Partners at Skadden discuss what corporate leadership needs to know to ensure a positive restructuring outcome.
SS&C Intralinks’ Ben Collins recently sat down with partners from global legal firm Skadden, a global legal firm that advises corporations, financial institutions and government entities around the world on their most complex, high-profile matters, to talk about how organizations are assessing and executing strategies around Chapter 11. Skadden advises corporations, financial institutions and government entities around the world on their most complex, high-profile matters. Marie Gibson, Faiz Ahamd and Shana Elberg, who all work closely with distressed companies, shared their thoughts on how those organizations can best position themselves as they go into a restructuring.
Before a company enters a reorganisation through Chapter 11, there are three key factors that a leadership team should address:
1. The company’s liquidity timeline;
2. The company’s constituents; and
3. Processes and procedures protecting the board and management team.
Establishing the liquidity timeline will determine how much time a company realistically has to restructure, Marie explains. “The company needs to get a good handle on how much cash they really have and … once that baseline is determined, the company needs to see if there are any levers it can pull to extend their runway.”
In terms of constituents, the organization must allot enough time to review the client’s needs, especially since the constituents are responsible for ultimately negotiating the company’s destiny, Marie explains. “In order to make sure we have the support of the constituents if there is a filing, we need to spend time with them upfront to see how we can work with them.”
When asked about the third key factor — the importance of board involvement during this process — Faiz stresses that it’s critical to plan, since the board’s conduct is going to be scrutinized before and after the transaction.
“It’s important to consider any potential conflicts early on,” he explains. “Identify relationships, potential entanglements that could become a problem. And think about how you build a process in advance to protect those down the road.” Hiring advisors or putting a committee in place are strategies that can ensure management teams are extensively prepared.
Being proactive is a recurring theme in the partners’ advice, as they highlight it as a key consideration that management teams typically do not practice – but probably should. Often, a distressed company will approach Skadden too late in the process, when the cash runway is running short and options are fewer. Companies often underestimate how long negotiations will last (they usually range from weeks to months). “Make sure you have the time to prepare as best you can. If you go in with the support of your creditors, you’ll have a much easier time,” Marie advises.
To learn more about Marie, Faiz and Shana’s thoughts on restructuring, watch Ben’s full interview below.
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