It takes significant effort and drive to run a business, and a company’s financial instability can threaten its future. When a business is struggling to keep up with its expenses, debts, and other financial obligations, swift action is necessary.
Companies have a few options they can consider to regain a solid footing before considering bankruptcy. The Texas attorneys at MehaffyWeber can walk you through your available resources and help you navigate the process to improve your company’s financial situation.
Restructuring Options
Restructuring your business and debts can be a helpful step for avoiding bankruptcy. Not only does it help you avoid court proceedings, but it can also help alleviate some of your financial stress by identifying and implementing alternative routes. A few effective changes can help you rescue your business and chart a better course. Below is a closer look at some of the options that you might have available.
Restructuring Finances
If your business is financially underwater when it comes to debts, an important step you can take is to find a way to restructure your debts and payment options with creditors. With the help of a lawyer, you can work with creditors to negotiate new terms regarding what you owe, interest rates, repayment plans, repayment timelines, and more. Many of these negotiations can be done outside of court, but may require court involvement in some instances. Additionally, you may explore options such as business investors or debt consolidation services to improve capital or repayment options.
Restructuring Operations
Another option you can explore when restructuring is to assess your operational practices and expenses. There may be areas where you can simplify, alter, or eliminate to improve cash flow and operational effectiveness. Through operational restructuring, businesses can make changes to expenses, processes, workforce, and supply chains to help minimize costs and improve efficiency. By reducing expenses, companies can regain capital that can be reallocated in ways that improve the organization’s stability.
Restructuring Assets
Over time, companies can gain numerous assets of different types. However, assets may not all be created equal, and some may drain your finances more than generate income. When you are restructuring your business, it is important to carefully evaluate all of your assets to determine which ones are worth keeping and which ones could be sold. This process allows you to let go of assets that are not producing a return on investment and put more resources into the areas that are performing better. This can improve your overall income and cash flow, eliminate unnecessary expenses, and help with reducing debts.
Insolvency Options
If your business is facing insolvency, there are a few steps you can take to improve your financial situation. While restructuring can be part of the solution, you may want to explore other choices. Some of these options may include court involvement to complete the process. The options below are just a few of the bankruptcy alternatives you can take advantage of when taking steps to regain solvency in your company.
Obtain New Financing
One way to improve your organization’s financial situation is to look for new sources of funding. This could look like securing new investments in your company to increase capital. You may also be able to secure business loans that have favorable terms and make sense for your company’s situation. Additionally, you may be able to refinance existing debts or leverage equity in exchange for financing. It is important to work closely with an experienced lawyer and financial professional to make sure you target the options that will provide the most relief and avoid putting your business at even more risk.
Assignment for Benefit of Creditors
Assignment for Benefit of Creditors (ABC) can help businesses repay creditors without having to file for bankruptcy. This process allows businesses to give their assets to a third-party who oversees their sale. Once the assets have been liquidated, the funds are used to pay off creditors. By undergoing this process, businesses can reduce their overall debt and eliminate it faster. While the court oversees the progress of ABC, it is limited compared to bankruptcy. The entire process must also adhere to the stipulations outlined in Texas Business and Commerce Code § 23.
Receivership
A receivership is another option for avoiding bankruptcy and shares some similarities with assignment for the benefit of creditors. However, one of the biggest differences between the two is that a receivership is ordered and supervised by the court. Court personnel hold the assets in this process rather than a third party. This process is generally initiated by a private lender who wishes to regain the assets and recoup their value. Business owners should retain a lawyer throughout these proceedings to make sure their rights are protected and all steps are properly followed.
What to Expect if Restructuring and Insolvency Options Are Not Enough
In the event that restructuring and insolvency options are not enough to save your business, you will likely have to file for bankruptcy. In most cases, businesses can file for Chapter 7 or Chapter 11 bankruptcy, which is overseen and handled by the court. Chapter 7 bankruptcy allows businesses to liquidate all applicable assets to pay off debts and creditors. Chapter 11 bankruptcy allows businesses to work with creditors to come up with an agreement to reorganize the company in a way that helps repay outstanding debts. Chapter 13 bankruptcy is reserved for sole proprietors.
Additionally, depending on your situation and preferences for moving forward, you may also be able to choose to dissolve the business entirely. If this is a viable option for you, be sure to seek the guidance of a lawyer, as you will still need to complete certain steps to exit your business.
Consult a Lawyer Today to Avoid Bankruptcy
The bankruptcy attorneys at MehaffyWeber understand the importance of avoiding bankruptcy and recovering from financial difficulties in your business as soon as possible. We work with you to find customized solutions and communicate and negotiate with other parties on your behalf. Our team also protects your rights so the state of your business can improve as quickly as possible. Contact our team today to get started.