In these financially troubled times many owners are confronted with the dire choice of saving their businesses or their personal assets. Saving a business can include a reorganization. Your business can reorganize with a bankruptcy (Chapter 11) or a creditor workout. In deciding how to reorganize your business, you should consider the differences between a Chapter 11 bankruptcy and a creditor workout, including:
- Timing. A workout can be faster as a bankruptcy has many notice and timing requirements.
- Scope. While a bankruptcy involves all creditors, a workout need only involve those parties necessary to reorganize your business.
- Cost. Workout costs are more easily controlled and usually are less than a bankruptcy.
- Flexibility. A workout may give you more flexibility as a bankruptcy has rules and requirements that must be followed.
- Notoriety. All bankruptcy filings are in the public record and require public disclosures and specific notices, while a creditor workout can be more discrete and confidential.
- Disruption. Business operations can be more easily controlled and managed in a workout with less creditor notice and scrutiny.
- Lawsuits. Unlike a bankruptcy, a workout will not stop lawsuits or judgment enforcement actions unless the creditor agrees to a stay.
- Enforcement. A bankruptcy can stop, cramdown and otherwise bind creditors, while a workout requires the individual creditors involved to agree.
- Ownership. A workout is more apt to result in your retaining ownership than a bankruptcy that often provides the reduction or exchange of debt for equity.
- Flexibility. A failed creditor workout can revert to a bankruptcy.
Once you decide to reorganize your business, you need to evaluate how to best do so. The attorneys at Brooks, Tarulis & Tibble, LLC can help you in making and fulfilling your decision to reorganize your business. Please contact us with any questions or issues.
