The Storm Hits
It is at this point that turnaround professionals are often hurriedly engaged.
It’s commonly referred to as parachuting into the storm. However, the turnaround professional’s presence normally has a calming effect. At this point it is in the company’s best interest to have a third party talking to the company’s constituents, most importantly its employees, creditors and possibly its customers. Why a third party? For the simple reason that, as much as senior management may deny it, no one now believes what senior management has to say. The presence of a third party experienced in dealing with these types of crises can save an order, a valuable employee from jumping ship, a trade creditor from refusing to ship a necessary component or a lender from forcing the borrower into bankruptcy.
Amidst all of the confusion and emotions typical of this point in time, the company’s owner or senior management needs to find a turnaround professional to lead the company through the storm. In short, they have to trust their fate to someone whom they most likely have never met and whose profession they dread. “How do I find one?” they ask. The practical answer is that the company’s senior lender, outside counsel or (in the case of a company owned by a private equity or hedge fund) owner(s) will know how to locate a professional in the field.
For those who feel a bankruptcy filing is a simple way to buy time to reorganize, a re-examination of that thinking is necessary. With the October 2005 changes to the Bankruptcy Code, it has become very difficult for small to mid-sized companies to successfully navigate the bankruptcy process. If a Chapter 11 bankruptcy is to be filed, the real work needs to be completed prior to filing.