Alternatives to Bankruptcy

If a business, especially one nearing bankruptcy, is concerned about its wider social responsibilities, are there any actions it can take and still serve its primary goal of making a profit?  The short answer is yes.  There are several options available to a business considering bankruptcy, the exercising of which may not only save the business and even help turn it to the red, but also allow it to continue to meet its obligations to its employees and responsibilities to the surrounding community and society at large.

             The article “Alternatives to Declaring Business Bankruptcy”, by Lei Lei Wang Ekvall and Evan D. Smiley, is an excerpt from their book “Bankruptcy for Businesses”, and offers up two alternatives businesses should explore before making the decision to enter bankruptcy proceedings.  The first alternative they offer is an out-of-court workout.  With this option, a business tries to alleviate their financial problems by working out an agreement with its creditors without using a court.  The agreement the business and its creditors arrive at is not limited by any statute or case law, it depends entirely on what the business can come up with and the willingness of the creditors to accept it.  This option can take the form of working out a solution directly with the creditors involved or finding another lender to finance the pay off of the original creditors.  In either case, a business should create a plan that shows it is able to continue to not only stay in business, but show a profit.  Towards this end, a business could look at hiring a financial/turnaround consultant who could provide invaluable assistance in turning the business around and making it profitable again.  Whatever the business decides, it should be prepared for negotiations with its creditors, and this will include opening up its books and keeping everything it does above board.  Its continued existence and ability to do business depends on these actions.

            The second alternative the article offers is more drastic than the first option, more like an actual bankruptcy, but with some important differences.  This option is referred to as assignment for the benefit of the creditors, which is a liquidation of a business’s assets under state, instead of federal, law.  With this option, a business is not seeking to restructure itself, but to sell, or liquidate, its assets, under state court supervision, in order to pay off its creditors.  If this option is chosen, an assignee, instead of a bankruptcy trustee, is selected to oversee the process, and this individual acts as a fiduciary to the creditors and not to the business.  This means that the assignee works to sell the business’s assets at the highest possible price in order to satisfy the creditors and not the business.  If there is any interest left after the liquidation that has not been used to pay the creditors and the fees involved with this process, then they are given back to the business.  This method does offer greater flexibility than a federal bankruptcy, but the business is still being forced to liquidate its assets in order to pay off its creditors and, consequently, go out of business.  Still, there may be something left over once creditor accounts are taken care of to help the business fulfill at least some of the responsibilities it has identified.  (The full article is available at:  http://www.entrepreneur.com/management/legalissues/legalcenter/article191794.html).

             A business owes it, not only to itself, but also to its employees and the community, to explore any option that may be available in order to avoid a bankruptcy.  By educating itself about these options, a business would have available a means by which it could turn itself around and become profitable again.  By fulfilling this obligation to itself, the business would then be better able to meet its goals of social responsibility.