Why a Healthy Company Needs a Bankruptcy Lawyer

by David M. Reeder

Your sales are up, your balance sheet is strong, your competitive position is unquestioned, and you are current on your financial obligations. Why would your company need a bankruptcy lawyer?

In today's fluid business environment, bankruptcy can affect your business in a number of ways. For example:

• Your customer with a large unpaid balance threatens bankruptcy.

Perhaps a defaulting customer offers a payment plan at a deep discount, and states that if you do not accept the terms now, a bankruptcy will be filed and you will only get "_____ cents on the dollar." You may be called by a "turnaround consultant" who insists that your prospects in a bankruptcy would be quite inferior to their offer. You need a bankruptcy lawyer to evaluate the situation, to advise you on strategy, and to negotiate the matter. A bankruptcy lawyer speaks the language and knows the terrain.

• You are negotiating to purchase a competitor and find that the target company is in serious financial trouble.

Initially, this sounds good. The company's financial trouble gives you a better bargaining position, and it looks like you may be able to buy at a deep discount. Everyone likes a good deal, right? Then someone reminds you that if you get too good a deal in purchasing the company's assets, and the company later files a bankruptcy case, you may be sued by the trustee based on principles of fraudulent transfer. You need a bankruptcy lawyer, one who has been through similar situations, to advise you on strategies to minimize your risk, while you still get a bargain purchase.

• You are sued for recovery of a preference.

One of the most frustrating provisions of bankruptcy law is that legitimate creditors who receive payments shortly before a company files bankruptcy, can be sued for recovery of the amount paid. You need a bankruptcy lawyer who knows the defenses to such actions, and the best way to minimize your exposure

• You receive a notice that a company which owes you a substantial amount has filed a bankruptcy case.

Your involvement on a creditors committee can greatly increase the distributions to unsecured creditors, including your company. This involves no out-of-pocket expense for you, and minimal time commitment. The bankruptcy code also provides for the committee to retain counsel at no cost to the creditors, with payment coming from the bankruptcy estate. A well represented creditor's committee can keep the debtor from dominating the case, can speed up the chapter 11 process, and can facilitate a greater return to creditors.

• Your tenant files a bankruptcy case.

There are special provisions of the bankruptcy code which protect landlords in the event that the tenant files a bankruptcy case. You need a bankruptcy lawyer to protect your interests, force the payment of rent, and attempt to recover possession of the premises, all with minimum delay.

• A company to whom you assigned a lease files a bankruptcy case.

In the case of an assignment, the landlord can't enforce the obligation against the current tenant who is now in bankruptcy, but there is no such limitation regarding the landlord's enforcement action against you. You need a bankruptcy lawyer to protect your interests, forcing the tenant's hand in the bankruptcy case.

What to do?   

A healthy company definitely needs a bankruptcy lawyer. Reeder Law Corporation specializes in bankruptcy cases, business reorganizations, and bankruptcy and commercial litigation. When your customer or borrower's financial problems start to affect you, contact David Reeder for a confidential review of your options.