For a corporate board overseeing the final days of a distressed company, bankruptcy can look like the only way out of a hopeless situation. However, boards that turn to experts like David Johnson, Co-founder of Resolution Financial Advisors, often discover alternatives that can provide a softer landing.
“Bankruptcy can look like the path of least resistance, but it comes with consequences that boards should seek to avoid,” says Johnson. “Once boards start to explore other options, they often find there are other ways to navigate the financial turbulence they’re experiencing.”
Johnson is an accomplished executive with more than 25 years of experience in the distressed business and financial sector. He specializes in insolvency, corporate turnarounds, restructurings, mergers and acquisitions, valuations, financial modeling, and crisis management, having overseen the orderly liquidation or successful refinancing of more than 500 companies. Prior to co-founding Resolution Financial Advisors, Johnson spent 17 years with a middle-market advisory firm focused on insolvency, and earlier began his career at Alvarez & Marsal, providing interim management, forensic accounting, and valuation services. He holds a B.A. in Mathematics and Economics from Franklin & Marshall College and has earned the CFA designation and CIRA certification.
Resolution Financial Advisors provides expert pre-solvency guidance and fiduciary services, ensuring boards understand their options and can carry out a successful wind-down. “End of life cycle” businesses transfer their burdens to Resolution, ensuring that Resolution’s expertise is deployed to achieve the best possible outcome for boards, lenders, investors, and other stakeholders.
Resolution Financial Advisors exposes bankruptcy pitfalls
When boards opt for bankruptcy as a way out, they are often unaware of what the process will require of them and what it could mean for the future. The credentialed professionals at Resolution Financial Advisors have the knowledge and experience needed to explain the potential impact. They have been cited as experts in federal bankruptcy court and work with bankruptcy counsel to navigate the complicated process.
“Boards need to start by understanding that bankruptcy can be expensive, often starting in excess of $100,000,” Johnson says. “They also need to understand it’s a very public way to wind down a company that investors and others involved may later be required to disclose.”
Resolution helps boards avoid being caught off guard by asking the relevant questions on the front end, ensuring they are clear on their obligations so they know the right move to make.
“You can’t evaluate the impact of bankruptcy without exploring your end game,” Johnson says. “Boards need to consider the special circumstances that might warrant bankruptcy court involvement. They need to know if they have enough cash to enter and survive bankruptcy. If not, their case could convert to the Chapter 7 liquidating process, which is very unfavorable in virtually every case.”
Bankruptcy is sometimes the right tool for distressed companies, but not always. Resolution helps boards know the alternatives and which, if any, can provide a softer landing.
Generally, Johnson feels bankruptcy is not a “solution” for a struggling business. It seldom results in a successful reorganization and is usually only used effectively to sell assets to a buyer or to liquidate. That said, Chapter 11 bankruptcy provides unique benefits in the appropriate circumstances.
Resolution Financial Advisors reveals alternatives that improve wind-down success
“Know your options” is one of Johnson’s business mantras and a guiding principle for Resolution Financial Advisors. But Johnson and his team don’t stop at presenting possibilities; they help their clients understand what is appropriate and why.
“Boards need to know, for example, that allowing a secured lender to foreclose might save them some of the headaches associated with bankruptcy, but it won’t solve their wind-down issues,” Johnson says. “And when there’s little to no debt involved, risks are limited, which means an informal ‘managed wind-down’ handled by a financial advisor may suffice.”
In some cases, the best option can require some complex steps. If the board elects to move forward with an Assignment for the Benefit of Creditors (ABC), for example, all company assets are turned over to an independent trustee who manages asset monetization and the administrative wind-down of the company.
“Facilitating the ABC process for companies is the primary service we provide,” Johnson says. “When feasible, it’s a solution that allows a board to resign immediately in the knowledge that everything they care about will be handled. Many, many parties have an interest in a soft landing. Lenders want value for their collateral. Vendors and investors want recovery. Employees are hopeful the business will be bought and their jobs will remain secure. Landlords want their space returned free of debris and hazardous materials. Resolution takes responsibility for all of those things and more, providing an experienced team that can manage every aspect of the wind-down in a way that preserves value.”
