Pre-Filing Concerns of a Company Considering a Chapter 11 Bankruptcy Filing

By: Joseph J. Wielebinski
Presented at the Corporate Revitalization Partner's Executive Conference Presentation
February 2005

Cash is Critical:

• Management needs to get the company down to the “bare bones” because liquidity is critical at this stage. The company must gather a cash reserve to make it through a Chapter 11 filing.

Cost Cutting:

• Costs must be reduced and it is common for management to be replaced or restructured to preserve its cash position.

Have a Bankruptcy Purpose

• While the automatic stay provides a haven from foreclosure or other creditor remedies, that relief is fleeting if the debtor cannot provide adequate protection of the creditor’s lien interest in the collateral. There must be a real bankruptcy purpose – such as the ability to “stretch” secured debt, to recover avoidable transfers, to effect a sale of the company or its assets free and clear, or to reject leases or executory contracts with significant claim limitations. Absent a clear need for resort to a bankruptcy remedy, entering into the process should be undertaken with extreme caution.
   

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