- Posted by Dan
- On February 13, 2011
- 0 Comments
- bankruptcy, borders, business strategy, Chapter 11, knoxville bankruptcy, sevierville, tax lien
I reported on this site a month ago that big time book seller Borders was on the verge of filing bankruptcy. The Wall Street Journal reported Saturday that it is likely that Borders will file a Chapter 11 on Monday or Tuesday.
It’s likely that the case is being filed sooner rather than later because the Chapter 11 process has the possibility of giving certainty to their status visa vie other creditors. Businesses often consider a Chapter 11 for benefits such as:
1. Stopping penalties on tax claims;
2. Gaining additional time to resolve litigation in the trial and appellate courts. Normally, during an appeal, a losing defendant would be forced to post a bond to prevent recovery of the judgment during the appeal. Not do, in a Chapter 11.
3. Freezing the statute of limitations on specific claims for recovery of monies.
4. Delaying the impact of claimed defaults by lenders.
5. Rejection of burdensome contracts such as employment contracts or suppliers contracts
6. Gaining leverage in restructuring indebtedness in a way that is advantageous to the business.
7. Securing priority for a lender who will only lend if it has certainty of its security and its priority of payment.
These are just 7 reasons a company might choose Chapter 11 as a business strategy. If your company is struggling be sure to understand that successful Chapter 11’s are well planned and executed. There are several keys to a successful Chapter 11.
1. Don’t wait until you run out of cash. We’ve heard cash is king. This is really true during the early stages of a Chapter 11.
2. Set aside funds to retain experienced professionals. A Chapter 11 case, although simple to outline, is not simple to execute. Be sure to secure experienced bankruptcy counsel early in the process. We know that Borders has likely been consulting with a team of bankruptcy lawyers for months.
3. Preserve relationships with your lenders as long as possible. Those relationships are key during your Chapter 11 case.
4. Do your best to avoid a tax lien. Tax liens are difficult to manage (but not impossible) during bankruptcy.
5. Don’t look for “sidewalk advice.” So often it’s easier to hear from those going through the same difficulties or from those who don’t know the truth about your finances. Avoid this sidewalk advice. Usually, it’s simply not helpful in navigating this difficult path.
6. Do everything you can to build up cash prior to filing your case. You’ll be glad you did.
7. Be sure to understand what you want for your business. Then develop a plan to achieve it.
I’ve helped a number of individuals and companies in Knoxville, Sevierville and surrounding areas navigate the challenging waters of Chapter 11 bankruptcy. This is a tool for business owners who refuse to fold up shop and shut down.