Design options in practice: courts and self-administration
If it is assumed that the bankruptcy application with its corresponding attachments and a comparative calculation as well as a reliable liquidity calculation will be created early in the context of self-administration, then opinions differ on how to deal with the bankruptcy court in advance, if necessary.
When the ESUG was passed by the legislature in 2012, the local bankruptcy courts faced major changes. ESUG is the “Law to further facilitate the restructuring of companies”. Today there is actually an appointed judge in larger courts who only and exclusively deals with self-administration proceedings.
In the case of medium-sized or small courts, the positions for the insolvency area are filled out by judges who mainly cover other areas of law in the course of their activities. This means that if a larger self-administered bankruptcy procedure is submitted to a small or medium-sized court, the judges who are active are also very uncertain about expressing confidence in “foreign parties” instead of relying on proven administrators and a “normal” to order bankruptcy proceedings and portfolio recovery lawsuit.
Experienced restructuring consultants (administrators who work at the same time) will clarify in advance, as part of their advisory work, how the insolvency departments of the courts in the judicial district are set up and what measures and options are available for dealing with documents, personal auditions and presentations, self-administration by the court to let decide.
If there are judges who like to discuss the self-administered applications in detail in advance and provide advice and action, there are also judges who do not want to discuss personally with the self-administrators and their advisors in advance.
Desire and reality – trustee selection
If, in large press-relevant self-administration proceedings, trustees who are well known from all over the USA are appointed beyond the limits of formal listings – even by smaller courts, the selection and suggestion system of the trustee in small and medium-sized self-administration proceedings is an extremely difficult matter.
First of all, there are the judges who would like to (and rightly) provide their ancestral administrators from the judicial districts with lucrative and publicly effective proceedings. On the other hand, not every classic insolvency administrator is also good in the position of administrator.
Since the trustee has a controlling and accompanying position from the legislator, many administrators find it difficult to shed old behavior.
On the one hand, there is the general administrative activity, which can usually be carried out extensively by an experienced restructuring consultant / special representative of the management team with his team. He is responsible for a positive continuation prognosis for the employment agency, pre-financing of insolvency payments, liquidation of insolvency payments, checking for rights of separation and segregation and the ongoing processing of all work in insolvency proceedings.
A point of contention is still the cash management law. Experienced restructuring consultants in connection with also experienced administrators leave the cash management right with the self-administrator and only perform their checking task by checking payment runs via account statements or looking at the corresponding company accounts.
In the case of experienced teams, restructuring consultants/trustees, it can happen that payments above a certain amount – on a coordinated basis – are approved jointly with the trustee.
The legislature has given the trustee the option to take control of the treasury. Here comes the point where a self-administration procedure without cash management rights usually becomes ineffective.
Restructuring consultants / special representatives of the management will regularly coordinate in advance with the main creditors as to who should be proposed to the court as trustee. It should be considered that the suggestion system has a better chance if the proposed administrator is already regularly appointed by the bankruptcy court and has not received major proceedings himself in the shortest possible time.
It is good and sensible, in certain courts, to present to the judge at least two, if not three, alternative proposals to persons administrating insolvency from the judicial district. Industry experience alone or experience in previous self-administration proceedings can be helpful points in convincing the judge to appoint the proposed person.
Without going into the legal requirements in more detail, it is known that the courts behave completely differently when it comes to the suggestion system for trustees. The self-administrators or their restructuring advisors are always well advised if the processes of the courts and the practice of appointing administrators are known in advance.
Practical example: raising capital through an emergency sale
A distress sale that sells 70% of your business, for example, can put the business back on the road to success
The effects of the corona pandemic on the economy and the whole country are still clearly noticeable. The slump in sales for 2021 has been booked and the forecasts for 2022 do not look good either.
The reported annual deficits affect the equity of many companies. Some companies have meanwhile turned their shareholder loans into equity, but even this seems to only be able to counteract an attack on equity in the short term. Companies that find themselves in such a situation should act quickly before they have to file for bankruptcy and, in addition to the loss of their life’s work, also have to deal with legal consequences.
Three tips; To successfully rescue your company from the crisis:
The goal now must be to ensure liquidity and to get an investor on board who believes in your corporate vision and is willing to support you financially. Since distress sales should take place within the shortest possible time and the buyer’s negotiating position is significantly better, it is particularly important to rely on consultants who are experts in this field.
1. Crisis assessment and analysis
Get a precise picture of your situation and how the corona pandemic has affected your business model. Analyze the situation of your company before the crisis and make it clear which business areas and products are particularly affected. Are there areas that are still profitable and that can be focused on in the short term?
2. Financial and liquidity planning as well as financing
options It is particularly important during times of crisis to ensure liquidity. Plan your liquidity to ensure short-term operational measures. Check the possibility of subsidies and consider additional borrowing.
3. Investors and emergency sales
If financing options to close the liquidity gap have been exhausted and the equity of your company continues to melt, the possibility of raising equity should be examined. If implemented successfully, a financially strong investor can also contribute to your success in the long term and guide you back on the road to success.