The past few months have been a bit tumultuous for businesses. Money is tight, and creditors might be getting impatient. Now, you may be asking yourself, “How are we supposed to pay our creditors when the governor refuses to let us or the people we sell to operate?” Good question. Sadly, your creditors still expect to get paid, and if the lockdown keeps up (or a second lockdown starts), it may feel like you’ve exhausted all of your options.

Following our articles featuring what steps you should take to stabilize your cash flow, attempt to collect money faster, and set your business straight, we would today like to discuss what to do if the outlook is a bit bleaker.

While there is nothing wrong with Chapter 11 bankruptcy, a practice turned to by organizations to restructure liabilities and live another day and come out stronger than ever, it does have its quirks and complexities. Often, the process is a lot slower than you’d hope, features even more oversight than you already deal with, and costs a healthy amount of money—something that is a bit tight.

But you do have options—options that don’t start with chapter and won’t be used as a way to disparage you in the event run for office. As discussed in a recent article from David G. Dragich, there are a few options available to you to avoid the “B” word: Assignment for the Benefit of Creditors, Federal or State Court Receivership, and Out-of-Court Workout.

Each of these can save you money, offer less oversight, and help you make it to June 2021 and beyond.

Assignment for the Benefit of Creditors (ABC/ABFC)

As defined by The Legal Dictionary, an ABC is the voluntary transfer of all or most of a debtor’s property to another person in trust so that he or she will collect any money that is owed to the debtor, sell the debtor’s property, and apply the money received to the payment of the debts, returning any surplus to the debtor.

Often governed by state law, these can offer cost savings, speed, flexibility, and more, but Deagich notes they are not always appropriate:

“One of the main disadvantages to ABCs is that, unlike in a bankruptcy proceeding, there is no automatic stay in place. In most receivership proceedings, the court order appointing a receiver also contains some form of the automatic stay that limits litigation against the liquidating company. Accordingly, existing lawsuits may proceed and new ones may be filed against a company pursuing an ABC.”

Federal or State Court Receivership

Another option for companies who could benefit from a reorganization—or who are willing to give up a bit of control—is court receivership. In this process, the court appoints a receiver whose job it is to act on behalf of any involved companies. The receiver may operate or liquidate the business, but in certain cases, this may be sought by lenders as an alternative.

“A receiver’s duties and responsibilities, such as monetizing assets and distributing funds, are outlined in an order entered by the court overseeing the receivership. The receiver’s role is, in many ways, equivalent to that of a trustee in a bankruptcy proceeding. A receiver, however, typically has much greater flexibility to perform his or her duties under a more simplified and streamlined framework and process.”

Again, this may be an option sought by lenders, but is also one in which you give up a healthy amount of control.

Getting It Done without the Courts

If you’re savvy and ready to work, you might be able to fight for an out-of-court workout. A process that takes a bit more effort, this is a way to avoid courts altogether and save money in court fees. Processes like forbearance may result in longer-term costs, but some lenders will be willing to take more money over the course of a few years than take the risk of getting pennies on the dollar.

“Many lenders, who don’t want to throw more good money after bad and are presented with a workable business plan, may be willing to enter into forbearance agreements with borrowers that allow flexibility in terms of loan payment amounts and timing. For a lender otherwise faced with liquidating the borrower’s collateral, a forbearance that allows the borrower to get back on its feet is often the better option.”

Again, this is often a good option if you’re behind, but have a feasible long-term plan.

“By aggressively and proactively pursuing an out-of-court workout, a company can buy itself time and lessen its debt obligations in order to fight another day.”

Bouncing Back from the Lockdowns: Tips and Advice from the Controllers Council

Just in time for the ramp-up, we’re excited to announce our first major event to help you adapt and prioritize. Featuring five accounting and finance executives, this highly anticipated event will share pandemic management insights and help you take action.

Presented on June 23, Controller’s Roundtable–Changing Roles and Priorities will bring together panelists including Ted Weitzel, SVP, Finance & Operations at G2; Jhemma Winkworth, Controller at Relativity; Raykhan Bekimbetova, Controller of (ISC)²; and Roman Matatov, Corporate Controller, Verana Health. 

Moderated by Controllers Council Board Chair Lindy Antonelli, Partner at Armanino, this diverse group of financial executives will discuss their experiences and strategies, answer your questions, and provide insight that you need to progress confidently.

Additional Resources

Reason for Hope? Some Say the Recession Looks to Be Short-Lived

Understanding the Different Scenarios for Recovery: A Look at Potential Cash Flow Forecasting

New Bill Seeks to Increase PPP Flexibility at Small Businesses

WEBINAR - Transform Collections and Planning with AI BotsTuesday, July 27

Attention corporate controllers: in the last year, the collections and receivables universe has been transformed. Join Auditoria.AI and UserTesting as they share real-life examples of how Collector bots have automated the front lines of dunning and collections efforts. You will learn how to streamline your collections process with autonomous, zero-touch, error-free execution of repetitive, time-consuming tasks and how to free up your A/R teams to focus on higher-level responsibilities.