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The Bankruptcy Process Part IV: Emergence

This is the moment you worked so hard for: the ride is ending, and your cart is rolling back to the station. The creditors voted on your plan, and the court approved it; you set an effective date, reorganized the business, and now you can move forward outside of the bankruptcy. Getting to this point has been anything but smooth, and the ride is not yet over.

Reaching bankruptcy emergence or the effective date is no straight line. Even a prepackaged bankruptcy will have unanticipated issues to confront. Typically, a Chapter 11 business filing will conclude with a plan that either provides for a change in ownership, a sale of assets or liquidation of the remaining assets via a liquidating trust. Under the new Subchapter V bankruptcies, ownership will be able to remain intact through this process.

Post-Plan

Even after the effective date, challenges remain. First amongst these hurdles is the implementation of the plan’s provisions. There will also be other issues to deal with, including fresh start accounting, claims reconciliation, . However, there is a much bigger question. While the plan may provide relief from prepetition—or pre-bankruptcy– obligations, sale or disposition of certain nonperforming assets and conversion of debt to equity, it’s important to ask: what has changed?

If you find yourself about to buckle in on the Bankruptcy Rollercoaster, contact Withum’s Bankruptcy and Receivership services team to see how we can make your ride as painless as possible.

In Part 1, we talked about the need to plan for your exit before filing. You may have been successful in reorganizing the debt structure of the business, but have you fixed the root problems that first placed the company in jeopardy? What operational changes did you make? Did you adjust management or employees?

During the bankruptcy process, you have likely slashed costs to make the company profitable or cash flow positive. To prosper post-petition, the company needs liquidity, to make capital expenditures, invest in new processes and hire additional people. The business and management will need new tools to help them measure their progress toward the growth of the business, to evaluate their success and reposition the company in the market place.

We also spoke about the communication plan for customers, vendors and employees. They are vital to your growth post-petition. How will you interact with them? How will you build consensus with the new investors and shareholders for the necessary changes? How have you begun to regain their trust?

Yes, congratulations are in order. The bankruptcy process has been lengthy and costly, and if you have truly fixed the damaging issues and realigned the balance sheet, then feel free to exit the ride and move toward the final decree that will close the case. If some of these questions remain unanswered, you will need to work that much harder to avoid Chapter 18 or Chapter 22 and a second trip on our roller coaster.

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