The absence of a stay can create a
feeding frenzy among creditors and
push a company that otherwise could
be restructured into a quick liquidation.
The ability to create post-filing
superpriority liens enhances a
company’s ability to have sufficient
liquidity to fund both the costs of
bankruptcy and ongoing operations
during the pendency of a case. In the
U.S. process, such liens are granted
with debtor-in-possession (DIP) loans.
Without such a source of funding, many
companies are forced into liquidation
because they lack operating funds.
Tiffany Kosch is a managing director of Bayside Capital. Since joining
the firm, she has been involved in all aspects of the investment
process, including sourcing, transaction structuring, financing, and
execution of post-closing growth strategies, and she currently serves
on the boards of numerous Bayside portfolio companies. Kosch has
more than 10 years of private-equity investing experience in a broad
range of industries, including business services, manufacturing,
distribution, and retail. She holds a bachelor’s degree from Georgetown
University and an MBA from Harvard Business School.
The ability to sell assets free and clear
of liens and encumberances is very
helpful in maximizing recoveries
to lenders in a timely manner. In
the U.S., this is effectuated through
a 363 sale, which is overseen by a
bankruptcy court. In other jurisdictions,
however, assets can be subject to
secondary proceedings, making a
sale of a going concern prohibitively
expensive and time-consuming.
In other countries, companies may
have much less time to make such
a determination and address their
problems, and failure to comply can
carry both financial and criminal
liabilities. The shorter time frame and stiff
penalties may convince management
that it is safer simply to liquidate the
company quickly rather than attempt
to maximize creditor recovery.
For some companies, a multinational
restructuring can be effective and
result in a healthy company and
attractive recoveries for participating
investors. For many others, the stark
reality will be difficult. The push to
rehabilitate rather than liquidate
companies remains a uniquely U.S.
concept. While other jurisdictions are
beginning to embrace rehabilitation as
a path to the preservation of jobs and
global competitiveness, liquidation
remains generally easier and safer
for many of those facing distressed
situations in those countries.
made. Once a company has entered
bankruptcy, U.S. courts typically allow
at least six months to develop a plan.
Even the rules determining when and
under what conditions a company must
declare itself insolvent vary widely. In the
United States, a company’s management
and board of directors are tasked with
determining when their company has
entered the zone of insolvency, and
they are required to take actions in
a timely manner to protect creditors
when such a determination has been
In many jurisdictions an insolvency
filing results in the appointment of
a trustee or receiver, along with the
removal of senior management.
Depriving a company of a motivated
management team endeavoring to
maintain business during the delicate
period of restructuring further pushes
many companies toward liquidation.
Middle market companies, therefore,
may find political and financial support
to fight to stay alive elusive indeed. For
a company based in the United States,
these challenges can mean the loss of a
significant sales market or an important
operation at a particularly sensitive
time. For a company based abroad, it
can mean a lack of capital to provide
a bridge to a successful outcome. J
From coast to coast,
– we keep business liquid in the US and Canada.
For over three decades, Accord Financial has
consistently provided fast, practical solutions
for companies in transition. Whether the need
is working capital for restructuring, acquisitions
or ramping up sales, put our strength and
experience to work.
Thomas L. Henderson
864 527 1407 . firstname.lastname@example.org
864 527 1402 . email@example.com