Company Bankruptcy Alternatives to Avoid Shutting Your Firm’s Doors
Company bankruptcy is not a pleasant experience. As a business leader of a bankrupt firm, your business and your life will be an open book.
Be sure that your creditors will ask you everything about your business including confidential strategic information. All of this will become part of the public record.
In addition, attorneys and judges will find any transactions between yourself and your firm in the past year. For example, if you bought your company car from your company at a price below market, expect that you will be asked to give it back without any payment.
You then become, personally, an unsecured creditor to your bankrupt firm. In addition, if the judge considers this transaction for the car as a fraudulent conveyance with intent, you could face criminal penalties as well.
Here’s another reason you should shy away from company bankruptcy: If you file for Chapter 11, typically your firm will not survive the filing. The legal costs are large with the average being in the midsix figures. If your firm does not have the cash to cover this large outlay, the judge will likely convert your case into a Chapter 7 liquidation.
Given all the downsides of a company bankruptcy filing, this choice should be your last resort. Better choices include out-of-court debt restructuring and strict cash control.
With out-of-court debt restructuring, you negotiate with each of your creditors and suppliers separately. With each, you explain your financial position and propose a settlement to the creditor’s claim.
It is practical to ask for 25% to 50% discount of the face value with payments over several months. Most creditors will take the settlement because they want to keep you as an active customer and they will get more in an out-of-court settlement than from a company bankruptcy proceeding.
The other choice is strict cash control. With this strategy, you reduce your costs significantly, you approve every check, you sell your receivables to factors for immediate cash and you stretch your vendors for an extra 30 to 60 days. Many times, if your problems are only temporary, strict cash flow is all that is need to get you through a rough spot.
To learn more about out-of-court debt restructuring and strict cash control procedures, you should read Kevin Muir’s The Insider Secrets to Save Your Business: The Step-by-Step Turnaround Guide. To find out more about this helpful guide, click company bankruptcy alternatives.
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