Option of Last Resort

March 28, 2013 – In The News
The Philadelphia Business Journal

The days of protected battles in Chapter 11 bankruptcy reorganizations have largely become a thing of the past.

“Bankruptcy has become an option of last resort,” said Michael Menkowitz. “I’m doing a lot of stuff outside of court now, whereas in the past they would almost force you to file.”

Regulators are keeping a close eye on lending standards and costs for bankruptcy rising and as a result, banks cannot make riskier loans to help preserve a debtor in a Chapter 11 filing and borrowers cannot handle the financial burden of a brawl with lenders. Debtors are trying to avoid reorganization in favor of pre-arranged deals and out-of-court deals.

Those debtors that do file Chapter 11 without a pre-arranged plan often wind up engaging in what is called a “363 sale,” which is named after the section of U.S. bankruptcy law that allows a quick sale of assets to a new company, with a court hearing.