Distressed Sellers of Print and Graphic Co's Prefer Out of Court Managed Liquidation as Alternative to Bankruptcy

I continue to receive frequent inquiries from owners of printing and graphic communications companies who are searching for ways of exiting their debt-burdened balance sheets in the context of selling the business. The usual scenario involves a strategic acquirer who is only taking on the general intangibles. The seller is faced with the double dilemma of too little asset value versus debt levels and the timing difference between future payments from the buyer versus obligations that need funding at closing.

In 20 years of practice, I can only remember a handful of cases in which I recommended bankruptcy as the strategic procedure to enable the sale to be consummated. By contrast, I've recommended Managed Liquidation hundreds of times over the years.

In my opinion, Managed Liquidation remains the surgery of choice for "going out of business" debt resolution within the print and graphic communications industry. Not that there can't be a case or two along the way that would involve bankruptcy, but the out of court Managed Liquidation process carries several important advantages:

1. General Intangibles, the most valuable asset for most of our clients, retains value if the book of business is sold with the customer relationships transitioning to the buyer, and this easier to implement without court notices going into the marketplace;
2. AR collections tend to hold up better without the stigma of bankruptcy;
3. WIP is more likely to be completed without court restrictions on using cash to complete jobs;
4. Inventory can sometimes be returned to suppliers as a credit, which can't be done in the usual bankruptcy cases;
5. Out of court Managed Liquidation can go start to finish in weeks rather than months needed for bankruptcy cases;
6. Professional and administrative costs are less without expensive lawyers going to court;
7. Managed Liquidation avoids the uncertainty, cost, and complication of navigating through litigation over recovery for preference payments that were made to suppliers in the 90 days before filing;
8. Managed Liquidation rarely results in owners  giving money back to the creditors if the owners booked money they took out as principal payments on loans rather than as salary during the 12 months before filing;
9. Resolving personal guarantees among partners is hard enough to accomplish without bankruptcy court requirements to treat these issues as unrelated to the case.

I don't mean to seem biased against bankruptcy, but the above are reasons why Managed Liquidation remains in vogue as a debt solution strategy for exiting ownership of print and graphic communications companies. 

To be clear, this blog post addresses bankruptcy versus Managed Liquidation in the context of an exit from ownership; a discussion of using bankruptcy to "stay in business" while reorganizing is a topic for another day.