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In this article, Kenneth A. Rosen discusses the impact of accelerated Chapter 11 bankruptcy sales on unsecured trade creditors. He notes that Chapter 11 has increasingly become a chapter for selling assets rather than reorganizing, and this trend may have significant consequences amid the economic shocks caused by COVID-19. The author highlights concerns about Section 363 of the bankruptcy code, which allows debtors to sell assets outside the ordinary course of business. He argues that this trend may result in unsecured trade creditors receiving less than expected from Chapter 11 cases, as assets are quickly sold, leaving little room for traditional reorganizations. The article suggests that creditors, especially those struggling during the pandemic, should be vigilant about the potential challenges they may face in recovering their dues in Chapter 11 cases.

The urgency of open communication with lenders during periods of uncertainty, such as economic downturns or disruptions, is emphasized in this guide. Maintaining financial stability requires transparency and a proactive approach. Initiating contact before a crisis occurs and demonstrating preparedness by outlining cost-saving efforts convey responsibility and respect. The importance of avoiding surprises through direct communication, regardless of the nature of the crisis, is highlighted. Leveraging the FDIC's recommendation and utilizing existing lines of credit are suggested strategies. Senior management involvement, along with qualified legal and financial advisors, is emphasized to convey seriousness and control over the situation. The guide recommends preparing thorough financial projections and considering a liquidation analysis for negotiation strategy. Sequential negotiations with lenders are outlined, emphasizing a careful balance between assertiveness and patience. The threat of bankruptcy is discussed as an option for uncooperative creditors, with the implications and potential drawbacks highlighted. In conclusion, the guide stresses the significance of open communication, proactive measures, and the involvement of qualified advisors in successfully navigating uncertainty and collaborating with lenders. Cooperation is presented as mutually beneficial for preserving the going-concern value and facilitating business recovery.

Facing financial distress doesn't necessarily mean bankruptcy; creditor compositions provide an alternative for businesses to restructure debt and potentially recover. A creditor composition, or debt settlement agreement, is a voluntary pact between a debtor and major creditors, proposing modified payment plans through negotiation. If accepted by a significant majority of creditors, it becomes binding, protecting the debtor from further legal action. Compared to bankruptcy, creditor compositions offer cost-effectiveness, speed, and efficiency, allowing business continuity and potentially higher returns for creditors. They are suitable for companies with a limited number of known, supportive creditors, strong relationships with creditors, and a lack of aggressive collection efforts by individual creditors. Key steps in the creditor composition process involve negotiating with creditors, selecting a debtor representative, maximizing creditor consensus, preparing for the creditor meeting, and crafting the formal agreement. Challenges include securing creditor consent, potential non-consent from some creditors, and the need for professional expertise in negotiation and structuring. In conclusion, understanding the creditor composition process, its benefits, and challenges can help businesses decide if this approach is a viable path for debt restructuring, financial recovery, and sustained success.

Source: eNews (National Association of Credit Management) Author: Kenneth A. Rosen In the current economic climate, it is imperative to exercise heightened vigilance and closely monitor the creditworthiness of your customers. It's prudent to operate under the assumption that all customers are either already in financial distress or will likely face it in the near future. If they haven't yet reached out for relief, it's highly probable that they will soon. This situation is understandable, considering that a significant number of companies are either partially or fully shut down. Even those still operational are grappling with delayed payments from their own customers. Before making decisions to extend additional credit or restructure existing debt, a set of specific questions must be posed to comprehensively assess the associated risks. The goal is to avoid becoming a vendor who unwittingly provides more collateral for a customer's bank lender. The last thing you want is to extend credit only to find yourself entangled in a bankruptcy or workout scenario down the line. For those who have already extended credit, the objective is to ensure equitable treatment compared to other creditors. Therefore, it is crucial to ask these questions and not shy away from probing deeply. If satisfactory answers are elusive, there is a reason for concern. It is entirely acceptable to communicate that the timing is not conducive to extending credit if the responses are unsatisfactory. Letting your customers know that you won't be taken advantage of is always a prudent approach.

The COVID-19 pandemic has placed businesses and property owners in unprecedented financial challenges, prompting the need for relief from lenders and landlords. In this context, understanding mortgage loan documentation, specifically rent assignments, is crucial for protecting rights and negotiating effectively. A rent assignment, a common clause in commercial mortgages, grants lenders access to rental income upon a borrower's default. Three types exist: Absolute Assignment, Absolute Assignment Conditional Upon Default, and Assignment for Security Purposes. Identifying trigger events such as missed payments or covenant breaches is vital to avoid activating the rent assignment and maintain control over rental income. Chapter 11 bankruptcy, while a powerful tool for debt restructuring, comes with drawbacks. For borrowers, it can be expensive and time-consuming, especially in a prolonged market recovery. For lenders, it may delay payments and hinder foreclosure during market lows. Success lies in knowledge and proactive planning. Before negotiating with lenders, thoroughly review mortgage loan documentation, understand rent assignment clauses and trigger events, seek legal counsel, and develop a comprehensive plan addressing potential defaults and alternative solutions. To navigate the challenging landscape, staying informed and proactive is essential. Additional resources, like those provided by GlobeSt.com, can offer valuable insights. This revised article maintains the original message, offering a contemporary introduction, clear explanations of legal concepts, and an emphasis on proactive planning and legal counsel.

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.