Recent news that Sears Canada has failed in its efforts to compete an effective reorganization, and will be forced to liquidate through Canada’s equivalent of Chapter 7 bankruptcy, has brought to light a point often ignored in analyzing your strategy with respect to money owed to a customer in bankruptcy.
For example, pretend for a moment that you’re on the committee in the Sears case. You’re meeting with attorneys and discussing potential bids. Something seems strange about these bids and you’re unable to get behind the low prices being offered. Additionally, your attorney tells you that you’ll get more back on your claim through a liquidation. Well, this is obvious, right? Vote against the plan for a sale and go to liquidation.
Retail bankruptcies are throwing a huge wrench in the business landscape these days. Liquidations are becoming more and more tricky because buyers are becoming harder to find. With so many bankruptcies in one sector, valuations are inherently lowered. According to a recent article in the American Bankruptcy Institute, trade creditors reaching compromises in retail bankruptcies are causing a real positive impact on the road to recovery. If investment firms who are owed enormous amounts of debt liquidate, the recovery for trade creditors is very little. However, a meaningful reorganization means money coming back to the creditors’ companies in the form of settlements and continued business.
As a credit manager serving on a committee, one may be tempted to take the money and run as quickly as possible. However, as this article posits, sometimes it’s much better to have a long-term relationship that a small instant recovery. The over-leveraged company is more and more commonplace after nearly 10 years of interest-free money. Credit managers who take a more long-term view of the issue may end up with a better impact for their company than simply taking what a liquidation would allow. Next time you’re faced with this situation, feel free to call CMA Adjustments for more information on how a different view of your bankruptcy claim could provide a positive impact on your company in the long-term.