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Unfortunately, many businesses are confronted with extraordinary losses and may be forced to choose between a creditor workout or a reorganization bankruptcy in order to survive. Some of the differences between workouts and bankruptcies include.

  • Timing. A creditor workout is generally faster than a bankruptcy and can involve only a few major creditors as opposed to all. Bankruptcies also take longer because of the required notices and formalities.
  • Cost. A creditor workout is usually less expensive than a bankruptcy as there are fewer filings and professional fees.
  • Disruption to Operations. Unless a company is publicly, traded, owned, or has publicly traded debt, a creditor workout can be private and usually has less effect on vendor relations and employee morale.
  • Ongoing Litigation. A creditor workout may have no effect on ongoing litigation unless the creditor agrees to a stay. The automatic stay of a bankruptcy immediately halts all ongoing litigation, allowing the company to focus its efforts entirely on reorganization.
  • Binding Nature/Cramdown. A creditor workout can only bind the parties that agree to the workout. A bankruptcy reorganization or liquidation binds all creditors.
  • Equity Retention¬†Existing shareholders rarely give up control or ownership during a creditor workout while existing equity is usually lost or reduced in a bankruptcy reorganization. The recently modified subchapter V of the Bankruptcy Code makes it easier for small business owners to retain their equity in a bankruptcy reorganization.

Handling a restructuring through a bankruptcy, a workout or some other method is case specific and should only be pursued with proper professional advice. While a workout is generally cheaper, less disruptive and faster than a bankruptcy, it is far less comprehensive and may leave certain issues unresolved. If we can assist you in this situation, please contact us.

Info@NapervilleLaw.com

This Brief is designed to provide our friends and clients with information regarding the various subject matters covered, it is not designed to take place of legal, accounting, or other professional advice. If expert assistance is required, the services of a competent professional should be sought. This memorandum may constitute advertising under the rules regulating Illinois attorneys.

Brooks, Tarulis & Tibble, LLC
1733 Park Street, Suite 100
Naperville, Illinois 60563

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