The first step that can be taken after all measures to implement strategic plans, cost control measures, and revenue increase measures have proven insufficient is to attempt direct negotiations with creditors in order to reduce the amount of debt or improve repayment terms.

 

Although these measures can be taken from the early stages of the company's deterioration, when none of the plans have worked, it is essential to present an accurate and transparent picture to creditors so that they can see the urgency of collaborating in the restructuring of the debt.

 

At this stage, creditors know that if an agreement cannot be reached, the company will be forced to file for bankruptcy, which could increase their costs and reduce the chances of recovering the credit.

 

Negotiating with creditors can lead to repayment terms that can be met, even if the business is closed through the liquidation of assets or the sale of the ongoing business.

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The sale of the ongoing business or the liquidation of its assets is always an alternative that may exist before or during the bankruptcy process. Before the bankruptcy process, the sale of the ongoing business or its individual assets has advantages and disadvantages, but most importantly, it is under the control of the debtor to find the best offer. The going concern can be sold or liquidated within a bankruptcy proceeding, but there are different alternatives.

 

Under Chapter 7 of the Bankruptcy Code, the sale or liquidation process is carried out under the control of the trustee. However, a liquidation or sale of the business can be carried out under Chapter 11, where the debtor has considerable control over the process, but requires the approval of the creditors and the Bankruptcy Court.

 

It is important that this process of selling or liquidating the business be attempted before filing for bankruptcy, so that it can be carried out without any limitations. In addition, under bankruptcy, there may be a second chance to achieve the objectives of liquidation or sale.

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If, by taking strategic measures and improving payment terms, the business is viable, the debtor may choose to restructure under Chapter 11. If the business is not viable, but the debtor believes that with the protection of the Bankruptcy Court, the assets can be sold at a better price and the liquidation process will be more successful, then liquidation under Chapter 11 is also an option. Therefore, it is essential to know where the company stands in terms of viability in order to determine how to proceed with liquidation.

 

Liquidation under Chapter 11 allows the debtor to maximize the proceeds from the sale of the going concern or individual assets. When it comes to the sale of a going concern, the price may improve, as the stay under section 362 of the Bankruptcy Code provides a respite for the business to take important steps to make it much more attractive to a buyer.

 

Similarly, under Chapter 11, this stay gives the debtor room to take much broader steps to sell individual assets that also maximize revenue to pay off debts.

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If the business is viable, much of the restructuring process will depend on the Bankruptcy Court approving the Disclosure Memorandum and the creditors approving the Reorganization Plan. After this approval, the company must strive to comply with all the terms and conditions of the Plan in order to successfully emerge from bankruptcy.

 

If the company fails to get its Restructuring Plan approved or fails to comply with the terms and conditions of the Plan, the bankruptcy could be dismissed or the case could be converted to a Chapter 7 case, where a Trustee proceeds to liquidate the entire business or its individual assets.

 

On the other hand, any event may occur in the company that improves its financial condition, such as new business, income, cost reductions, or improvements in the overall economic situation, allowing the debtor to voluntarily withdraw from bankruptcy. In other words, even without approving a Restructuring Plan, the economic situation may improve and the debtor may request to be allowed to withdraw from bankruptcy.

 

If these improvements occur during the Plan compliance process, the debtor may use that income to accelerate compliance with the Plan or improve the repayment of its obligations to creditors.

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All of these determinations or outcomes of the bankruptcy process require a final decree or approval from the Bankruptcy Court.

 

In summary, the dilemma lies in viability versus liquidation. This determination must be made in conjunction with your legal representative, certified public accountants, or financial advisors.