Are There Alternatives to Business Bankruptcy?

Kansas City Business Attorney Explains Corporate Debt Workouts

Bankruptcy is not the only option for businesses struggling with excessive debts and limited cashflow. In certain circumstances, an out-of-court solution may be possible. Business workouts allow companies to negotiate new terms with creditors without going through the bankruptcy courts. Workouts are a practical solution that allow businesses to reduce debt, improve cashflow and avoid filing for bankruptcy. However, workouts are not an easy process without the help of a qualified professional.

Our firm offers options for getting out of a business debt spiral, including a “workout,” which is an out-of-court alternative to Chapter 11 bankruptcy.
A Kansas City business attorney at The Sader Law Firm can help you negotiate new terms with your business’s creditors. We have over 30 years of collective experience helping businesses in Kansas and Missouri through financial hardships. We have also successfully negotiated with creditors to obtain payment forbearance, new lease terms and reduced interest rates for companies and business owners.

How Does a Business Workout Differ from Chapter 11 Bankruptcy?

Chapter 11 bankruptcy can be a practical solution to cash flow problems in a business. Restructuring through bankruptcy forces creditors to play ball while allowing the business to continue operations, reorganize and regain financial stability. However, Chapter 11 bankruptcy involves a more formal process established by the Bankruptcy Code and may not be the best option for every business.

A workout is an alternative to Chapter 11 bankruptcy for businesses with one or few creditors. Typically, this might include a bank, leasing company, landlord or even the IRS. A financial workout involves proposing a repayment plan to your business’s creditors. This plan shows how the business will sustain itself while also generating enough income to pay off its debts.

Depending on the situation, a business workout may be more beneficial than bankruptcy because:

• Chapter 11 bankruptcy may require a business to disclose more information on its finances and operations. The Bankruptcy Code has strict requirements on disclosure. A workout is not bound by the same rules.
• Chapter 11 bankruptcy may involve time-consuming litigation with multiple creditors. A business workout may lead to a solution in less time.
• Bankruptcy might still be an option if the business workout fails.
• Business workouts may also create less panic among shareholders, creditors and employees. This can mean less disruption to business operations.

However, a business workout is an informal process that is not ideal in every situation. For example, unlike bankruptcy, workout terms require a consensus among creditors. Businesses therefore have more leeway to reject unfavorable terms than by filing bankruptcy. Additionally, in a workout, businesses cannot take advantage of bankruptcy protections, such as an automatic stay, which immediately stops most collection actions. A Kansas City bankruptcy lawyer at The Sader Law Firm can help you decide which option best suits your needs.

What Happens in a Business Workout?

In a business workout, the first step is to prepare forecasted financial statements that show how your company will pay back creditors while operations continue. Your legal representation must also be comfortable negotiating with creditors and other financially-interested parties on your behalf. Since there is no set template for creating a financial workout, being represented by an experienced attorney allows you to put in provisions specific to your business and the creditors involved.

A workout is an informal process, so your creditors are under no obligation to accept the terms of your plan. However, it may be in your creditor’s best interest to accept the terms, especially if they stand to recover very little if your business undergoes Chapter 11 bankruptcy. Additionally, having a business attorney on your side may increase your odds of negotiating a successful workout. A lawyer can assist you in negotiations and emphasize to your business’s creditors that you are considering other debt relief options, including bankruptcy.

I Need a Kansas City Business Attorney to Help with a Bankruptcy Workout

If your business is experiencing financial hardship, then speak with a Kansas City bankruptcy lawyer at The Sader Law Firm today. We can then schedule a free consultation to discuss your situation so you can learn your debt relief options, including alternatives to business bankruptcy, such as a workout. Our bankruptcy attorneys know and understand the law as it applies to debtors and creditors. While bankruptcy may be a viable solution, there may be other debt relief alternatives that apply to your situation. We can help you determine the best choice for your business.