Phillips & Thomas is one of the very few firms that gives serious consideration to various alternatives to bankruptcy for financially distressed businesses and individuals.  Most, if not all, firms simply have a “boilerplate” mentality when it comes to these types of problems.

Their “one size fits all” mentality means that everyone is funneled along a predetermined route.  The problem with this way of thinking, of course, is that it ignores the special characteristics of each situation.

We don’t see things this way.  Every case, every individual, and every business is different, and has its own special issues.  It is vital to tailor solutions that fit each particular client.  This is why we are so focused on attention to detail, and direct, constant contact with our clients.

We put this philosophy to use when we explore the possible alternatives to bankruptcy.  The first step in the process is to find out what the reasons for an individual’s or a business’s financial distress.  Diagnosis is really where it all begins.  Has the business owner suffered from health problems?  Has there been some market change that caused customers to dwindle?  If the business is real estate related, has there been some problem with the cash flow of rental income?

Once this has been done, we can then look at the possible non-bankruptcy remedies.  These may take the following forms:

1.  Possible structured agreements between creditors and the client that permit comprehensive, global treatment of claims.  Sometimes creditors will accept a reduced amount of debt, or permit the debt to be restructured over a longer time frame, or will allow both of these options.
2. Possible sale of part of a business’s assets in a way that permits claims to be dealt with in a suitable way.

These types of workouts, structured settlements, or sales depend on the situation.  Workouts are usually in the form of written agreement between the debtor and some (or all) of the creditors.  Essentially, some form of arrangement is reached that satisfies both parties.  Creditors will normally ask for disclosure of a debtor’s financial condition and assets.

The benefits to this sort of arrangement can be significant, in the right situation.  A debtor can avoid having to file a bankruptcy case.  We should note, however, that there are trade-offs in everything, and this path may not be right for every situation.  When a debtor is not under court protection, there is no guarantee that creditors will honor the agreement or be bound by it.  Some creditors may not feel like they are getting full disclosure about all of the details about a debtor.

It may also be difficult, as a matter of practical logistics, to get everyone “on board” to this kind of solution.  Some creditors also claim to be willing to work out solutions, but then prove to be intractable in practice.  It all comes down to negotiating skill, the realities of the situation, and to the circumstances of each particular case.

But structured workouts, debt renegotiation, and out-of-court solutions can and do happen.  Sometimes these sorts of agreements can be formalized in writing, and then crafted in the form of a Chapter 11 plan, with the prior consent and approval of the creditors.  The plan can then be filed, with everyone “on board” from the very beginning.  In these types of “pre-approved bankruptcies” there is no litigation involved.

As long as the plan otherwise complies with the requirements for confirmation, the plan should be approved.  If the pre-petition acceptances of the plan are valid, there might not even be a requirement for a formal disclosure statement in the case.

Most business owners or individuals are willing to consider hearing their options in this regard.  From our experience, structured settlements or workout agreements are most likely to be successful in these kinds of scenarios.

•  There is an obvious and clear need for relief.  Most of the major creditors are usually in default or are undersecured.
• There is not a huge number of creditors.  As noted above, it becomes more difficult to get everyone “on board” when there are a large number of competing interests and differences of opinion.
• The creditors are business or trade creditors who are unlikely to take things personally or be unrealistic in their expectations.
• There is no urgent or pressing need for the protection of the bankruptcy court, or for the automatic stay protections.  For example, there is no foreclosure pending or some other serious problem looming in the background.

We can see from all this that, like almost everything else in the law, every case is different, and every situation is different.  At Phillips & Thomas, we make sure we know all the details before undertaking negotiations.  We will:

• Prepare a cash flow analysis to see what can realistically be paid;
• Analyze the various creditors and the classes of creditors, to see who can realistically get what;
• Check on the perfection of liens, and the status of secured and potentially undersecured claims;
• Analyze possible transfers that may have taken place;
• Prepare a fall-back plan in the event that the settlement proves to be unworkable or not feasible.

If you are a business or an individual, and you need to explore non-bankruptcy alternatives, please give us a call for a free consultation at 913-385-9900.   As discussed here, we devote much care and attention to these types of solutions.

It is very important to begin looking at solutions at the early stages of problems, before things get too rocky.  We have found that the longer people postpone exploring solutions, the more narrow their options become.