Financially distressed companies facing the end of the road (and their secured creditors) are increasingly exploring alternatives to bankruptcy for liquidating their businesses. Bankruptcy cases (Chapter 7 or Chapter 11) can provide for an orderly wind-down and claims reconciliation process, with the advantages, and from the debtor’s perspective, certain disadvantages that come with having bankruptcy court oversight, transparency and–ultimately–finality. However, the bankruptcy process can be costly, time-consuming, and–perhaps most concerning for the distressed company’s decision-makers–can result in a debtor’s or trustee’s investigation and pursuit of claims and causes of action against the company’s owners, management and affiliates.
As a result, companies will often pursue alternative means of liquidating, including assignments for the benefit of creditors, receiverships, UCC Article 9 foreclosure sales, and informal wind-downs. Understanding these alternatives is essential for creditors seeking to maximize recoveries and minimize exposure.
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