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Alerts & Publications, Press

Tuesday, April 7, 2020

Business Restructuring Client Alert: Workouts - No, Not The Physical Kind

Our Bankruptcy, Creditors' Rights & Business Restructuring Team always encourages companies and individuals with financial complications to attempt to "Workout" their obligations without the need for anyone to go to court when possible. Given today's uncertainty due to the COVID-19 pandemic, it is especially important that workouts are initially considered in lieu of a formal bankruptcy proceeding.

A successful workout requires an ability to work with potentially adverse companies or people, sacrifice on both sides, flexibility and common sense. Sometimes it is simply a relationship between a lender and a borrower, which may result in a forbearance agreement, temporary suspension of payments and the like. In other instances, when a company has a number of different types of creditors such as lenders, landlords and suppliers, it is usually preferable to attempt a workout with all creditors simultaneously.
Here are three things that are necessary for a workout to be successful:
1) Transparency
If a company is asking creditors to make concessions, which may have a domino effect since creditors have their own obligations, it has to be able to make current, accurate financial information available. This can be a financial statement, a profit and loss statement, a balance sheet, accurate lists of accounts payable and accounts receivable, and preferably a report incorporating all of the above.
2) Honesty
The company's operations need to be an "open book." This is the time to let creditors know that they can find out anything they want about what has been happening with your business. If there have been improprieties by employees you should be prepared to disclose them. If honesty can hurt you then a workout may not be appropriate.

An informal meeting - virtual of course - with your most significant creditors should be arranged. You want this meeting to come as close as possible to a face to face meeting where all important players are present.
3) Flexibility
The key to a successful workout is flexibility. All parties must be willing to make sacrifices. This may require making difficult decisions, such as terminating employees, reducing salaries, closing locations, and refraining from owners taking any salary. Some of these sacrifices may be painful financially, but they may be necessary to achieve the desired result: an out of court arrangement with all creditors so that you can maintain operations, and so the company's relationships and goodwill continue going forward. 
It is vital to have an experienced business restructuring team in place to administer all of the moving parts associated with a workout. A successful workout is less expensive, faster, and leaves all parties with the knowledge that they have eliminated some uncertainty since an arrangement has been made.

Contact any member of our Bankruptcy, Creditors' Rights & Business Restructuring Team to assist you with any questions you may have.

Meet The Team

Eric A. Rosen, Shareholder & Team Leader

Luis S. Konski, Shareholder

Laurie A. Thomspon, Shareholder

Juan C. Zorrilla, Shareholder

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