Articles & Media

Lenders are tightening their belts in 2024, making access to credit a challenge for businesses across various industries. Retailers face scrutiny over unsold inventory and online vs. brick-and-mortar performance. Manufacturers need strong plans for supply chain disruptions and lean inventory management. Service providers should diversify clients and adapt to new consumer preferences. Proactive communication, cost-cutting, and a solid turnaround plan are key to securing support. Understanding lender concerns, managing finances wisely, and adapting your business model are crucial for navigating this new lending landscape.

The article, updated on January 18, 2024, explores the challenges faced by commercial real estate (CRE) lenders amid a surge in Chapter 11 bankruptcies among property owners due to the ongoing COVID-19 pandemic. The economic impact of the pandemic is unprecedented, leading bankruptcy judges to approach cases with an understanding of the unique circumstances. Lenders seeking relief from the automatic stay for foreclosure face increased scrutiny, with judges considering factors like negative equity cushion and fair market valuation in the volatile market. The article suggests that judges may prefer alternative solutions, such as restructuring or mediation, to immediate foreclosure, aiming to preserve value during bankruptcy proceedings. Drawing lessons from past crises, the article highlights the multifaceted role of bankruptcy judges as social workers, financiers, and lawyers. Recent examples show judges exercising flexibility and wisdom, temporarily suspending proceedings in exceptional circumstances and denying relief requests that disproportionately benefit one party. The conclusion emphasizes the need for lenders to adopt a calibrated approach in the changed landscape of CRE bankruptcies. Recognizing the evolving role of bankruptcy judges, their focus on equity, and their willingness to adapt to extraordinary circumstances will be crucial for navigating these challenging times. The article is authored by Kenneth A. Rosen, Chair of the Bankruptcy, Financial Reorganization & Creditors’ Rights Department at Lowenstein Sandler LLP, and provides insights based on his extensive experience in the field.

Retailers hit hard by COVID-19 can negotiate rent relief with landlords by: Understanding the landlord's perspective: They worry about setting precedents and defaulting on debts. Be transparent and demonstrate cost-cutting efforts. Going beyond rent reduction: Offer prepayment discounts, lease extensions, relocation, or revenue-based adjustments. Exploring non-monetary concessions: Seek changes in product mix, operating hours, or restrictive clauses. Leveraging your size: Offer relief on profitable stores in exchange for help on struggling ones. Understanding the moment: Bankruptcy is a risk for both parties, so explore legal options and alternative rent coverage sources. Open communication, empathy, and creativity are key to successful negotiations during this unprecedented crisis.

A bitter legal battle has arisen from the ashes of Toys "R" Us. Creditors, including former employees and suppliers, accuse executives and board members of concealing the company's dire financial state, ultimately leading to massive post-bankruptcy losses and thousands of job losses. The lawsuit alleges a deliberate strategy of piling on $600 million in debt through credit purchases despite obvious insolvency, all while falsely reassuring suppliers of a swift bankruptcy exit. This alleged mismanagement, they argue, violated the board's fiduciary duties and exacerbated the company's downfall. At the heart of the case lies a legal tug-of-war over directors' responsibilities. While directors of solvent companies prioritize the corporation, those of insolvent firms also owe a duty to creditors. The lawsuit essentially questions whether the TRU board exercised due diligence and good faith, or recklessly ignored warning signs while racking up debts at the expense of creditors and employees. The case serves as a stark reminder of the importance of transparency and responsible leadership during financial distress. It also highlights the crucial role of Chief Restructuring Officers in navigating bankruptcy with minimal damage to stakeholders. Robust reporting, reliance on expert advice, and proactive risk management are key takeaways for boards seeking to navigate troubled waters while upholding their fiduciary responsibilities. Ultimately, the court will decide whether the TRU board acted with prudence or engaged in deliberate deception. But even if the former executives prevail, the lawsuit serves as a cautionary tale, urging corporations to prioritize transparency and responsible governance, particularly when facing financial hardship.

This client alert, authored by Kenneth A. Rosen and a team of legal experts from Lowenstein’s Bankruptcy, Financial Reorganization & Creditors’ Rights Department, provides a comprehensive overview of restructuring tools available to businesses facing financial distress. Divided into two parts, the alert begins by introducing the various tools, with a specific focus on Chapter 11 bankruptcy. It emphasizes the advantages of Chapter 11, such as the automatic stay protection, the ability to shed burdensome contracts, and the restructuring of debt. The alert also discusses key stakeholders, considerations before filing Chapter 11, and tools to motivate employees. In the second part, the alert expands beyond Chapter 11 to explore alternative restructuring options, including out-of-court workouts, assignments for the benefit of creditors, state law liquidation proceedings, federal or state court receiverships, and more. The authors stress the importance of consulting with restructuring advisors early on and highlight the nuanced nature of restructuring strategies.

This article addresses a concerning trend in Chapter 11 bankruptcy where unscrupulous actors manipulate the appointment of unsecured creditors committees (UCCs) and their advisors. The problem stems from the cold-calling practices, similar to "ambulance chasing," that exploit apathetic creditors by offering quick and seemingly cost-free appointments without disclosing conflicts of interest. This manipulation turns UCC members into mere proxies, rubber-stamping appointments of pre-selected professionals for kickbacks or perks, undermining the fundamental purpose of UCCs. The consequences of this manipulation are far-reaching, including the erosion of trust in the committee's impartiality, reduced creditor recoveries due to inept or conflicted professionals, unfair advantages for debtors, and reputational damage to the entire Chapter 11 system. The article proposes solutions, urging US trustees to take proactive measures. This includes enhanced oversight through thorough inquiries into committee member appointments, transparency demands for disclosure of any influencing compensation or arrangements, collaboration with judges to address suspected manipulation and push for reforms, public awareness campaigns to educate creditors, and consideration of legislative reforms to tighten regulations. The conclusion emphasizes the urgent need to combat proxy manipulation actively, as ignoring these abuses poses a threat to the foundation of Chapter 11. By taking decisive action, US trustees can uphold the system's integrity, ensure fair representation for all stakeholders, and increase the chances of successful restructuring. Additional updates in the article incorporate recent statistics, specific examples of conflicts of interest, ongoing legislative efforts, and a strengthened call to action for US trustees and other stakeholders.

The COVID-19 pandemic has posed an unprecedented threat to the nonprofit sector, causing financial hardships as doors remain closed and fundraising comes to a halt. This article emphasizes the urgent need for action, especially from professionals versed in law and finance. It calls for a departure from adversarial approaches, advocating for cooperative and empathetic solutions. The piece envisions a role for bankruptcy and restructuring experts as conductors in courtrooms, orchestrating out-of-court settlements and creative restructurings to provide nonprofits with a lifeline. The author urges collaboration, compassion, and a united effort to ensure the survival of nonprofits, emphasizing the profound impact they have on individuals and communities. The article concludes with a call to be champions and advocates for the nonprofit world during these challenging times.