agents of corporate renewal - tma · greetings from corporate renewal ... impact of the new...

2 GREETINGS FROM CORPORATE RENEWAL PROFESSIONALS1,000 professionals in Midwest dedicated to corporate renewal. By Bill Hass, CTP, Chapter President

3 CTP DESIGNATION REFLECTS EXPERTISE, INTEGRITY, COMMITMENTCertified Turnaround Professionals must meet stringent standards of education, experience and professional conduct. By Anthony M. Bergen, CTP, Chairman, Association ofCertified Turnaround Professionals, Glass & Associates, Inc.

4 FINANCIAL DISTRESS SIGNALS TIME TO FOCUS ON OPERATIONSEasy access to capital to relieve financial stress can disguise poor business execution. By Dan Bender and Steve Kunkel, AEG Partners

5 CRITICAL ISSUES ARISE FOR SUPPLIERS AND CUSTOMERS OF AUTO SUPPLIERSEarly detection is essential for successfully addressing industry’s financial distress.By Deborah L. Thorne, Barnes & Thornburg

6 ACCOMMODATION AGREEMENTS HELP MEETEND-CUSTOMERS’ NEEDSAccommodation agreements identify responsibilities of all involved parties in supply chain. By Frank R. Mack, CTP, CPA, CFE, Conway MacKenzie & Dunleavy

8 FOLLOW YOUR MONEY WITH CASH PROJECTIONS THAT HELP YOU MANAGE YOUR BUSINESSMore than a format change, turnaround professionals provide valuable insight. By Tom S. O’Donoghue, Corporate Revitalization Partners LLC

SUMMER 2006

WWW.CHICAGO.TURNAROUND.ORG

SPECIAL ADVERTISING SUPPLEMENT

9 BANKRUPTCY EXCLUSIVITY NOW LIMITEDTO 18 MONTHSChanges to Bankruptcy Code limit exclusivity for debtor-in-possession. By C. Michael Graf, Glass & Associates Inc.

10 ABCS—A FASTER, CHEAPER ALTERNATIVE TO FEDERAL BANKRUPTCY LIQUIDATIONSAssignments for the Benefit of Creditors is an excellent alternative to Chapter 7 Bankruptcy. By Randall Wright Patterson and Howard R. Korenthal, Lake Pointe Partners LLC

12 CAN MY BUSINESS SURVIVE THE CRISIS?Don’t feel lost, ask for directions to survive. By Dan Dooley, CTP, Morris-Anderson & Associates Ltd.

14 BANKRUPTCY CODE AMENDMENTS AFFECT INITIAL VIABILITY ANALYSESA bankruptcy audit should be undertaken early to improve outcomes for all parties.By Melanie Rovner Cohen and Faye B. Feinstein, Quarles & Brady LLP

“Unravel the Current Liquidity and Corporate Renewal Environment…”Featuring keynote speaker Art LafferJoin us on June 22-23 at the Hyatt Regency Chicago(more information can be found on page 16)

Agents ofCorporateValue &Renewal

The 2006 Leadership Team of the 900-plus member TMA Chicago/Midwest Chapter serving the Chicagoland area.

Art Laffer

WWW.CHICAGO.TURNAROUND.ORG2 >

Q&AWhen do companies in distress call on AEG Partners? Right before things start to get better.

When companies call on AEG Partners for turnaround help, they know we'll help them develop practical, realistic solutions. We'll supply clear thinking, senior-level expertise, and a strong focus on results. That's why the best time to call on AEG is when you're ready for your company's future to start getting brighter.

www.AEGPartners.com

Greetings from 1,000 professionals dedicated to corporate renewal in the Midwest:

The Chicago/Midwest Chapter of the Turnaround Management Association

serves as a forum for corporate renewal professionals from all disciplines to promote high standards of practice, network, and foster professional development and awareness.

These articles and checklists provide a sampling of the diversity of our membership and knowledge. From the early warning signs of decline to the impact of the new bankruptcy law on corporate renewal and restructuring, the Chicago Chapter of TMA is where to find the true experts in corporate renewal.

It’s a fact. Experience shows early problem recognition, effective planning and disciplined action can save a company from needless failure while restoring or preserving value for all stakeholders.

To learn more about the TMA and the corporate renewal industry, join us Thursday and Friday, June 22 and 23, at the Hyatt Regency Chicago when we host a two-day conference on “Liquidity and Renewal.” Or, if your schedule doesn’t permit you to visit with us in June, join us at one of our 40 local chapter events like our Joint Annual Boat Cruise to be held this July 19 at Navy Pier with the Association for Corporate Growth (ACG) and the Commercial Finance Association (CFA) to network as well as learn more about the Turnaround Management Association!

Again, come join us in person or visit us at www.chicago.turnaround.org to learn more.

– Bill Hass, CTP, Chapter President [email protected]

SPECIAL ADVERTISING SUPPLEMENT – JUNE 12, 2006 < 3

CERTIFIED TURNAROUND PROFESSIONAL DESIGNATION REFLECTS EXPERTISE, INTEGRITY, COMMITMENT

Just as businesses must build upon sturdy foundations to succeed, professionals in turnaround management and corporate

renewal must maintain a solid basis of practical experience and relevant knowledge to work successfully with troubled companies. Knowledge and experience were the driving forces behind the development

of the Certified Turnaround Professional (CTP) designation more than a decade ago.

Founded by the Turnaround Management Association (TMA) in 1993, the Association of Certified Turnaround Professionals (ACTP) is dedicated to developing, monitoring and maintaining a program of certification for professionals engaged in the turnaround, crisis management, restructuring, and renewal of trouble businesses and organizations. The CTP program provides an objective measure and recognition of the expertise, knowledge and integrity necessary for successfully completing workouts, restructurings and corporate renewal.

Turnaround practitioners, workout lenders, portfolio managers and some corporate executives are eligible to become CTPs. Certification provides evidence of a professional’s commitment to the turnaround and corporate renewal industry and attests to a level of expertise, knowledge and experience to operate capably.

Section 415 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 makes certification more important than ever because it directs bankruptcy court judges to consider whether a professional is certified or otherwise has demonstrated skill and experience in the bankruptcy field when evaluating fees.

To become certified, individuals must meet stringent standards of education, experience and professional conduct. They must pass a three-part exam covering management, law, and accounting and finance, and comply with continuing education requirements after attaining the designation. In addition, certification candidates:

• Agree to abide by TMA’s Code of Ethics.• Possess a bachelor’s degree from an accredited college or

university or a minimum of 10 years consulting experience.• Possess a minimum of five years of consulting experience,

at least three of which have been in turnaround or restructuring management.

• Provide recommendations from three professional peers, no more than one of whom works for the same firm.

• Submit letters from at least three clients confirming the turnaround nature of the assignments undertaken ontheir behalf.

• Provide five case studies confirming the turnaround nature of the assignments undertaken.

• Reveal any pending disciplinary action or prior public discipline, criminal conviction, malpractice judgment or admission of malpractice, and any refusal, denial or revocation of a license to practice or a certification administered by another professional body.

• Submit to a background check by ACTP’s Standards Committee.

The new CTP Designate (CTP-D) is an interim certification that professionals can attain after passing the three portions of the exam but before they complete other requirements for full accreditation.

FOR MORE INFORMATION ON THE ACTP AND/OR THE

TURNAROUND MANAGEMENT ASSOCIATION, CONTACT NICOLE

GIBBY, VIA E-MAIL AT [email protected] OR CALL

(312) 578-6900.

> BY ANTHONY M. BERGEN, CTP, CHAIRMAN, ASSOCIATION OF CERTIFIED TURNAROUND PROFESSIONALS, GLASS & ASSOCIATES, INC.

Glass & Associates is pleased to announce

the opening of our new Chicago office:

Sears Tower233 South Wacker Drive, Suite 9430

Chicago, IL 60606(312) 469-5200 phone (312) 469-5201 fax

Jerry Sepich • Michael Graf

Glass & Associates helps underperforming businesses

rapidly develop and execute new strategies for

survival and success. Glass brings clarity to

difficult situations and helps companies

go from troubled to triumphant.

www.glass-consulting.com


FINANCIAL DISTRESS, A TIME TO FOCUS ON OPERATIONS> BY DAN BENDER AND STEVE KUNKEL, AEG PARTNERS

The recent upswing in the economy has created relatively easy access to the capital markets

for companies looking to resolve the financial distress. That new capital, however, can disguise the poor business execution that creates distress.

Consider this Chapter 22 case example: We were hired as the Chief Restructuring Officer as a $300 million business was preparing for their second Chapter 11 filing in three years. The first filing was solely a financial transaction: de-leveraging the balance sheet, but leaving the company stranded on the same business plan heading straight for a second filing.

WHAT WENT WRONG?

Like a coin, a business has two sides: financial and operational. Separating heads from tails on a coin is impossible. The same can be said of successful restructuring efforts. Restructuring a troubled business requires both de-leveraging the balance sheet and refocusing the operations on a viable business plan.

Despite being a $300 million annual revenue business, the value of the proposed financial restructuring was estimated at less than $15 million. While cash flows were brought under control, the company operations were

“LIKE A COIN, A BUSINESS HAS TWO SIDES: FINANCIAL AND OPERATIONAL. SEPARATING HEADS FROM TAILS ON A COIN IS IMPOSSIBLE. THE SAME CAN BE SAID OF SUCCESSFUL RESTRUCTURING EFFORTS.”

“RESTRUCTURING A TROUBLED BUSINESS REQUIRES BOTH DE-LEVERAGING THE BALANCE SHEET AND REFOCUSING THE OPERATIONS ON A VIABLE BUSINESS PLAN.”

reigned in. This involved not only cost reductions, but redirection of all efforts on the profitable portion of the business. Financial models were developed to reflect capital structure improvements and a foundational change in operational focus was implemented at every level. The company became focused on success, in this case, positive and profitable cash flow. The focus on financial health created the momentum necessary to overcome any resistance to operational change.

THE RESULT?

While the financial restructuring alone generated less than $15 million in recoveries, the operational restructuring has repositioned the business to produce more than twice that recovery in just two years. In this situation, the operational restructuring was worth more than twice the amount of the financial restructuring.

Financial health and operational health are no more separable than heads from tails. Like grasping a coin, restructuring

a business requires a solid grasp of both the financial and operational aspects. The best organizations recognize that financial distress presents an opportunity to create meaningful operational improvements. If your restructuring team can effectively address both, the chances for a successful long-term renewal and restructuring increase dramatically.

For more information on this case study or to understand the benefits of operational expertise coupled with financial knowledge in a restructuring scenario, contact the authors.

DAN BENDER AND

STEVE KUNKEL

ARE WITH AEG

PARTNERS. THEY

CAN BE REACHED VIA

EMAIL AT DBENDER@

AEGPARTNERS.COM

AND SKUNKEL@

AEGPARTNERS.COM.


what?Since 1987, Conway MacKenzie & Dunleavy has provided turnaround management, performance improvement and litigation support services to clients in a wide variety of industries. Our highly credentialed team of experts includes CPAs, Business Valuation Experts, Certified Turnaround Professionals and Certified Fraud Examiners. When the question is—what should you do if your company needs assistance—the answer is to call Conway MacKenzie & Dunleavy.

Call Jeff Zappone or Frank Mack at 312-220-0100 for assistance.

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CRITICAL ISSUES ARISE FOR SUPPLIERS AND CUSTOMERSOF FINANCIALLY TROUBLED AUTO SUPPLIERS> BY DEBORAH L. THORNE, BARNES & THORNBURG

There is a sea change occurring in the worldwide automobile industry causing an ever-

increasing number of North American suppliers to commence Chapter 11 cases or attempt out-of-court workouts.

Early detection of a supplier or customer with financial problems is important to avoid delay in receiving parts or in receiving payment. Companies must be vigilant and detect the early signs that a supplier is having financial difficulty. Certain actions may prevent disaster. These include analysis of the supplier’s financial condition, the supplier’s cash flow, pricing policy and monitoring of shipments and invoices for reclamation purposes. It may also be

wise to consider early intervention with the use of turnaround consultants and accountants. Early engagement of legal counsel familiar with the auto supplier industry and recent changes to the Bankruptcy Code is prudent.

Early detection and a proactive approach are critical to providing a customer with the greatest likelihood of successfully addressing auto supplier financial distress. Since supplier financial distress may ultimately lead to disruptions in the customer’s supply chain and production, there are a number of standard procedures that a customer may implement in order to reduce the likelihood of a disruption by a financially troubled supplier. These include:

• Monitor delivery, performance, purchase orders and contracts.

• Review press and public reports.• Create a team to respond to troubled

supplier situations.• Review ownership of tooling.• Find an alternative supplier.• Create a parts bank.• Consider price increases and other

financial accommodations.• Consider supplying raw materials

directly.

DEBORAH THORNE IS A PARTNER AT

BARNES & THORNBURG. SHE CAN BE

REACHED VIA E-MAIL AT DEBORAH.

[email protected]


T he ACTP Body of Knowledge courses are ideal for all corporate renewal professionals who want to gain a broader understanding of turnaround management. Taught by a universityprofessor and U.S. bankruptcy judge, these courses focus on the operational, financial and legal

perspectives of a turnaround. Enhance your business skills by enrolling today!

Also available for the first time, professionals in the lending and investment communities can attain theCertified Turnaround Professional (CTP) designation. Distinguish yourself from your peers and sharpenyour competitive edge by committing to the CTP.

Friday, July 14Accounting & Finance Course James K. Seward, Ph.D., University of Wisconsin

Saturday, July 15Accounting & Finance Exam

Chicago

Friday, August 11Law Course Hon. Robert D. Martin, U.S. Bankruptcy Court (Western District of Wisconsin)

Saturday, August 12Law Exam

Friday, September 15Management Course James K. Seward, Ph.D., University of Wisconsin

Saturday, September 16Management Exam

2006 ACTP BODY OF KNOWLEDGE S E R I E S

For more information about registration or exam application, or for questions about ACTP, please contactNicole Gibby, Manager of ACTPRelations,at 1-312-242-6034 or [email protected].

Fees: Course registration $400/course sectionExam application $595 (one-time,

non-refundable fee)Exam $250/section

InformationPlease visit www.actp.org as additionalcourses/exam dates are confirmed and for registration opportunities.

Certification Opportunity

SUPPLY CHAIN MANAGEMENT AND ACCOMMODATION AGREEMENTS SPELL OUT METHODOLOGY, RESPONSIBILITIES> BY FRANK R. MACK, CTP, CPA, CFE, CONWAY MACKENZIE & DUNLEAVY

Supply chain management (SCM) is the methodology for effectuating value-added manufacturing

and distribution processes to meet the needs of the end-customer. SCM involves the management of the entire supply chain from suppliers to original equipment manufacturers (OEM) to distributors and end-customers. Just-in-time (JIT) standards are often core to SCM strategies, reducing the financial requirements by eliminating waste. Predictability between supply chain participants is essential to SCM; therefore, participants enter into long-term contracts that define their respective requirements. In a perfect world, effective SCM methodologies result in a high degree of predictability, where everyone in the supply chain is

efficient and profitable, and the customer is fulfilled. However, in the imperfect world of global uncertainties, supply chain participants can find themselves operationally inefficient, unprofitable and at risk of business failure.

Rising prices are at the core of the current challenges facing interdependent supply chains. Inelastic pricing at the end-customer segment for consumer cyclicals prevents OEMs and their distributors from passing price increases to end-consumers. Unable to absorb price increases, OEMs force suppliers to perform against long-term contracts they are obligated under. Unable to do so, tier participants become financially distressed and breach their long-term performance contracts. Creative financing strategies are required once a restructuring of the now

insolvent distressed supplier (the Debtor) becomes inevitable, and an out-of-court restructuring or Chapter 11 bankruptcy case commences. Under either, the debtor requires financing to operate while restructuring options are implemented. The customers’ desire is to secure their supply sources until the debtor’s restructuring is concluded or alternative suppliers are secured. The secured and unsecured lenders want to maximize the realizable value of the debtor’s assets, so recoveries under respective claims can be maximized. Accommodation strategies have been proven to be effective in achieving all of the referenced objectives, and thus, have become essential in these situations.

The accommodation agreement is the legal document that defines the responsibilities of the respective parties


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At Webster Business Credit, we provide customizedasset-based lending services, financing for retailers andcash management services that best meet your company’sfinancial needs. As Mr. Kelly says, “They’re knowledge-able. They’re flexible. They’re trustworthy.” This is howWebster develops trust and grows businesses.

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involved. Usually these parties consist of the secured lender(s), the customer(s), and the debtor. Accommodation agreements are customized for each situation, and since the parties to the agreement have a substantial stake in the outcome, each seeks to maximize its recovery by implementing a strategy that balances its perceived rights, risks, benefits, costs and leverage. Accommodation agreements provide some form of protection to the parties: forbearance to parties subject to the Accommodation agreements; protections for the secured lenders consisting of reaffirming the secured lender’s senior perfected security interest in its collateral, and prohibition of the customer’s setting-off claims; recognition of the customer’s ownership rights or security interests in tooling and other assets, and permitting these customers to reclaim these assets under defined

conditions; and granting customers’ access rights to the debtor’s facility to monitor and/or operate processes to assure a continuing supply of parts.

The most important provisions of an accommodation agreement are those that define the timing and the extent of funding required by the secured lenders to the debtor. Funding can take the form of additional secured advances or debtor-in-possession (DIP) financing. Provisions of accommodation agreements can provide for funding by the customers, while still protecting the rights of the secured lenders. The agreement may also provide for the customer to make advances directly to the debtor. This form of funding amounts to a “last out participation” for the customers, and is usually defined under an ancillary subordination agreement or inter-creditor agreement.

Accommodation agreements are gaining in popularity and may become the standard framework for financing strategies and workout plans in distressed SCM situations. However, caveat emptor applies: given the inherent complexities and risks of accommodation agreements, any party contemplating entering into one should be advised by qualified legal counsel and turnaround advisors experienced in these matters.

FRANK MACK IS A MANAGING

DIRECTOR AT CONWAY MACKENZIE &

DUNLEAVY. HE CAN BE REACHED VIA

E-MAIL AT [email protected].


FOLLOW YOUR MONEY WITH CASH PROJECTIONSTHAT HELP YOU MANAGE YOUR BUSINESS> BY TOM S. O’DONOGHUE, CORPORATE REVITALIZATION PARTNERS LLC

Many of the inquiries we receive begin something like this:

“Our lender has asked us to retain a firm to assist us with the preparation of cash flow projections and related borrowing needs. We have consistently met our commitments with our lender but struggle with the timing of the certain product payments. If we could just put our cash needs into a format with which they are comfortable, this would all be taken care of …”

And so, another engagement begins. BUT far more than just a format change to the cash flow presentation is usually needed. Turnaround projects provide valuable insight into how the money

“TURNAROUND PROJECTS PROVIDE VALUABLE INSIGHT INTO HOW THE MONEY COMES AND GOES IN AN UNDERSTANDABLE ‘CASHBOX’ APPROACH.”

comes and goes in an understandable “cashbox” approach. Management needs to focus on learning the sources and uses of cash and summarize that in a manner that will provide stakeholders a clear picture of the funds available to meet various needs. This helps all stakeholders understand all areas within their business that contribute to overall profitability.

For instance, the reformatted financial statement may show that significant cash sources come from line items other than sales–e.g. miscellaneous income, advertising co-op, volume rebates–all adding up to a significant percentage of sales. A “format change” like this brings not only clarity about the business, but clarity about all options available to the business and its stakeholders.

TOM S. O’DONOGHUE IS A

MANAGING PARTNER AT CORPORATE

REVITALIZATION PARTNERS LLC.

HE CAN BE REACHED VIA EMAIL AT

[email protected].


BANKRUPTCY EXCLUSIVITY NOW LIMITED TO 18 MONTHS> BY C. MICHAEL GRAF, GLASS & ASSOCIATES INC.

In what was probably the highest profile Chicago bankruptcy case in recent history, UAL Corporation,

parent company of United Airlines, filed for protection under Chapter 11 in December 2002. The company emerged from bankruptcy February 1, 2006, over three years later, after no less than seven extensions to its exclusivity period under Section 1121(d).

Prior to the 2005 amendments to the Bankruptcy Code, the courts were given discretion to grant extensions, but required an affirmative showing by the debtor that good cause existed for the extension and the creditors would not be made “hostages1” of the debtor.

Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the debtor-in-possession remains entitled to an automatic 120-day period of exclusivity to develop and file a plan

and 60 days further to obtain consent. However, under the 2005 amendment, the period of exclusivity cannot be extended more than 18 months and the corresponding period to obtain confirmation cannot be more than 20 months from the date of the order for relief. Had UAL filed after October 17, 2005, its exclusivity period would have been cut roughly in half.

The Northern District of Illinois has not yet seen a large, high profile file case since the changes took effect, with

the exception of McLeod USA, which filed a “prepackaged” Chapter 11 plan on October 28, 2005, and emerged just slightly over two months later. 1In re Public Services Company of New Hampshire

MICHAEL GRAF IS A DIRECTOR AT

GLASS & ASSOCIATES. HE CAN BE

REACHED VIA EMAIL AT MGRAF@

GLASS-CONSULTING.COM.

“PRIOR TO THE 2005 AMENDMENTS TO THE BANKRUPTCY CODE, THE COURTS WERE GIVEN DISCRETION TO GRANT EXTENSIONS.”


ABCs—A FASTER, CHEAPER ALTERNATIVETO FEDERAL BANKRUPTCY LIQUIDATIONS> BY RANDALL WRIGHT PATTERSON AND HOWARD R. KORENTHAL, LAKE POINTE PARTNERS LLC

Assignments for the Benefit of Creditors (ABCs) are often an excellent alternative to the

liquidation of a business under Chapter 7 of the U.S. Bankruptcy Code. While similar in many respects, in an ABC all of the assets of the company are turned over to an Assignee instead of a Chapter 7 bankruptcy trustee, who is directed under principles of common or statutory state laws to liquidate the assets of the company in a commercially reasonable manner. Once the assets have been liquidated, the assignee distributes the proceeds to creditors in the priority set forth under law as applied in that state. These priorities generally follow the provisions of the U.S. Bankruptcy Code, but there are exceptions, such as priority

treatment of taxes and wages in Illinois.In Illinois, as in many other states,

an ABC is a common law procedure and is not supervised by a court. In such cases, the assignee is given broad latitude in the manner of liquidating assets, generally only bound by the “prudent business judgment” standard, rather than requiring court approval in the disposition of assets. Accordingly, the process of liquidating assets is accelerated and the cost is substantially reduced.

Because of the broad latitude afforded the assignee, an assignee can continue to operate the business for a period of time, if in the assignee’s prudent business judgment, the proceeds to creditors will be maximized by doing so.

Through the use of an ABC, an owner can often liquidate a business faster and at less cost than he can in a Chapter 7, while enhancing the proceeds from the liquidation for the benefit of the creditors and escaping the taint of having “filed for bankruptcy.”

“IN ILLINOIS, AS IN MANY OTHER STATES, AN ABC IS A COMMON LAW PROCEDURE AND IS NOT SUPERVISED BY A COURT.”

RANDY PATTERSON AND

HOWARD KORENTHAL

CAN BE REACHED VIA E-

MAIL AT RWPATTERSON@

LAKEPOINTEPARTNERS.

COM AND HRKORENTHAL@

LAKEPOINTEPARTNERS.

COM.


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3388-273-213

Offering small businesses afree place to turn for help

Call Christine Glatz at (815) 469-2935 or visit www.chicago.turnaround.org for moreinformation and click on the ProBono link located in the left column of the website.

“With the outstanding communications and experience of our consultant from the Turnaround Management Association, we’ve not only been able to return our business to profitability, but to position it for accelerated future growth,” CEO Local Illinois Distributor

Many companies like this have benefited from the pro bono consulting services offered by the Chicago Chapter of the Turnaround Management Association. Volunteer TMA members offer free consulting services to Chicago-area businesses and nonprofit organizations that demonstrate a financial need and are experiencing serious financial, operational or other problems. To qualify, for-profit businesses must have annual revenues of $3 million or less and nonprofit organizations must have annual revenues of $2 million or less.

The Turnaround Management Association is the premier international nonprofit association dedicated to corporate renewal. Approximately 1,000 members of the Chicago Chapter and more than 6,300 members in 37 regional chapters worldwide represent a variety of disciplines.


CAN MY BUSINESS SURVIVE THE CRISIS?> BY DAN DOOLEY, CTP, MORRIS-ANDERSON & ASSOCIATES LTD.

Most owner/entrepreneurs have had a near-death experience with their business and

survived. Unfortunately, far too many proud owners lose control of the family business only to watch helplessly as “their business” is sold as a distressed asset for a minimal value or worse yet, simply liquidated by lenders and creditors. In these distressed, unhappy endings the owner gets nothing and often faces collection of a personal guarantee should the lender not get fully repaid.

Most of the business owners I meet are very proud people who are at least second or third generation family business owners, and often they don’t possess the same business skill level as the founding parent. This pride often fosters embarrassment and fear in these owners

when their business gets into a crisis and like the “lost male motorist,” they have a real hard time asking for directions or seeking help and advice.

So, here’s a quick primer on what you, as an owner, (a/k/a lost male motorist) should do.

1. Management–You need to be absolutely sure you are confident your president can and will lead the company through the crisis. If you have any doubts, change out the president now.

If you operate as your own president, you won’t want to hear this, but you are almost certainly a “major part” of the cause of the crisis. You need to either replace yourself right now or bring in a consulting firm with a real turnaround track record of success to assist you.

2. Action items and sense of urgency–The first “new” order of business is take actions fast to get the current business operations generating positive cash flow every month at your current rate of sales. This is purely a self-help approach and it involves all the tough stuff–layoffs, cost cuts, plant/product wind-downs, price increases. You need to generate a list of the five or so critical items, assign accountability, agree on timing and most importantly, execute relentlessly.

3. Short-term financial plan–You need to develop a “conservative” weekly projection for the next 13 weeks of sources of cash (usually collections or sales) and expenditures. This looks more like your home budget than a

GreatExperiences

in Education, RelationshipBuilding and Fun

TMA…one of Chicagoland’s premier professionalorganizations to join!

Chicago/Midwest

Want to learn more?

Come visit us at www.chicago.turnaround.orgor call us for more information to attend an

event as our guest 815-469-2935


Our clients include:

Lenders and Other Creditors

Debtors and Trustees

Creditors Committees

Turnaround Consultants

Trustees

Liquidators

Assignees for the Benefit of Creditors

B A N K R U P T C Y A N D C R E D I T O R S’ R I G H T S

Chicago Madison Milwaukee Naples Phoenix Tucson www.quarles.com

At Quarles & Brady, clients rely on us to develop alternatives to traditionalreorganization and liquidation options. We’ve been involved in the TurnaroundManagement Association since its inception and remain active today.

For more information, contact:Melanie Cohen, 312.715.5042Founding Member and President, Chicago Chapter and Past Chairman of TMA

Faye Feinstein, 312.715.5069Board Member and Former President, Chicago Chapter of TMA, Founder of TMA’sNational Professional Women’s Networking Group, Chair of TMA’s Diversity Committee

Common Ground. Uncommon Vision.

When assets are scarce, you needcounsel with uncommon vision.

GAAP accounting schedule. You also need a monthly P&L and balance sheet on a “conservative” basis for the next six months. Based on the actions you have committed to in point two, the numbers should “realistically and conservatively” show you turning from weekly cash losses to positive cash flow.

4. Funding deficit–The financial plan “may” indicate that you need some temporary “bridge” funding to keep the business operating while you implement your action plan. In general, you will only be able to secure this funding via self-help from reducing inventory or receivables, selling assets or injecting capital yourself. Other less likely sources are additional stretching of your trade suppliers if you have some room or in limited cases, a temporary over-credit limit advance by your lender. The key point is to calculate whether you have a funding deficit, when it will occur and how you will deal with it.

5. Seek Expert Assistance–Bringing in a skilled turnaround consulting firm is an excellent insurance policy that

significantly increases the odds that you and your company will survive the crisis and learn to avoid the next one altogether.

For a private business owner to survive a crisis, you need to take every step possible.

DANIEL F. DOOLEY IS A PRINCIPAL IN

MORRIS-ANDERSON & ASSOCIATES,

A 40-PERSON OPERATIONAL AND

FINANCIAL ADVISORY FIRM BASED

IN CHICAGO. DAN IS A CERTIFIED

TURNAROUND PROFESSIONAL (CTP)

AND WAS THE 2005 PRESIDENT OF

THE CHICAGO CHAPTER OF THE TMA.

HE CAN BE REACHED AT DDOOLEY@

MORRIS-ANDERSON.COM.


insert turnaroundcliché here

Pointing in the right direction, finding your way out of thewoods and keeping your head above water are all well and goodif you’re lost in a swamp. But what if profits are flat?

At Lake Pointe, we’re not interested in overused clichés.We’re interested in helping underperforming companies refocus,redeploy and realize their full potential.

We do it by forming strategic, cross-functional project teamscomposed of client personnel, Lake Pointe professionals and thecommunication specialists at our partner agency, GodwinGroup.Together, we create and implement revenue enhancement andturnaround plans that leave nothing to chance.We look at yourpersonnel,operations, logistical issues and your marketing as well.Marketing is not just about advertising. It’s about communica-tion. Effective communication is essential in any turnaround.

Our full-time staff is comprised of multi-disciplined businessprofessionals with extensive backgrounds in operations, salesand marketing, engineering, finance, accounting, banking andmore. Lake Pointe team members hold numerous certificationsand industry accreditations including CPA, CTP and CIRA.

So, if you’re impressed by the turnaround clichés foundelsewhere in this venerable publication, that is your business.If you want to forge a strategic plan for a truly successfulturnaround, that is ours.

If your business is in trouble or just not quite living up to its potential – please contact us.

312.857.0000 www.lakepointepartners.com Chicago IL

[ ]

BANKRUPTCY CODE AMENDMENTS AFFECT INITIAL VIABILITY ANALYSES, STRATEGIES> BY MELANIE ROVNER COHEN AND FAYE B. FEINSTEIN, QUARLES & BRADY LLP

Nothing stays the same. In 1978 when the Bankruptcy Reform Act first became effective, we

believed, based on history, that we had a 40-year tenure under that statute; but we were wrong.

Although most of the 2005 changes to the Bankruptcy Code affect consumer filings, these amendments have changed the balance of power, reduced time frames, increased potential costs, eliminated court discretion from critical decisions and have potentially made business reorganizations more difficult and costly and less likely to succeed.

An initial viability analysis requires a determination of whether the potential benefits of a bankruptcy filing can be utilized in accomplishing an operational

restructuring. Whether you are or represent a landlord, lender or struggling business, changes in the bankruptcy law will impact your strategy. A serious “bankruptcy audit” should be undertaken as early as possible, since a bankruptcy case once filed will move much more quickly through the courts. This is true since creditors may well take your choices away by filing an involuntary petition in order to take advantage of the changes to the Bankruptcy Code, which have tipped the balance of power to the creditor side. Exclusivity in presenting a plan is now limited to 18 months, and for a small business (defined as a business with less than $2 million in debt) to 180 days. In a single asset real estate case, which now includes projects with unlimited

secured debt (as opposed to the previous $4 million ceiling), a plan must be filed or the debtor must make adequate protection payments within 90 days. No longer can a debtor file for relief, rely on the automatic stay, and take a wait-and-see approach. Debtors must now determine whether to assume or reject a lease of non-residential real property within 120 days of the filing, with only one 90-day extension for cause, unless the lessor agrees to a further extension. Planning must be done pre-bankruptcy and effected if appropriate, in bankruptcy.

Cash needed to fund the Chapter 11 is also potentially increased by changes relating to requirements for utility payments. Unless the utility agrees


$5 million to over $1 billion

Rudy Bentlage • [email protected]

John Psellas • [email protected]

Chris Zawie • [email protected]

FLEXIBLEFINANCINGSOLUTIONS

CHASE BUSINESS CREDIT

David Enghauser • (312) [email protected]

Jill Kancer • (312) [email protected]

Joe Lehrer • (312) [email protected]

Peter York • (312) [email protected]

otherwise, within 30 days of the commencement of the case, the debtor must furnish assurance to the utility in the form of a cash deposit, letter of credit, certificate of deposit, surety bond, prepayment or other agreed security.

Whatever your position is vis-à-vis the debtor, as you first see signs of weakness, evaluate your position on contracts, security interests, preferences, fraudulent conveyances and real estate interests, including leases, in order to timely assess viability and to prepare a strategy which will afford you and your client the greatest likelihood of success.

MELANIE COHEN AND FAYE

FEINSTEIN ARE BOTH PARTNERS

WITH QUARLES & BRADY LLP IN

CHICAGO. THEY CAN BE REACHED

VIA EMAIL AT MCOHEN@QUARLES.

COM AND [email protected].

Personal servicein a corporate world

A PROFESSIONAL ORGANIZATION SPECIALIZING IN:

• Business Turnarounds• Asset Divestitures• Financial Restructurings/Refinancings• Litigation Support• Bankruptcy• Assignments for the Benefit of Creditors• Collateral Valuations/Business Reviews

We ensure confidentiality and understand the timeconstraints of our clients.

Our years of experience and a broad range of skills helpus to address our clients needs quickly and economically.

HIGH RIDGE PARTNERS, INC.140 South Dearborn Street, Suite 420

Chicago, Illinois 60603Tel: 312-456-5636Fax: 312-456-5630

www.high-ridge.com

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