When is the best time to sell a troubled Company?

When is the best time to sell a troubled Company?

The aftershocks of the pandemic still reverberate in the board room. Employers are charting routes they never envisaged they would navigate.

Investors only want to know one thing, how much are you selling?

Even before COVID-19, owning an SME was challenging. Especially for women, who own or run more than a third of all SMEs in emerging markets. These businesses already faced an estimated $1.5 trillion credit gap. The pandemic is expected to widen that gap. – IFC.ORG

“Right now, financial institutions are as critical as doctors for us,” said Waweru Waithaka. “But they are so slow to react. Just talk to us…banks need to have more ‘heart’, all we’re asking for is to be communicated to and co-create solutions that will solve our immediate problems.”

One area that has yet to receive in-depth discussion is the federal government’s mechanisms for addressing liability concerns raised by the use and distribution of countermeasures to the virus.  After all, while contractors are no doubt responding with appropriate speed and diligence in developing and deploying various COVID-19 countermeasures, no contractor wants to be the subject of product liability, warranty, or negligence lawsuit later down the road.

The Covid-19 will inevitably trigger a force majeure clause as employers seek to salvage their Business from going bankrupt. This brings us to the main course of this dialogue. When is filing for bankruptcy the best option?

  • Force Majeure Provisions

An issue may arise where a party is unable to fulfill its contractual obligations. In such an instance, the company may find some reprieve in the force majeure provision.

Force majeure will never be implied into an agreement. So, the definition of force majeure, the events that constitute the force majeure, the effects of the force majeure on the contract (including suspension of any obligations or eventual right to terminate) and the procedure to report a force majeure event to the other party are very important to consider when trying to determine whether a party may be able to take advantage of this provision and to what extent it can be used.

Many people imagine bankruptcy is the ultimate end for a company, but bankruptcy is a legal status that an insolvent company or its creditors can voluntarily choose to pursue.

Bankruptcy is a process mediated by a federal court, to resolve a debtor's obligations to creditors, either by reorganizing and shedding some debt or by selling assets to pay back creditors.

Bankruptcy generally makes resolving those obligations easier, and offers some protections for debtors who would otherwise find themselves at the mercy of those they owe. There is a thin line between resilience in business and becoming self destruct.

SELL3

What cues should you look for before raising a white flag?

When the company has no real assets — You may want to settle amicably without visiting the court If the business has purchased inventory with trade credit, leased its furnishings and equipment, or financed them with a secured loan.

(Salvage whatever property you have so you are not at the mercy of the Landlord).

Secured creditors will take back their collateral, lessors will retrieve their property, and unsecured creditors will come away empty-handed.

If your business owns assets -Things can become messy with creditors if relationships have turned sour and the room to negotiate has been reduced to a needle's eye.

"Do you have enough time to put a sale together and can you get folks to agree?" says Charles. "In Chapter 7, a trustee can use the stay to keep the business together, and use the bankruptcy sale process to actually sell it." In most parts of the country, he says, a small Chapter 7 case can be concluded for under $15,000.

“The trustee has powers to recover things like preferential payments to certain creditors in the 90 days prior to filing, and can look back four years at transactions to determine whether they were fraudulent or not,” says Michael Goldberg, a bankruptcy lawyer in Boston. “When you file a bankruptcy you open the door to all that.”

SELL2

Even before COVID-19, owning an SME was challenging. Especially for women, who own or run more than a third of all SMEs in emerging markets.

In Ghana under the commencement of proceedings Section 22   of liquidations Act,1963 Act 20. 

 

Section 22—. (2) The proof of debt shall be in two parts, the first part containing brief particulars of, (a) the values and due dates of provable debts alleged by the creditor to be outstanding in his favour against the company and the nature and value of any securities held by the creditor in respect of such debts; (b) the values and due dates of any obligations outstanding in the company's favour against the creditor on the date on which the winding up order was made against the company; (c) the nature and value of securities of any description held by the company in respect of such obligations as are mentioned in the immediately preceding paragraph; (d) the total values of the aforesaid debts, obligations, and securities; and the second part containing details of the transactions from which such debts and obligations arose.

Hire a bankruptcy lawyer or a turnaround consultant to handle the sale of your business. Besides bringing expertise and calculating the value of the troubled company, turnaround experts bring a fresh perspective and, perhaps more importantly, a new counter-party for your creditors to negotiate with. 

Selling the company - Is the company better off in someone else's hands?

While this feels like going against the grain for most business owners it might be the best option if you still want your feet to peddle company affairs.

This can be done in bankruptcy or outside of it, with a turnaround consultant or a business broker. You may be able to get a higher price out of court, but you might find a larger market of value-minded buyers in court.

“There are some people who argue that bankruptcy has become a much more efficient marketplace for selling a troubled business,” says Goldberg. “It's a public forum – some people shop there.”