Chances are your company will either experience or, more likely, be affected by someone else's bankruptcy protection filing. It's not a pleasant experience, but that doesn't mean it has to be a nasty one. We asked corporate lawyer Robin Schwill of Osler, Hoskin & Harcourt LLP, and Alan Farber, founder of insolvency specialists A. Farber & Partners Inc., to give us a prescription to get out of the doghouse.
Call the doctor
It's pretty obvious that those who specialize in bankruptcy protections would urge a business to hire them, but it's also true that such proceedings should be treated the same way any other big change, such as a merger or acquisition, would be. “Restructuring a business and the types of legal statutes involved, the types of financial analysis that creditors and lenders will look at, are highly specialized and a business-critical process,” says Schwill. “It warrants having the right experts there.”
Manage the shock
Any stakeholder or employee not anticipating bad news will get a nasty surprise when you do file for protection. Even if they are expecting something, it can still be a jolt when it actually happens. “It's a very human reaction,” says Farber. “It's like your 93-year-old grandmother. You know she's ill and her days are numbered, but then you get the call that she passed away an hour ago, and you catch a shock.” Keep those who need to know in the loop, and maintain communications throughout your restructuring.
Use the force for good
If you're using court protection to threaten staff and others with “or else” statements or to trample people's rights in an aggressive fashion, the proceedings won't work out favourably for everyone involved. Don't be like Air Canada, in other words. “Air Canada seemed to be using its filing more as a sword on a number of occasions than as a shield,” says Schwill. Start with the premise that a successful restructuring from a legal standpoint is relatively non-adversarial, and go from there.
Do it right the first time
The chances of a business being able to recuperate from cutting too much are better than trying to recover after not cutting enough, says Schwill. A company can always ramp up after acquiring new business, but it's much harder to keep cutting if the first procedure doesn't take.
Two sides of the coin
If a company falls into bankruptcy protection again and again, or a particular industry seems prone to filing–think of the airlines or telecom–chances are they are not addressing their competitive or operational shortcomings. Eaton's, for example, successfully came out of protection twice from a legal point of view, and even managed to raise equity the first time. But it still wasn't a viable business.