Bankruptcy Law Changes’ Impact on SMBs

I read an article in the New York Times that I thought made some pretty good points. It was based on an interview with a turnaround consultant that specialized in working for small to medium companies. Here are some of the major points of the article, Adviser to Businesses Laments Changes to Bankruptcy Law, and my comments:

According to the article, over the last few years, “changes in bankruptcy law have given unsecured creditors more power and made bankruptcy more expensive. These legal changes and increased costs have in turn pushed troubled companies to liquidate their assets instead of reorganizing”.

Knowledge of bankruptcy law and other options can reduce business financial stress.

In general I disagree with the premise of the person interviewed for the article. He believes that the reduction in time allowed to stretch out a bankruptcy has been detrimental to the longevity and business continuity of a number of small and medium businesses.  Previously bankruptcies could drag on for 3,4,5 or even 7 years but now the maximum time typically does not exceed three years. This obviously allows much less time for reorganizing.

I have worked with some troubled companies. The main thing is communication. If your revenues are still decent but some customers are slow paying (and you believe they will still make the full payment), then let your suppliers and vendors know as soon as you become aware of the slowing receipts and the associated hitch in cash flow. The earlier you communicate, the better your vendors can plan, especially if they do a sizable amount of business with you. They may have some alternatives to assist you, depending on how long you think your reduced cash flow situation will remain.
If you think your illiquid cash flow position will remain that way for a number of months because you need to address some serious underlying operational issues or a failed significant customer, please inform your suppliers immediately. Many owners try to hide this fact, which exacerbates the situation. People who service accounts pick up on the tension in the air and rumors begin to abound. You need to let the suppliers know before they hear it from someone else!  If you want to stay away from the impact of the bankruptcy law changes to the  greatest extent possible, communicate, communicate, communicate.

Regarding bankruptcy, if bankruptcy looks like it is your only truly viable choice, then communication will help you create a bankruptcy plan that gets approved quickly by the majority of your creditors. It will help you meet all the deadlines for the various deliverables, increasing the likelihood that your company emerges from Chapter 11 intact.

  • Samantha Inglis

    Thank you for sharing your stories. In this case it is much better if you will seek for the help of the bankruptcy experts.Visit it will help you a lot.