added, though, for typical turnaround/crisis
management type clients.
FUQUA: I totally agree with that. I would
agree with Mitch. Being a turnaround
professional, you have to act quickly, you
have to look at the right pressure points.
You have to react accordingly. Soft skills are
nice when you have the luxury of time and
the luxury of liquidity to try new programs,
but, when you’re in crisis, there’s no mercy;
you have to act.
WIKEL: I am thinking of a wolf in sheep’s
clothes, and I don’t mean anything to slight
professionals that have been in the turn-around world who are trying to reshape
what they’re doing and may be approaching
the market because they feel there’s a need.
I think folks like this that are offering these
lifecycle advisory services are always welcome, but I am also always a little curious
about what their real marketing approach
and solution are.
OCEJO: Do you think the Bankruptcy Abuse,
Prevention and Consumer Protection Act
of 2005 fundamentally changed the way
commercial cases play out?
WIKEL: I think it has and I’ll give you an
example. I think it has, particularly on some
of the larger deals. I was a guy that was
very active in the United Airlines bankruptcy and then watched some of the other
larger players in that space for many, many
reasons go into bankruptcy, some, perhaps
strategically, before this act took effect… to
give itself the running room that it needed,
particularly where the limitation around
the 18-month time period that you can be
in bankruptcy; for United Airlines we were
in for 38 months. Maybe some of that time
at United was a little unnecessary, but we
tried to go down several avenues to try to
preserve as much value for all of the capital
structure and potentially some of the equity
at the time.
I think the fact that there is an 18-month
limit within bankruptcy has caused people
to play out many of the activities before
you enter into bankruptcy and perhaps look
at a form of a pre-pack or a pre-negotiated
type situation versus going in and perhaps
lingering to that 18th month and causing
problems for your client. That’s my one
observation on that front.
ARDEN: Completely agree with what
Dan said. I know in the situations we’ve
been involved with, the lenders are doing
everything they can to truncate and contain
the timeframe inside of court. Obviously,
the motivation is to do everything possible
to mitigate the level of professional fees
being incurred. I think, as a result, there are
far more transactional exits to bankruptcy
as opposed to reorgs, which is likely no new
revelation. I think, we’ve all seen, and realized that that was going to be an outcome
of the change in the Act.
Of late, amazingly, I’ve seen, two Chapter
7 filings, and I will tell you, I don’t think I’ve
seen two Chapter 7s in the last 12 or 14
years. So I think the banks right now are
doing everything they can to get a borrower
that they don’t believe is going to recover
in any way, shape or form outside of court,
get them in and, if there is not going to be
a rapid transactional solution through a
sale, they’re pushing hard for either a rapid
liquidating 11 or just throw it into a 7 and let
a trustee just wind down the estate quickly.
That’s been our more recent experience.
HIRSH: I agree with what everybody said.
Just to summarize really what BAPCPA did: It
changed Chapter 11 from a reorganization
rehabilitation process for companies where
they can do their operational turnaround
with the protection of the court to a
transaction process, either a sale or balance
sheet restructuring. It typically organized,
hopefully organized, pre-bankruptcy to
limit the time and the cost of the process.
So I think that’s the big change that BAPCPA
ARDEN: Lawrence, circling back to that, we
had a situation in 2010 where I was engaged
as CRO of a home builder called Orleans.
They spanned seven states, a midlevel home
builder, about $500 million in revenue, 17
members in the bank group. The company
filed in early 2010; we were engaged five
days after the filing, and the bank group
was requiring not a CRO, but a CLO, a chief
liquidating officer to be engaged. I met
with counsel for the bank, whom I knew
very well, and I told her, “You want us in, I’m
ready to come in, but I’m not coming in as a
CLO. What you’ve done is you’ve preempted
any other possible option and defined what
the future of this case is going to be, i.e., a
liquidation.” We fought with them for about
two weeks and they finally came around to
our way of thinking. Nine months later we
actually filed a plan of reorganization and
got the company back out. We went effec-
tive on the plan within a year of the filing.
So many of the banks see liquidation
as being the best possible outcome in the
shortest period of time and yet, if they allow
us to run the case out the way it ought to be
run professionally, I think they’ll find that
their recovery is ultimately going to be bet-
ter than what they’re experiencing through
a more rapid closure of the companies.
FURMAN: Although I agree with what
everyone has said about the resulting time
pressures, in general, I don’t think it has that
much effect in the middle market. There
are, however, some specific provisions that
have impacted both the planning for and
the conduct of cases. As examples, in a
number of cases we have had to deal with
the impact of the treatment of reclamations
(503 b( 9)), which require additional post-pe-tition funding, and the difficulty in getting
KERPS approved for senior executives, even
when they are critical to continuity.
OCEJO: What do you believe should change in
any proposed bankruptcy reform and why?
FURMAN: Specifically, it would be helpful
if the provisions surrounding the retention
of chief restructuring officers and clarification of the Jay Alix Protocol be addressed. In
general, any changes that would reduce the
cost of middle-market Chapter 11 proceedings would be good for all constituencies.
The exit strategy from a Chapter 11 is too
often dictated by the ongoing cost of the
proceeding and not the opportunity and
timeline for a successful restructuring.
HIRSH: I’m not a lawyer so I’m not going to
address the specific code sections; I’ll leave
that to the Bankruptcy Bar. But I think the
biggest issue that needs to be addressed in
any kind of bankruptcy reform is incentive and retention plan rules. I understand