18 May 2020

Think You Might Need To Restructure? Here’s What To Gather For Your Advisors

The COVID-19 shutdown has caused financial distress for many companies.  Some may need to liquidate, several might be candidates for restructuring, and others may open their doors without skipping too many beats.  If you suspect your business may need financial assistance when things start returning to normal, you should seek the advice of trusted advisors, such as accountants, attorneys or turnaround professionals soon.  However, before meeting with a professional you should identify key employees and gather the information necessary to put your business in a position to successfully navigate the times ahead.  Taking these steps now should make your journey shorter and less expensive.

First, identify key employees who have access to and otherwise fundamentally understand your business’ financial data and funds flow.  These are the people who will be essential in gathering and assembling information that your advisors will need.

Second, identify your trusted professionals.  If you don’t have a lawyer, accountant or financial advisor, set up a few interviews.  If you have established relationships with such advisors, then reach out now to schedule appointments for consultations.  Understanding your options, both legally and financially, sooner rather than later will be crucial.

Third, prepare for meeting with your advisors.

Assets and Income.  You should have the company’s balance sheet and income statement for the most recent fiscal year and the current year to date.  Recent tax returns and financial projections may also be helpful.  If no recent balance sheet is available, then compile a list of real, personal and intellectual property assets owned by the entity, and include the identity of co-owners of those assets.  For personal property, categories might include “equipment”, “furniture”, “fixtures”, etc. and should incorporate total estimated liquidation sale value for each category.  For any item with an estimated liquidation sale value of more than $600, the items should be listed separately.  Recent appraisals, accounts receivable and work-in-progress listings, machine and equipment listings or depreciation schedules, and inventory figures should also be provided.

Liabilities and Liens.  You will also need a list of all creditors for the company, including banks and other lenders, franchisees, land contract vendors, landlords, taxing authorities, and vendors, with addresses and amounts owed.  An accounts payable ledger may be the best place to start in preparing this list.  The list should contain each person or company to whom the entity owes money, even if it is jointly obligated to the creditor with someone else.  If any creditor has commenced legal or collection action, gather any papers received related to that action.  Copies of communications from taxing authorities, especially tax lien documents, will also be critical.

It will be important to provide copies of all documents which evidence debts owed and the security which may be held to secure such debts, including notes, security agreements, mortgages and land contracts, as well as personal or corporate guarantees (along with any related security agreements or mortgages) which may have been given to any creditor for debts owed.  Gather office or business premises leases, equipment leases, franchise agreements, supply contracts, purchase orders, license agreements, and other critical contracts.  You should also be prepared to give your advisors permission to complete a search of state records to confirm the status of any liens against the company’s assets.

Recent Transfers and Payments.  You should compile a list of any creditors which have been paid more than $6,000 by the company within the last 90 days, together with the total amounts paid to these creditors during this period, as well as a list of any transfers totaling more than $6,000 made by the company to or on behalf of any officer, board member, shareholder, member or owner (or their family members) within the last 2 years.  Bank statements and internal check registers for the last 6 months will also be helpful.

Owners and Insiders.  Ownership information for the corporate entity, including owner names, addresses and percentage of ownership, will also be relevant, as well as copies of any insider or owner loan documents.  You should also be prepared to identify all directors and officers.  And of course, if there are any other facts or documents you feel are relevant to the company’s current financial condition, get that ready to present with everything else.

Click here to view a checklist for preparing to meet with your advisors.

If you are experiencing liquidity issues, pressure from lenders or other financial strain, and would like to explore what kinds of legal options may be available to assist your business in recovering from the damage COVID-19 shutdowns may have caused, the Miller Johnson bankruptcy and debtor/creditor rights team can provide guidance.  Please contact the authors if you would like to schedule an appointment.