The Bottom Line:
Successfully sold a custom cabinetry manufacturer suffering chronic cash flow problems and near bankruptcy to a strategic buyer in an Assignment for the Benefit of Creditors (ABC). Paid secured creditors in full with the proceeds, and administered a claims process for unsecured creditors that returned approximately 5% of accounts payable on a pro-rata basis.
The Business Issue:
The company was struggling as a result of the economic downturn, with depressed cash flow and accounts payable issues. An investment banker was hired by the business owner, who also was a creditor to the company, to sell the business. The company’s unsecured creditors were suppliers motivated for the business to continue as a going-concern.
Genesis of Stapleton’s Engagement:
Recognizing he lacked sufficient independence, the investment banker recommended Stapleton Group to the owner to ensure an arm’s length transaction for the company’s creditors. We quickly identified an ABC as the best process.
Obstacles and Stapleton’s Solutions:
- The company’s unsecured creditors wanted to maximize their recovery, but also wanted the business to continue as a going concern.
- Stapleton produced a liquidation analysis to compare proceeds from selling the business as a going concern to proceeds from an orderly or forced liquidation of the assets.
- Stapleton performed due diligence (including identification of assets, UCC search, status of liens and obligations with landlord, appraisal of equipment), established a marketing process to sell the business through an ABC and negotiated with potential buyers.
- Stapleton ultimately succeeded in selling the business to a competitor.
- Stapleton communicated with and administered a claims process for the unsecured creditors on a pro-rata basis from proceeds of the ABC sale.
- Operations needed to be restructured to attract prospective buyers.
- Stapleton aggressively managed cash flow, accounts receivable, expenses and vendor
- Stapleton identified and made payments to all secured lienholders.
- Insolvency complicated the transition of the business to the buyer.
- Stapleton negotiated with the buyer to issue and fund final vacation and other payroll-related accruals owed to employees as incentives to continue with the company under its new ownership.
- As Assignee, Stapleton performed an inventory of all equipment, raw materials and work in process for accurate record of turnover to buyer.
- Stapleton carefully maintained vendor relationships and insurance throughout the process.
- Stapleton appeased the landlord with the idea that a new operator would take over the lease.