Business Bankruptcy Alternatives: Understanding “Workouts”

If your business is going through financial problems, you may be worried about having to file for bankruptcy.  While that is sometimes the only viable option, it should be considered as a last resort.  In many cases, a business can use a process known as an out-of-court workout to help get their finances cleaned up so they can continue running the business. If you have been seeking a corporate or business bankruptcy lawyer in Southfield, read on to learn more about your options. Remember, each business is unique and you should always consult with one of our team members to learn what is best for your own situation.

The Process

This process involves working directly with the creditors to come up with options that both your company and your creditors can live with.  It is preferable than going through bankruptcy court for you because it won’t harm your business credit as much, and you will retain a greater amount of control throughout the process.  Creditors often prefer this option as well as they may be able to negotiate a better outcome. 

This option is really only viable if the financial difficulties you are facing are temporary in nature.  If you can show that your business has real potential to come out of the process stronger and able to meet the obligations outlined in the workout, it may well be beneficial for all parties. 

When negotiating a workout, you will need to demonstrate that you will be able to pay off the agreed upon amount of debt by the agreed upon time.  In most cases, one of the following three equity sources are used to meet these obligations: 

  •  Future Cash Flow – This is the preferable option and is used when you can show that your business is very likely to be in a strong financial position in the near future.
  •  New Financing – If you can show that you have new creditors who will be providing the cash necessary to pay off the old debt, this can be an option that is available.
  •  Equity Infusion – Taking on investors or partners in the business can bring with it a significant influx of money.  As long as the new investors approve of using this money to help complete the workout deal, it can be a great way to get your business back on stable footing.

If any of these three options are viable for your business, it is in your best interest to investigate this as an option.  Unfortunately, all of your creditors must agree to going through this process.  If a single one refuses, you may still be required to go through the more traditional bankruptcy.

If you have any questions about the out-of-court workout process, or you are ready to pursue this process for your business, we can help. Give us a call today at (248) 246-1166 and let’s discuss your options! We look forward to being your corporate lawyer in Southfield and we will work hard to fight for you and your business.