Fewer county firms turning to bankruptcy. - Free Online Library
One year after Congressional legislation made it more difficult for
consumers to discharge their debts through bankruptcy, the impact has
spread to the business sector, with fewer
Los Angeles Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. County companies
filing for bankruptcy.
Thanks to little-publicized provisions in the landmark bankruptcy
law reforms that went into effect last Oct. 17, businesses that file for
bankruptcy face tighter timelines and greater costs. Along with
relatively easy access to billions of dollars in private equity capital,
that has dissuaded some businesses from seeking protection.
"There is now more incentive than ever before to cut a deal
and stay out of
bankruptcy court bankruptcy court n. the specialized Federal court in which bankruptcy matters under the Federal Bankruptcy Act are conducted. There are several bankruptcy courts in each state, and each one's territory covers several counties. , because the costs and
time constraints In law, time constraints are placed on certain actions and filings in the interest of speedy justice, and additionally to prevent the evasion of the ends of justice by waiting until a matter is moot. of the Chapter 11 route are so onerous," said Keith Owens, partner
in the business reorganization group in the Los Angeles office of Foley
& Lardner
LLP LLP - Lower Layer Protocol .
Business reorganization filings for the first nine months of 2006
in Los Angeles County under Chapter 11 of the
Bankruptcy Code Bankruptcy Code may refer to: - Bankruptcy in Canada
- Bankruptcy in the United States
- Bankruptcy in China
are off 18
percent from the same period last year and more than 56 percent from
2004 levels,
according to according to
prep.
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. figures compiled by LexisNexis Court Link for
the Business Journal.
But that's not all that's down. Business liquidations
under Chapter 7 for the first nine months of the year are running 50
percent months of the below me same period for both 2004 and 2005.
Overall Chapter 7 filings, including those by individual consumers, are
off 82 percent from 2005 and 68 percent from 2004.
Epidemic use
For years, banks and credit card companies had lobbied hard to
reduce what they claimed was an epidemic of consumers using the
bankruptcy laws to walk away from their debts. In response, Congress
last year passed the
Bankruptcy Abuse Prevention and Consumer Protection
Act The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Pub.L. 109-8, 119 Stat. 23, enacted 2005-04-20), provided for significant changes in Bankruptcy in the United States, was passed by the 109th United States Congress on April 14, 2005 and signed into law . Among other things, it requires individuals--and sole
proprietors--seeking to
liquidate To pay and settle the amount of a debt; to convert assets to cash; to aggregate the assets of an insolvent enterprise and calculate its liabilities in order to settle with the debtors and the creditors and apportion the remaining assets, if any, among the stockholders or owners of the their debts under Chapter 7 to pass a
"
means test means test
n.
An investigation into the financial well-being of a person to determine the person's eligibility for financial assistance.
means test
Noun " to determine whether they can pay back some of
their debt. All individual filers must also undergo
credit counseling Credit counseling (known in the United Kingdom as debt counselling) is a process offering education to consumers about how to avoid incurring debts that cannot be repaid. This process is actually more debt counseling than a function of credit education. from a certified provider.
As a result of the changes, sole proprietorships--which were heavy
users of bankruptcy court--are much less likely now to find bankruptcy
attractive.
Another factor in the drops: Many individuals and business owners
facing financial difficulties heard about these pending changes and
rushed to file before the new law took effect. That caused a spike in
Chapter 7 filings in September and October of 2005. Then, for the next
several months, there was little activity as virtually everyone who
could have filed had already done so or was too scared to proceed.
With each passing month, however, these effects have worn off,
causing the number of filings in all categories to creep back up again.
Still, on the corporate side, lesser-known changes sought by creditor
parties have made Chapter 11 filings less attractive. Chief among these:
a requirement that within 90 days of filing, a company must tell all
landlords whether it intends to keep or dispose of leases. Landlords
welcomed this provision because it allows them to sign up replacement
tenants more quickly. But it also forces the company to come up with at
least the outlines of a
reorganization plan A scheme authorized by federal law and promulgated by the president whereby he or she alters the structure of federal agencies to promote government efficiency and economy through a transfer, consolidation, coordination, authorization, or abolition of functions. very quickly after filing.
For a company with dozens or hundreds of branch locations or stores,
this can be a
daunting daunt
tr.v. daunt·ed, daunt·ing, daunts
To abate the courage of; discourage. See Synonyms at dismay.
[Middle English daunten, from Old French danter, from Latin process. Another provision allows creditors to
file their own reorganization plan for the bankrupt company within 18
months if the company itself hasn't come up with its own plan and
had it approved by the bankruptcy court.
"Both of these provisions have shifted more bargaining power
to creditors," said Howard Weg, partner in the Los Angeles
bankruptcy law firm Peitzman Weg & Kampinsky LLP.
From the creditors' perspective, this avoids long, drawn-out
multiyear bankruptcies, such as the notorious Manville Corp. case in the
1980s that took more than six years to resolve. Creditors have more
certainty as to when they will get paid.
From the debtor company's perspective, it means a lot more
work must be done up front--at greater expense--before filing for
bankruptcy.
"The new law has put the
kibosh ki·bosh
n. Informal
A checking or restraining element: had to put the kibosh on a poorly conceived plan.
[Origin unknown. on businesses that were
seeking a few months breathing room by filing Chapter 11, especially
smaller businesses," said Paul Shankman, a bankruptcy attorney with
the Torrance law office of James Andrew Hinds.
For example, Weg said a client who owned a residential tower had to
have a reorganization plan ready at the time it filed and that "was
unheard of Not heard of; of which there are no tidings.
Unknown to fame; obscure.
- Glanvill.
See also: Unheard Unheard before the changes in the law."
Trouble is, often there isn't time to do all the work,
especially if a sudden major disruption to the business is the cause for
the bankruptcy filing.
Limited choices
That leaves a limited set of choices for the business: agreeing to
pay more back to creditors than initially intended or rushing to find a
buyer for the assets through an expedited bankruptcy code process known
as a "363 asset sale."
"We're seeing more and more 363 sales, especially with
companies with under $30 million in revenues," said Robbin Itkin, a
partner with the restructuring practice in the Los Angeles office of
Kirkland & Ellis LLP.
In effect, these 363 asset sales are liquidations; the only
difference is that the management and ownership of the company retains
control over the business while the
liquidation The collection of assets belonging to a debtor to be applied to the discharge of his or her outstanding debts.
A type of proceeding pursuant to federal Bankruptcy is going on. Faced with
these choices, some companies are opting instead to cut out-of-court
deals with their creditors to avoid filing for bankruptcy in the first
place.
There's also the effect of the private equity boom. With so
much capital floating around, businesses that might have considered
bankruptcy are able to obtain new loans to pay off the old ones.
"It's like continually refinancing your house,"
Owens said.
This has served to blunt the impact of the bankruptcy law changes
during the first year. But, like home refinancing, it only works as Long
as the underlying value of the business can be sustained.
Of course, if private equity were to dry up or the economy to slow
substantially, bankruptcy experts say a wave of filings could hit.
One year after Congressional legislation made it more difficult for
consumers to discharge their debts through bankruptcy, the impact has
spread to the business sector, with fewer
Los Angeles Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. County companies
filing for bankruptcy.
Thanks to little-publicized provisions in the landmark bankruptcy
law reforms that went into effect last Oct. 17, businesses that file for
bankruptcy face tighter timelines and greater costs. Along with
relatively easy access to billions of dollars in private equity capital,
that has dissuaded some businesses from seeking protection.
"There is now more incentive than ever before to cut a deal
and stay out of
bankruptcy court bankruptcy court n. the specialized Federal court in which bankruptcy matters under the Federal Bankruptcy Act are conducted. There are several bankruptcy courts in each state, and each one's territory covers several counties. , because the costs and
time constraints In law, time constraints are placed on certain actions and filings in the interest of speedy justice, and additionally to prevent the evasion of the ends of justice by waiting until a matter is moot. of the Chapter 11 route are so onerous," said Keith Owens, partner
in the business reorganization group in the Los Angeles office of Foley
& Lardner
LLP LLP - Lower Layer Protocol .
Business reorganization filings for the first nine months of 2006
in Los Angeles County under Chapter 11 of the
Bankruptcy Code Bankruptcy Code may refer to: - Bankruptcy in Canada
- Bankruptcy in the United States
- Bankruptcy in China
are off 18
percent from the same period last year and more than 56 percent from
2004 levels,
according to according to
prep.
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. figures compiled by LexisNexis Court Link for
the Business Journal.
But that's not all that's down. Business liquidations
under Chapter 7 for the first nine months of the year are running 50
percent months of the below me same period for both 2004 and 2005.
Overall Chapter 7 filings, including those by individual consumers, are
off 82 percent from 2005 and 68 percent from 2004.
Epidemic use
For years, banks and credit card companies had lobbied hard to
reduce what they claimed was an epidemic of consumers using the
bankruptcy laws to walk away from their debts. In response, Congress
last year passed the
Bankruptcy Abuse Prevention and Consumer Protection
Act The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Pub.L. 109-8, 119 Stat. 23, enacted 2005-04-20), provided for significant changes in Bankruptcy in the United States, was passed by the 109th United States Congress on April 14, 2005 and signed into law . Among other things, it requires individuals--and sole
proprietors--seeking to
liquidate To pay and settle the amount of a debt; to convert assets to cash; to aggregate the assets of an insolvent enterprise and calculate its liabilities in order to settle with the debtors and the creditors and apportion the remaining assets, if any, among the stockholders or owners of the their debts under Chapter 7 to pass a
"
means test means test
n.
An investigation into the financial well-being of a person to determine the person's eligibility for financial assistance.
means test
Noun " to determine whether they can pay back some of
their debt. All individual filers must also undergo
credit counseling Credit counseling (known in the United Kingdom as debt counselling) is a process offering education to consumers about how to avoid incurring debts that cannot be repaid. This process is actually more debt counseling than a function of credit education. from a certified provider.
As a result of the changes, sole proprietorships--which were heavy
users of bankruptcy court--are much less likely now to find bankruptcy
attractive.
Another factor in the drops: Many individuals and business owners
facing financial difficulties heard about these pending changes and
rushed to file before the new law took effect. That caused a spike in
Chapter 7 filings in September and October of 2005. Then, for the next
several months, there was little activity as virtually everyone who
could have filed had already done so or was too scared to proceed.
With each passing month, however, these effects have worn off,
causing the number of filings in all categories to creep back up again.
Still, on the corporate side, lesser-known changes sought by creditor
parties have made Chapter 11 filings less attractive. Chief among these:
a requirement that within 90 days of filing, a company must tell all
landlords whether it intends to keep or dispose of leases. Landlords
welcomed this provision because it allows them to sign up replacement
tenants more quickly. But it also forces the company to come up with at
least the outlines of a
reorganization plan A scheme authorized by federal law and promulgated by the president whereby he or she alters the structure of federal agencies to promote government efficiency and economy through a transfer, consolidation, coordination, authorization, or abolition of functions. very quickly after filing.
For a company with dozens or hundreds of branch locations or stores,
this can be a
daunting daunt
tr.v. daunt·ed, daunt·ing, daunts
To abate the courage of; discourage. See Synonyms at dismay.
[Middle English daunten, from Old French danter, from Latin process. Another provision allows creditors to
file their own reorganization plan for the bankrupt company within 18
months if the company itself hasn't come up with its own plan and
had it approved by the bankruptcy court.
"Both of these provisions have shifted more bargaining power
to creditors," said Howard Weg, partner in the Los Angeles
bankruptcy law firm Peitzman Weg & Kampinsky LLP.
From the creditors' perspective, this avoids long, drawn-out
multiyear bankruptcies, such as the notorious Manville Corp. case in the
1980s that took more than six years to resolve. Creditors have more
certainty as to when they will get paid.
From the debtor company's perspective, it means a lot more
work must be done up front--at greater expense--before filing for
bankruptcy.
"The new law has put the
kibosh ki·bosh
n. Informal
A checking or restraining element: had to put the kibosh on a poorly conceived plan.
[Origin unknown. on businesses that were
seeking a few months breathing room by filing Chapter 11, especially
smaller businesses," said Paul Shankman, a bankruptcy attorney with
the Torrance law office of James Andrew Hinds.
For example, Weg said a client who owned a residential tower had to
have a reorganization plan ready at the time it filed and that "was
unheard of Not heard of; of which there are no tidings.
Unknown to fame; obscure.
- Glanvill.
See also: Unheard Unheard before the changes in the law."
Trouble is, often there isn't time to do all the work,
especially if a sudden major disruption to the business is the cause for
the bankruptcy filing.
Limited choices
That leaves a limited set of choices for the business: agreeing to
pay more back to creditors than initially intended or rushing to find a
buyer for the assets through an expedited bankruptcy code process known
as a "363 asset sale."
"We're seeing more and more 363 sales, especially with
companies with under $30 million in revenues," said Robbin Itkin, a
partner with the restructuring practice in the Los Angeles office of
Kirkland & Ellis LLP.
In effect, these 363 asset sales are liquidations; the only
difference is that the management and ownership of the company retains
control over the business while the
liquidation The collection of assets belonging to a debtor to be applied to the discharge of his or her outstanding debts.
A type of proceeding pursuant to federal Bankruptcy is going on. Faced with
these choices, some companies are opting instead to cut out-of-court
deals with their creditors to avoid filing for bankruptcy in the first
place.
There's also the effect of the private equity boom. With so
much capital floating around, businesses that might have considered
bankruptcy are able to obtain new loans to pay off the old ones.
"It's like continually refinancing your house,"
Owens said.
This has served to blunt the impact of the bankruptcy law changes
during the first year. But, like home refinancing, it only works as Long
as the underlying value of the business can be sustained.
Of course, if private equity were to dry up or the economy to slow
substantially, bankruptcy experts say a wave of filings could hit.