The key is to know what you owe and to whom. Determine which debts are secured, since you would need the
approval of secured creditors, and which debts could become the personal liability of the members of the Board
of Directors. Review your agreements and the law on various liabilities, including:
•
leases, there is a right to repudiate them under certain circumstances.
•
employees, including severance obligations.
•
taxes, where certain taxes are also personal liabilities of directors.
•
trade creditors necessary for on-going supplies.
Most importantly, determine where the cash will be generated to finance the proposal for creditors.
Know the Players
You cannot tell the players without a program. There will be many players on the field. While some are on your
side, you have to have a strategy for each one of them. They all have their classic tactics, since the law allows
them to do only so much. You have to anticipate and determine a strategy to handle each of them. The players
in this drama include:
•
The Court which gives you protection from creditors, by applying the law.
•
The Trustee in Bankruptcy who is an officer of the Court whom you will hire to assist you in managing the
process with the creditors. He will send out the notices to the creditors and work with you and your
lawyers in the process of obtaining their approval for the proposal.
•
The Secured Creditors. These are your banks, and mortgage holders, but may also include government
and taxation agencies. Each of them will have their own lawyer.
•
The Trade Creditors. You owe money to each of these suppliers whose goods your company has used
and for whom your company has been a very good client. Some are key to your continued operations
and some are not. The larger ones will probably engage their own lawyers in order to monitor the
process and attempt to maximize their position.
•
The Landlord. He will also probably have his own lawyer.
•
Your Lawyer will be working on your behalf in this matter. He will be making the necessary
representations on behalf of your company before the Court.
•
Your Restructuring Officer. This is the key management representative that is watching and managing
this drama at work and ensuring that the company meets its objective.
You will be paying (at least) for your own lawyer, probably the lawyer of your banker and the Trustee for the
Proposal. You will also have to cover the time and effort of your key managers involved in this process, on top
of their usual responsibilities.
The Next Steps
Ensure that you can win the vote of the creditors on the proposal.
This can happen because the debtor company benefits from the impact that court-sanctioned creditor
protection strategy has on most creditors. If your company fails in its restructuring, they will probably get
nothing. In fact, the sad reality is that they probably have essentially written off your debt from their books. If
your debt is over 90 -120 days old, they most probably cannot have it financed by their banks. They know that
if the restructuring fails, they will lose everything. Not only the amounts owed, but also a client (even one they
service COD, or with a guarantee).
NEWHOUSE STRATEGIC COUNSEL INC . | LEGAL AND BUSINESS ADVISORY SERVICES
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The CEO’s Guide to Creditor Protection
