Kerr Russell bankruptcy attorney Jason Bank recently published an article in the Member Newsletter for the Detroit Chapter of Turnaround Management Association. He discusses the role of turnaround professionals as they help clients navigate the economic fallout and recovery in the wake of COVID-19.
Like so many others, my phone and email have been buzzing with increasing frequency lately. Often, it is a small business owner who opens the communication with a statement: “I need to file for bankruptcy.” As a practitioner who has represented numerous small to middle market businesses over the years, it is quickly apparent that a small business owner’s self-diagnosis is typically off the mark, as there is no imminent creditor pressure or threat that would make an immediate bankruptcy filing necessary. Rather, the statement is usually an SOS cry for help.
While serving on a panel on small business bankruptcy with U.S. Bankruptcy Judge Phillip Shefferly a few years ago, the judge commented that he would be asked what he did for a living while he was in private practice. He would respond, “I talk people out of filing for bankruptcy.” The statement recognizes that bankruptcy is not a wonder drug that immediately cures the ills of troubled companies.
The COVID-19 crisis has proved to be a tipping point for businesses on the brink of insolvency while causing a seismic change in the forecasts for healthy businesses. Every business outside of Amazon and those specializing in remote work tools are concerned about, “what’s next?”
Temporary measures like PPP loans and loan payment deferrals will only go so far. There will likely be a wave of restructurings, bankruptcies and liquidations as the economy begins to slowly recover. Some industries will face more challenges than others. Any successful comeback will require a myriad of business and legal skills to navigate the choppy waters that are ahead of us.
What role will turnaround professionals play in the economic fallout and recovery? Answering the SOS call and ensuring that businesses get into the right hands right away and receive the help they need.
We all have a role to play in ensuring that prospective businesses get pointed in the right direction. Are the books and records in disarray? Recommend an accountant to get the financial house in order. Does management lack certain financial skills? Recommend financial advisory support. Is there a leadership void or leadership transition issue? Seek out a professional to act as a restructuring officer who can help steer the business through these difficult times. Does a company need operational support with production? Hire an expert that can assist. Having issues with a lender? Seek out an alternative financing source or broker who can procure replacement financing.
We know that not every business will survive this crisis. Delaying the inevitable may cause more pain. For these businesses, we can help by creating an orderly transition plan and effectuating a soft landing for employees, customers and vendors.
And yes, bankruptcy will play a role like it does in every recession and recovery. But as always, bankruptcy, or a formal court proceeding, should be viewed as a tool of last resort. Proper planning and addressing the underlying causes of financial issues is the key to any successful court-supervised reorganization.
It has been said that it takes a village to raise a child. It also will take an entire restructuring community to help address the economic fallout of the COVID-19 crisis. So pick up your chosen tool and stand ready to serve in the comeback. We are all in this together.
Jason W. Bank is the chair of the firm’s Bankruptcy and Restructuring department. He focuses his practice in the areas of commercial bankruptcy, out-of-court workouts, corporate restructuring and creditors’ rights. Jason has successfully guided numerous businesses through out-of-court restructurings and Chapter 11 reorganizations. He has negotiated resolutions of complex financial issues and debtor-creditor disputes and achieved consensual restructurings while avoiding bankruptcy or litigation.
Other posts to consider:
Practice AreasBankruptcy and Restructuring