ABCs – Alternative to Bankruptcy & Receivership

ABCs can be Prudent Alternative to Bankruptcy & Receivership

An Assignment for the Benefit of Creditors (ABC) can be the most prudent fiduciary action by a distressed company’s board of directors. The benefits of ABCs compared to Ch. 7 & 11 bankruptcies, receiverships, and other out-of-court restructuring methods include:

1. Speed: Out-of-court ABCs can be completed faster than a bankruptcy or receivership matter.
2. Flexibility: The Assignee can utilize restructuring methods at-will, such as negotiating with creditors or selling assets, to optimize outcomes.
3. Cost: ABCs are far less expensive to implement than a bankruptcy due to efficiency and lower fees.
4. Yield: The expediency and flexibility of ABCs typically result in greater net proceeds than other methods available.

Check out this recent engagement where Stapleton Group served as Assignee.

20% in Additional Proceeds Generated via ABC of $50MM International Textile Recycler

A $50MM, private equity-backed international textile recycling company with operations in the U.S. and Central America had become illiquid due to substantial increases in freight costs and a poor product mix from a new key supplier. It was out of compliance with loan covenants and lacked cash-on-hand to pay creditor obligations.

The ABC

In an effort to restructure the business, two operating facilities were sold with proceeds used to pay back the company’s secured lender in full, and a third was closed. The company’s Board of Directors then opted to wind-down operations through an ABC rather than continue funding operations.

As Assignee, our team discovered significant accounts receivable on the company’s books without a recovery plan, and the lack of a realistic budget with projected recovery for the company’s remaining creditors.<

The Recovery

We successfully recovered an additional 20% over the amount generated by selling facilities by:

• Engaging critical personnel and former management to assist with vendor negotiations and stringent expense management;
• Vigilant A/R management to generate strong collections and cash flow for the ABC estate;
• Identifying and pursuing miscellaneous assets for recovery; and
• Negotiating payment plans to release critical assets of the estate for future sale and recovery.

The recovery through the ABC was used to pay down obligations to the second priority secured lender.

For more information about our Fiduciary and Turnaround Services, contact:

Jake DiIorio
jdiiorio@stapletoninc.com
213-235-0609