Reviewing "Strategic Alternatives For Distressed Businesses" by Jonathan Friedland
As if he doesn't have enough to do as head of Levenfeld Perlstein's restructuring group and as executive editor of the must-read ABI Journal, Jonathan Friedland has undertaken the gargantuan task, never yet accomplished, of assembling in a single treatise, entitled Strategic Alternatives for Distressed Businesses, the varied state law approaches to the liquidation and disposition of distressed businesses (including so-called "assignments for the benefit of creditors" or "ABC's").
What motivated Jon to commit himself to this public service? Apparently, frustration! Now while most lawyers let out their frustrations on some hapless administrative assistant or airline gate agent, not so Jon, who writes:
This book was born out of frustration. Beginning several years ago, I noticed that more and more companies in need of a restructuring or sale could afford neither the time nor cost of a Chapter 11. My frustration came from the fact that I, like so many other lawyers who focus their practices on the representation of parties in Chapter 11 and out-of-court workouts, simply did not have the same rich resources of information at my fingertips with respect to nonbankruptcy alternatives for distressed business as I did with respect to bankruptcy.
The need for a book like this was brought home to me when, in several deals, we decided that we likely needed an Assignment for the Benefit of Creditors, and likely had the ability to do one in any of several different states. I needed to understand the pros and cons of each state's procedure. I found that more information resided in the heads of a few people here and there than in any book. I wanted a single volume that compiled relevant statutes from across jurisdictions. I looked and looked, but there simply was nothing like that. This book seeks to fill the void.
On this score, Jon is right. Many state bar and continuing education associations have developed outlines covering a particular state's law and practice regarding ABC's (such as this excellent one covering ABC's in Illinois). Bob Eisenbach also has neatly summarized in this blog post "the ABC option," with links to various excellent works (including Geoffrey Berman's 118 page practical guide, published by the ABI and now in its second edition, entitled General Assignments for the Benefit of Creditors: The ABC's of ABC's). None, however, point to any comprehensive 50 state review of strategic alternatives to bankruptcy.
Jon's role in this project is as principal author and editor-in-chief (or as he humbly calls it, "Chief Logistics Manager"). DSI's Geoffrey Berman also lends his considerable talents as executive editor to the project. 26 other restructuring professionals from around the country (including such household names as Will Kohn, Carl Lane, Patty Redmond, and Nancy Ross) also joined to contribute to the 1,211 page treatise, which divides into the following sections:
- The first part of the book, which Jon calls "the forest," provides an overview of the bankruptcy and non-bankruptcy options available to distressed businesses, with separate chapters covering each of the following non-bankruptcy options: (i) compositions with creditors (14 pages), (ii) exchange offers (32 pages), (iii) ABC's (8 pages), (iv) real estate workouts (30 pages), and (v) federal court receiverships (12 pages).
- The second part of the book, which Jon calls "the trees," provides a 256 page "nuts and bolts guide" that focuses on one particular non-bankruptcy alternative in the following 14 states: CA, CO, CT, DE, FL, IL, IN, MI, MO, NY, OH, TN, UT, WI. This section adopts the unique approach of positing a hypothetical fact pattern for an insolvent company (with enough value to provide a recovery for unsecured creditors) and having each state's contributing author–in Jon's words–"choose the best liquidation procedure available under the relevant state's laws [and] answer a series of questions about how the procedure would work." There are 47 questions in total, including subparts. They alone are an invaluable guide for any practitioner contemplating the benefits and burdens of any non-bankruptcy alternative for a distressed business. Still, it's the answers provided by each contributing author's years of practical experience that make the book well worth its 12 cent per page price tag. As an added bonus to those of you who've read this far, you'll find all the questions posed at the end of this post.
- The third part of the book, in Jon's words, "presents the leaves [in an] attempt to compile all the statutes across the 50 states (as well as relevant federal statutes) that speak to ABC's and ABC-like procedures." This section also is extremely valuable for practitioners because, as we all know, the relevant state laws governing the liquidation and disposition of distressed businesses are not neatly bundled together in a single statutory scheme, but rather are scattered and buried across a broad regulatory and procedural landscape. Jon and the West Publishing editorial staff have done an excellent job culling from each state's corpus the particular statutes and procedures relevant to ABC's and ABC-like procedures.
- The fourth part of the book contains the following indices:
- a 40 page listing of all applicable federal and state laws with a cross reference to the section of the book where they are referenced;
- a nine page alphabetical listing of cases cited in the book; and
- an 11 page topical index, arranged alphabetically.
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Summary and Conclusion: Clearly, every restructuring professional should have ready access to Jon's treatise. It is a giant leap forward, if not for mankind, then at least towards Jon's admirable goal of "filling the void." Still, Jon readily admits, there's much more to be done. In the works are additional chapters in the book's first section, including one covering state court receiverships and another providing investment bankers' perspectives on distressed businesses (i.e., those that presumably are not their own and otherwise lack access to TARP money). Jon also hopes that by publishing this first edition, he will motivate other professionals in the 36 states not included in the book's state-by-state practical guide to come forward and offer to contribute a chapter to the treatise. Anyone interested should email Jon immediately at email@example.com. I guarantee he'll respond before you have a chance to entertain any second thoughts.
What else can be done? Here are some suggestions:
- Include a CD-ROM with relevant sample forms.
- Split the book, which already is about 3 inches thick and weighs nearly 4 pounds, into two volumes (one being the practice manual and the second being the selected statutes). Alternatively, and even better, make it an environmentally-friendly loose leaf binder that can be updated without having to "throw out the baby with the bathwater," as the old saying goes. West Publishing, however, seems to frown upon the loose leaf format, at least for bankruptcy-related books requiring annual updates.
- Provide a detailed table of contents that contains each chapter's subparts and subheadings.
- Include a comprehensive state-by-state index of relevant case law to match the excellent state-by-state index of relevant statutes and procedural rules.
- Add three more questions to make an even 50, such as:
- Is federal or state bailout or stimulus money available?
- Can a politician be paid to help? (Note: this question is not necessarily limited to Illinois businesses)
- What are the assignee's options when the business is a criminal enterprise?
Take a moment and order your copy now. Given West's liberal review and return policy, what's the risk? Plus, given the way things are going, it's likely the book will soon have several cracks in its spine.
Best wishes to all my readers for a healthy and happy 2009!
© Steve Jakubowski 2008
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47 QUESTIONS THAT ADVISORS SHOULD ASK WHEN CONSIDERING STRATEGIC ALTERNATIVES FOR DISTRESSED BUSINESSES:
1. Name of the process?
2. Is the proceeding statutory or governed by case law?
3. What facts are required to establish jurisdiction for the procedure in the state?
4. Is the process available only to general business corporations, or may non-profits, insurance companies, railroads, financial institutions or other special entities liquidate using the process?
5. Is a court involved in the process and, if so, to what extent?
6. How is the liquidation process commenced?
7. How quickly can a liquidation and distribution of assets be completed?
8. Is there a minimum time period for creditors to filed claims in liquidation after a required notice?
9. What priority scheme, if any, provides for the distribution of assets?
10. Is a third party involved (e.g., as a receiver or assignee) and, if so:
a. What qualifications must that third party satisfy?
b. How is that third party selected?
c. Is there a process to direct the actions of the third party or to approve decisions made by the third party?
d. Who typically serves in the third party role?
e. What compensation may the third party receive, and by whom is the compensation paid?
f. What standard of care must the third party meet?
g. To whom does the third party owe a duty?
h. To what other risks is the third party exposed?
i. What protections are afforded to the third party by the governing law?
j. Does the third-party typically obtain insurance against potential liability or an indemnification from one or more parties involved in the process?
k. What powers does the third party have, such as:
i. To stay or otherwise defend lawsuits, foreclosures, eviction proceedings or other collection claims?
ii. To avoid preferential transfers, either voluntary or involuntary and to or for the benefit of insiders or otherwise?
iii. To avoid fraudulent transfers, either voluntary or involuntary and to or for the benefit of insiders or otherwise?
iv. To assert rights of existing or hypothetical secured or unsecured creditors?
11. Are the company’s assets insulated in any way from judgment liens, attachments, or other collection actions of a single creditor?
12. What filings with a court, government office, or other entity are required?
13. What notices must be published or posted to advise creditors of the process?
14. Is the consent of all or some portion of the creditors required to use the process?
15. Is the process available if no funds are likely to be distributed to unsecured creditors?
16. What type of professionals are likely to be retained during the process?
17. What other costs can be expected to be incurred as a part of the process?
18. How commonly is the process used?
19. What are the pros and cons of the procedure for each of the following parties:
a. Officers, directors, and controlling shareholders of the liquidating company.
i. Protections from lawsuits for breach of fiduciary duty?
ii. Likelihood of payment of trust fund taxes under the relevant priority scheme?
iii. Likelihood of avoidance of payments made to or for the benefit of insiders.
b. Secured creditors.
i. Ability to wipe out junior liens on the assets?
ii. Speed of liquidation of collateral and ability to have company finish work in process and otherwise achieve highest value for assets?
iii. Ability to recover preferential or fraudulent transfer made voluntarily or involuntarily by the company?
iv. Protection from lender liability claims by unsecured creditors or junior lienholders?
c. Unsecured creditors.
i. Speed of liquidation of assets and ability to have company finish work in process and otherwise achieve highest value for assets?
ii. Ability to recover preferential or fraudulent transfers made voluntarily or involuntarily by the company?
iii. Status under priority scheme, savings of attorneys fees in collection actions, and equality of distributions?
d. Judgment creditors.
i. Increased status under priority scheme?
ii. Possibility that any lien obtained via judgment or subsequent collection actions may be voided?
i. Continued employment through the period of liquidation?
ii. Status under priority scheme for past wages and for those incurred during the liquidation process?
i. Higher or lower recovery on guaranteed obligations?
ii. Ability to recover past transfers made by the company on guaranteed obligations?