The game of blackjack is one that requires a seat at the table, a stake in the game, some knowledge, and strategy. A blackjack player is more likely to win if he or she pays close attention to the game and has the ability to execute on a sound strategy. The same can be said about a creditor’s approach to its customer’s corporate insolvency. When a corporation faces insolvency one must assess which insolvency vehicle and strategy will yield the best results e.g., Chapter 11, Assignment for Benefit of Creditors (ABC), liquidation, forced marriage, etc. By being smart about assessing the hand one is dealt, a creditor can realize the maximum benefit from the insolvency process. For purposes of this summary, we will use the ABC as our illustrative process.
Take a seat.
A player cannot win at blackjack without first taking a seat at the table. The same is true of creditors and insolvency. In order for a creditor to achieve some measure of success during the insolvency process, its participation is the primary key to success.
For instance, in an ABC, the assets of the company are transferred to a third-party assignee. The assignee will then work to liquidate the assets of the company and pay a dividend to its creditors. Sometimes it is in everyone’s interest to operate the company through the assignee for a short time. Whether the company immediately winds down or gradually does so, creditors should get involved early and work with the assignee to address such critical issues as strategy, best and worst case scenarios, cost, timing and prospective budgets. This gives creditors some input into the handling of the process from inception to outcome.
Investing a creditor’s time and resources should then continue throughout the ABC process, as the creditor must work closely with the assignee, creditor’s counsel, the assignee’s counsel, and the counsel for the insolvent entity. That work involves operations, finding strategic buyers, a sale of assets, and all issues that arise with the winding down of a business. While a gambler places a bet at the blackjack table with the hope of winning, a creditor must put forth its time and resources in order to maximize its odds in realizing a reasonable return on investment. Assignee fees and fees for other professionals can be a worthwhile cost when compared to the potential return on investment the process may yield for the creditor.
Know the rules of the game.
The aim of blackjack is simple, just beat the dealer. How to do that, within the rules of the game, starts with when and where the player sits at the table. How to bet, when to bet, the value of each card, the order in which the players are dealt cards—these rules are all determined at the outset, and players are expected to know and play by those rules. The same is true of insolvency proceedings, such as the ABC process we’ve been using for illustration purposes, though the same principles hold true for all other proceedings. Creditors should be well informed of the insolvency process being utilized before taking an active role to ensure the procedure is handled correctly. While a blackjack player is on his or her own when they sit at the table, the creditor as a decided edge in that the creditor can bring its experienced and informed professionals to the table to help assure that the rules are followed, the creditor is in the best possible position to succeed, and the process is handled in a manner that is most beneficial to the creditor.
Know the odds.
If a player is dealt a King and a 9 at the blackjack table, odds dictate that the player should not take another card. Similarly, one’s understanding and management of risk of loss and utilizing leverage available will place a creditor in the best possible position to succeed. Ultimately, creditors should consider its participation in all insolvency proceedings in the same way. Proper advisement and assessment of the evolving insolvency situation and process will help determine which insolvency vehicle is best, and how to position oneself in the proceeding to maximize odds of a successful return on investment.
In the end, the creditor who actively participates, and positions itself wisely within the rules, will realize the best results possible.
This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.