This article discusses the considerations that C-suite executives, including CEOs and CFOs, should keep in mind when deciding whether to file for Chapter 11 bankruptcy.
The author, Kenneth A. Rosen, emphasizes the need for a thorough analysis of the true costs of bankruptcy before making such a decision.
Rosen highlights that Chapter 11 can devalue a company, and the longer the reorganization process takes, the more value the company may lose. He suggests that executives should carefully weigh the direct and indirect costs of bankruptcy, including professional fees, increased borrowing costs, credit downgrades, erosion of customer trust, and strain on supplier relationships.
The article also touches upon the concept of a "cram down" reorganization, where a court approves a bankruptcy reorganization without the approval of some creditors. However, Rosen cautions against relying solely on this strategy, emphasizing the importance of considering the best interests of creditors and ensuring that the secured creditor receives at least the value of their collateral.
Ultimately, Rosen advises that settling with creditors outside bankruptcy may be a more attractive option if it enables a successful restructuring before reaching the point of no return. He suggests that the goal should be a settlement that allows for a quick emergence from financial distress and the restoration of the company's stability.
In casual terms, it's like Rosen is saying, "Before jumping into Chapter 11, leaders should really think about the costs involved. It's not just about numbers; there are other factors like trust and relationships. Sometimes settling outside bankruptcy might be a smarter move for the long-term health of the company.
