees are appointed to attempt to assist with a business plan which will reverse downward trends and maximize returns to creditors. At times, even this process fails and the business is reduced to calling upon the services of asset liquidation companies. Many topics must be considered when a business is in this situation. Comfort may be taken in the following thoughts from Proverbs 37:23-24 -- The steps of a good man are ordered by the Lord: and he delighteth in his way. Though he fall, he shall not be utterly cast down: for the Lord upholdeth him with his hand.

At least in the beginning of such considerations, an owner may be wondering whether or not a person can avoid bankruptcy by his/her own efforts. If the debt is not too significant, perhaps a solution can be worked out. A realistic budget of expenditures must be constructed to understand exactly the circumstances the corporation is facing. Certain questions must be weighed, such as whether expenses can be reduced or income increased by other means. Are there items which may be sold by the owner or with the help of asset liquidation companies? A further consideration may be whether one has the time and energy to try to renegotiate debts with creditors oneself, in the hopes that they would rather steadily receive a smaller payment on their investment than get involved with the time and money issues which bankruptcy procedures would require. Finally, can the debt be repaid in a reasonable amount of time?

Bankruptcy procedures are complicated and it is usually advisable to retain a knowledgeable attorney who has specific experience in this area. After all, significant assets may be riding upon the outcome of these choices. It would also be wise not to take out equity loans which could endanger personal assets such as a home. Most states provide that under business bankruptcy liquidation, a certain percentage of one's home equity is kept from being available to creditors. However, if a person of his own accord takes an equity loan upon himself, there is no such protection.

Conscientious employers may take note that certain retirement benefits are exempt from creditors. Check the Internal Revenue Code for details. Pension rollovers to an IRA up to 1 million dollars are usually protected. At times, such protection may even be increased by bankruptcy courts. One other item to take note of when conducting business affairs under the pressure of impending business bankruptcy liquidation is that an employer should not cease making premium payments to health insurance plans. Aside from continuing to pay premiums for ethical reasons, by specifying that a certain percentage of an employee's salary will be put aside for these premiums, one could become liable to lawsuits if such an agreement is not honored.

Business debt counseling may be an alternative one can pursue. Be sure that the firm is reputable, though, because some services may be far more interested in their own financial future than that of their clients. A recognized service may be able to help with budgeting and renegotiation of debts. Creditors are more likely to stop harassing phone calls and threats of legal action if they have some prospect of repayment. More time can then be devoted to running the business. Needless to say, a counseling organization should be able to clearly explain in written form the exact terms, interest rates and special fees which may apply to the specific situation.

In some cases, turning to asset liquidation companies may provide relief. A reliable company will have expertise in prevailing market conditions, and will be able to give advice for strategies the corporation can use to avoid business bankruptcy liquidation being imposed by a bankruptcy court. They will likely have connections with potential buyers of excess inventory. Also, they may be enlisted to deal with sales tax and other legal issues, thus freeing a company owner to utilize the time to improve a corporation's financial situation. Certain asset liquidation companies may provide for security issues, such as removing sensitive information from company equipment. Some may also be willing to become involved with the disposal of equipment according to environmental or hazardous waste guidelines, or even arrange for such items to be donated to non-profit or charitable organizations.

The final question as to whether a proposed plan will probably help a business or not is a decision that can only be made by the corporation's owner. Individual factors are involved in deciding which course of action should be pursued. If it is decided that filing for bankruptcy is the best choice, the advice of a lawyer is recommended because several options are generally available. Each has its advantages and drawbacks; there is no 'one size fits all' solution. One thing to consider is which debts will be discharged by each type of business bankruptcy liquidation. Sometimes a combination of filings may be in order. In this case, care must be exercised to plan around the restrictions involved in filing for a particular type of insolvency. In certain cases, a number of years must elapse before one is able to file again.

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