SloanBlogJULY_Spotlight

What is a Corporate Bankruptcy?

Overwhelming debt, overdue bills and relentless calls from creditors and their lawyers are stressful for any business owner. But when the money is not there, and the debts can no longer be serviced, creditor protection is sometimes the only option.

Anyone who’s been through a personal bankruptcy, or has filed a consumer proposal, knows it can be a lengthy process that can impact your credit and finances for a number of years, but eventually most individuals are able to rehabilitate financially. When it’s a business that is in financial distress, the number of lives affected is often greater, and can create a domino effect for owners, employees, suppliers and even customers who rely on that company’s products or services, sometimes catapulting them into financial difficulty as well.

Business Funeral Director or Emergency Surgeon?

Most business owners never want to have to be in the position to call Rahn Dodick. Dodick is President of Dodick Landau Inc., and leads the business restructuring practice of the firm, while Howard Landau leads the firm’s consumer insolvency practice.

But while some may think of a trustee as a business funeral director, in actuality they function more as a financial rescue team. “I’m the financial emergency surgeon,” Dodick explains. “People call 911. I come in and try to rescue the “patient”, i.e. business, and keep him alive to take care of his dependents. If the business is still breathing when we are called in, we try to resuscitate it and help it recover financially. If it’s too late and there is no viable business, we take the “organs”, i.e., the assets, and we sell them and put them in another “body”, i.e., business, so another business can benefit from them. The earlier we get involved, the higher the likelihood we can help save a viable business.”

Dodick advises the management and ownership of companies in financial distress, as well as assisting lenders in recovering amounts they are owed from debtor companies. He can act informally as a financial adviser, or formally as a Court-officer on behalf of the companies’ creditors and the Court. In a formal appointment, Dodick’s firm may be monitoring a company on behalf of the creditors and the Court, or in possession of the Company’s assets and selling the assets while in bankruptcy or receivership.

Seeking the help of a trustee at an early stage can help the management of a business avoid a cash flow crisis, and possibly avoid the need to file for protection from its creditors. In a restructuring of a business, a trustee is also there to help management strategically react to the legal actions of creditors, negotiate settlements with employees and suppliers, and guide management through an informal or formal restructuring process.

“While an insolvency proceeding has the stigma of failure for many people, it actually offers many financial benefits, including providing a company with “breathing room” by way of legal protection from its creditors,” says Dodick. In certain circumstances, an insolvent business can get, at first temporary, and later permanent, relief from its debts without the owners losing control of their business.

Insolvency 101

A trustee is hired by either the debtor or creditor. When the creditor, such as a bank, hires a trustee, the Trustee helps the creditor assess the viability of the business and the prospects of repayment of the outstanding loan. When the debtor hires the trustee the first step is determining whether the business is still viable. If the business is still viable, the trustee helps form a plan to first protect the debtor from its creditors, and preserve the remaining cash in the business and provide time to restructure the business financially. The Trustee also helps management formulate their restructuring plan. If the business is no longer viable, management may hand the keys over to the trustee who may try first to sell the business as a going concern, or liquidate the business and its assets, for the benefit of the creditors.
In short, if – as a business owner – you think you may need Court-protection from your creditors, you want to be the one controlling the process and engaging a trustee at an early stage to assist and guide you.

How to Avoid Insolvency

Insolvency may often be the result of circumstance beyond a business owners control. It can be the result of changes in the economy, a new law, a new competitor, or a combination of several factors. Some strategies Dodick suggests to avoid business insolvency include being able to forecast changes in your industry, and “having the right tools in your management tool chest”, such as planning for new products and closely monitoring cash flow. “Companies that do well are ones with management who have systems in place to predict what changes they need to make in their businesses and be able to adapt early to the changing landscape.” Dodick can assist management in developing these management monitoring tools and predictors in order that management will be in a strong position to forecast change in its industry and be able to react early and avoid financial distress.

Dodick Landau Inc. is located in the financial hub office centre of the Sloan Group of Companies offices at Dufferin and Finch in Toronto. Dodick credits his office location in the Sloan Group building as an asset to his business. “Working with the Sloan Group has been beneficial to me and my business. Operationally, I have been able to utilize Sloan’s staff to assist on projects requiring additional help during certain busy phases. There’s also the benefit of having other accountants in the building to use as resources for advice, and they are also a referral source for me.”

Dodick Landau Inc.

Dodick, Landau Inc. offers insolvency services for both corporate and consumer needs. Rahn Dodick brings 17 years of restructuring experience including 12 years in Ernst and Young’s restructuring practice. Dodick is also a chartered professional accountant. His partner, Howard Landau’s experience includes over 17 years’ acting as a consumer bankruptcy trustee and proposal administrator, as well as providing debt counseling to individuals.

 


 

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