Debt Restructuring: How to Select Legal and Financial Advisors
© 2010 Cohn Whitesell & Goldberg
When your company needs to restructure its debts, whether out of court or through Chapter 11 bankruptcy, how do you assemble the best team of professional advisors? Do you need a bankruptcy lawyer with specific experience on the debtor side? How do you decide between a large law firm and a business bankruptcy boutique? What about financial advisors? Do you need an investment banker, turnaround consultant or both?
You're the CEO of a business in financial distress. Maybe you've concluded that the current capital structure doesn't work, or just that it's time to develop a contingency plan. Like negotiating a key acquisition or defending against a hostile takeover, a debt restructuring is a bet-the-company situation. You need to be backed up by a team, and it has to be the best team for the job. In order to assemble that team, you need an understanding of the marketplace for debt restructuring professionals.
Legal Advisors
Debt restructuring is a legal specialty, just like labor or tax law. The most knowledgeable and experienced practitioners devote themselves full-time to bankruptcy-related matters. Even among bankruptcy specialists, some lawyers primarily represent lenders while others specialize in representing distressed companies. In order to maximize your company's ability to successfully restructure its liabilities, you'll need a lawyer with substantial experience and a track record of success in representing distressed companies. The lawyer should be backed by a team of partners and associates who are also bankruptcy specialists. Many of the large corporate law firms and a few mid-size firms have bankruptcy departments capable of handling a substantial debt restructuring. There are also "bankruptcy boutique" firms that devote themselves exclusively to business debt restructurings. Cohn Whitesell & Goldberg LLP fills this niche in New England.
What about your regular outside law firm?
This can be an excellent choice if the firm has the requisite capability and experience. However, you cannot assume that your current law firm will be available. Chapter 11 of the Bankruptcy Code contains strict requirements for serving as debtor's counsel. Even if your goal is to avoid a Chapter 11 filing, you'll need to consider the strategic implications of utilizing in a debt restructuring a firm that would be barred from serving as your counsel if Chapter 11 became necessary. Apart from the obvious conflict of interest if your law firm represents any of your major creditors, a common source of difficulty occurs when your law firm represents investors, directors or officers of your company. Your law firm may also be a creditor of your company, may have received "preferential" payments from your company, or may have issued opinion letters to creditors or investors on issues that could be disputed. These and other matters that could be waivable in the non-bankruptcy setting may bar your law firm from serving as general counsel in a Chapter 11 case.
Fortunately, even if your current law firm is barred from serving as general counsel in the Chapter 11 case, or is not optimally suited to serve as bankruptcy counsel, the law firm may be permitted to serve as special counsel for corporate, tax, and other non-bankruptcy matters - so that your company will have the benefit of your current lawyers' experience and familiarity with your business. Another law firm would then serve as debt restructuring counsel. Cohn Whitesell & Goldberg's orientation as a bankruptcy boutique permits the firm to work seamlessly with corporate law firms to provide the complete range of legal services required in a debt restructuring.
What about geography?
Since a financial restructuring involves close consultation between management and counsel, most companies prefer to engage counsel with offices reasonably close to corporate headquarters. If Chapter 11 proves necessary, the company will typically have the option to file in a judicial district where its headquarters or major operations are located, or where it is incorporated. Whether New England, New York or Delaware proves to be the optimal location, a Boston law firm can provide effective representation.
How do you satisfy yourself that a particular lawyer is qualified to lead your company's debt restructuring? Top bankruptcy lawyers in each of the 50 states have been admitted as fellows of the American College of Bankruptcy (www.amercol.org). Although not to be relied upon exclusively, the guides Best Lawyers in America and Chambers USA do a creditable job at identifying excellent bankruptcy lawyers. Active service on the faculty of continuing legal education programs can also be an indication of leadership in the bankruptcy field. Apart from a review of specific credentials, you will want to select counsel in whom you have a feeling of confidence. Remember that a debt restructuring, even a Chapter 11 reorganization, is a business transaction that happens to take place in a particular legal setting. You should engage counsel whom you judge to have business sense as well as a sound knowledge of the law.
Financial Advisors
While a lawyer will always be part of a debt restructuring team, it may be in your company's interest to also engage one or more financial advisors specializing in debt restructuring. The marketplace can be confusing because there are different types of financial advisory services. An investment banker can be helpful not only when a sale transaction will be required but in many other situations as well. A turnaround consultant can be invaluable by providing hands-on financial analysis and supplementing the skill sets of your top managers. Within the group of persons calling themselves turnaround consultants are a wide range of skills, experience and specialization. For example, some turnaround consultants can address operational, as well as, financial issues and some can even provide interim management services where necessary. If your company's needs are more limited, it may be sufficient to engage an accountant having experience with distressed companies, or to rely on your own staff. However, it is important to bear in mind that a financial advisor with a good reputation in the distressed-company field adds value not only by providing specific services but also by buttressing your company's credibility with other parties.
There are outstanding national investment banking firms specializing in troubled companies. Several of the large Wall Street firms also have excellent capabilities in this area. Among turn around consultants, there are major national firms, as well as, a number of regional firms with fine reputations. Until recently, all of the national accounting firms offered consulting services to their distressed clients, but some of these consulting practices have now been spun off. In addition, there are smaller accounting firms specializing in distressed companies. At Cohn Whitesell & Goldberg LLP we can be helpful in identifying financial advisors best suited for you to consider in light of the particular challenges faced by your company. Back to resource center
This article provides general information concerning its topic. It is not intended to provide legal advice or to create an attorney-client relationship.
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