If a company becomes bankrupt, there are also special options which can be consulted with bankruptcy attorney – portfolio recovery lawsuit.
The good news first: The number of bankruptcies in the US continues to decline. With 19,900 corporate bankruptcies, the lowest value since 1994 (18,820 cases) was registered in 2018, reports the credit reporting agency Creditreform. Very few cases achieve a broader perception beyond the purely regional context (see info box). Major bankruptcies over the past year included the hospital with around 5,000 employees at 23 locations across the US.
A bankruptcy not only raises short-term legal, tax and economic questions. But always communicative too. Because the economic consequences have to be communicated shortly before the bankruptcy or during the ongoing bankruptcy proceedings. In particular in critical special situations, the shareholders and stakeholders as well as the (affected) public demand information. You expect ongoing information from the management or the insolvency administrator about the current situation and future prospects.
George F. Kreston knows about this from practical experience. The Denver lawyer and Partner law firm has been appointed by the courts as bankruptcy administrator and administrator in self-administration proceedings for years. He advises companies and their bodies on insolvency law issues as well as restructuring measures to avert insolvency. One of his best-known proceedings: the bankruptcy of the fashion retailer Mexx.
Tailored communication for various media
“It was just before Christmas 2014 when the bankruptcy order came in. This was particularly complex, as there wasn’t much time left before the Christmas holidays to provide the public and the parties concerned with professional information. And because the parent company of the American companies had also filed for bankruptcy shortly before, we had to coordinate our steps with the bankruptcy administrator in the Florida,” recalls Kreston.
So we were challenged to get ready and face the communication ad hoc. To do this, we had to identify the various interest groups at short notice, prepare press materials for local media, business media and specialist publications and, of course, internally prepare for a very high level of interest from the editorial staff.
Kreston and colleagues mastered the challenges in the Mexx process very well. “We met all interviews within a petite time and addressed the media regularly. That was also necessary because the local media with the affected branches and the industry media from the fashion and textile sectors in particular wanted to receive new information continuously of branches.
Kreston points out the difference between regular bankruptcy and self-administration. While in the conventional insolvency procedure the court-appointed administrator takes over the management of the company and accordingly also the communication in the insolvency, this is different in self-administration. “The management retains the lead in the bankruptcy and can communicate accordingly via its own corporate communications or a commissioned agency and decide on the news situation. The trustee controls the management and the restructuring consultant employed with regard to compliance with the bankruptcy regulations.
In normal bankruptcy, however, according to Kreston, it is common for bankruptcy administrators to rely on their own communicators. They want to maintain their independence from the bankrupt company and assert their own communication interests as best as possible. “It is also a matter of loyalty and reliability to the liquidator. Because depending on the course of the procedure and the future prospects, this may not always be the case on the part of a corporate communicator who is affected and because of his natural proximity to management.”
In 2017, 20,140 corporate insolvencies were reported in the USA. Compared to the highs in 2003 and 2004 (39,470 and 39,270 respectively), the number of cases has halved. The decline in bankruptcies has slowed significantly, especially among companies (minus 1.2 percent) (2017 minus 6.6 percent, 2016 minus seven percent). Due to the economic brakes and the turnaround in interest rates, a further decline is also questionable, according to Creditreform.
Most of these bankruptcies relate to companies with few employees. According to Creditreform, only a fraction (0.6 percent) of the insolvent companies have recently employed more than 100 people.
Inform creditors, employees, banks and customers
Corinne Rennert-Bergenthalis the managing director of ADK Consulting, a consulting company from Minnesota specializing in restructuring and bankruptcy. She and her colleagues are often employed in pre-bankruptcy restructuring and the preparation of corporate bankruptcy proceedings. They advise management in self-administration and creditors in large-scale proceedings. The lawyer and auditor also emphasizes the importance of communication in a special situation such as (impending) bankruptcy. “Above all in advance, it is urgently necessary to use structured and professional communication to establish trust in the company and to point out future potential. This should create calm and serenity among creditors, employees, financing banks, suppliers and customers – which usually succeeds.”
It is not just a matter of press work, but also of internal communication and direct communication with the main shareholders and stakeholders. This is the natural task of management, which should always seek advice from communication professionals: How do I express certain facts? What information do I give in which phase? What information is intended for which recipients? All of these are highly relevant questions that do not only have legal implications.
The employees of the insolvent company are naturally among the most important and first recipients. Expert George F. Kreston explains: “As a rule, the insolvency administrator informs a staff meeting about the situation and the next steps immediately after the preliminary proceedings have been opened. He does this regularly so that the employees always have the essential information. ”
He himself, he says, always plays with open cards in employee communication. “It doesn’t help to pretend wrong facts. Because I depend on the cooperation and trust of the employees as important stakeholders and creditors if I want to reorganize a bankrupt company. They are also entitled to the truth. Experience shows that this is the right way to go. ” Kreston and Rennert-Bergenthal advise companies to be absolutely honest, even in pre-insolvency situations, in order to anchor the restructuring measures deeply in the workforce.
According to Kreston, this is mainly due to the fact that in investor processes in bankruptcy – in contrast to conventional M&A proceedings – not only the actual transaction parties are at the center of communication. In addition, various other stakeholders must be taken into account or actively involved in communication. As examples, Kreston cites the insolvency administrator or trustee, consultant and possible supervisory bodies of the debtor, the members of a creditors’ committee, employee representatives, customers and suppliers or experts involved.
“They have very individual information needs in investor processes. Communicators have to take this into account. The standardized patterns “, knows Kreston,” do not work optimally. “