There is one question that comes up in almost every initial call we get here at Delancey Street. It’s whether you need a restructuring consultant or a debt settlement firm. As it turns out, those two things are not the same. They do different things. And which one you need depends on what’s going on with your business and what it needs to get out of trouble.
Our clients are facing tariffs, wild swings in government policy and funding, supply chain snags, and every week it seems like the economic landscape changes again. Automotive and health care companies have been particularly vulnerable. Most owners are feeling like they’ve been caught in the crossfire.
There’s no longer a one-size-fits-all solution to restructuring. Back in the day, a secured lender would usually foreclose on its collateral or appoint a receiver, and the debtor would file Chapter 11 to halt collection and gain time to work out a plan. The two-sided approach just doesn’t make sense these days for either side, and the range of restructuring tools continues to expand.
To put it very simply, the two accomplish different things. A restructuring consultant or financial advisor focuses on the business itself, pinpoints the problems and offers advice. A debt settlement firm sits on the other side of the table, working with your creditors to negotiate the debt.
Out-of-court Workout
Let’s start with the concept of an out-of-court workout, which is the preferred method to address issues between a business and its creditors. It is a consensual process, it doesn’t go on the public record, there is no bankruptcy and no receivership, and the parties work out a resolution. The threat of bankruptcy and/or litigation is the hammer that gets the parties to the negotiating table, because a bankruptcy filing can be expensive and may damage the business. A debt settlement firm helps with the out-of-court workout. At Delancey Street, our senior advisors negotiate with merchant cash advance funders and lenders for less than the total amount due. We specialize in merchant cash advance debt, including stacked MCAs, and also handle SBA loans, equipment finance and lines of credit. We don’t sell you another loan.
And this is the part of this landscape we know best. Delancey Street is based in New York City. We help business owners in 49 of the 50 states. We were founded by an attorney, along with debt relief professionals and former merchant cash advance industry executives. We’ve settled more than $100 million in business debt for more than 1,000 businesses.
Closing Shop and Liquidating
If the business is heading into a shutdown, that’s a different conversation altogether. If the owner is closing shop and liquidating, there’s a tool called an assignment for the benefit of creditors, or ABC. In an ABC, the owner transfers all the company’s assets to an assignee, an independent person. That assignee acts much like a bankruptcy trustee, selling off the assets and paying creditors according to certain priorities. The process is overseen by an action started in state court. A big perk is that the owner gets to pick the assignee.
A receivership is a case in a state or federal court, usually begun by a secured lender that wants a neutral, outside professional to take over its collateral and then eventually sell it off. It’s typically less costly than a Chapter 11 bankruptcy, and the paperwork is less demanding. An owner who personally guaranteed the lender’s debt may agree to a receivership in order to ensure that the lender is repaid. The business might also negotiate with the lender to have it cover certain wind-down costs, such as accounting fees and final tax returns.
An ABC, a receivership and a bankruptcy are all court proceedings. Delancey Street is not a law firm. If litigation, a bankruptcy or tax issues are the right way to go, then we will put the owner in touch with a vetted, independent lawyer. The attorney-client relationship will be between the client and the independent attorney. When bankruptcy (for example, Subchapter V) is the right option, we let the owner know.
Get Proactive
No matter what path you choose, get proactive. Because there is no one-size-fits-all solution for every business or every lender, it’s wise for a business owner to talk to their lenders and creditors early about the financial problems looming, so everyone can discuss the options. Too often, the business owner will wait until it’s too late. By the time a lawsuit is filed or threatened, it’s often too late.
Save your cash. Hemingway observed that a business goes bankrupt gradually, then suddenly. The suddenly is often when a business runs out of cash, or loses access to credit. Reduce your unnecessary expenses and be more selective about taking on new clients. This is not the time to be swinging for the fences. This is the time to be getting on base.
This is where a restructuring consultant or financial advisor comes in. A seasoned advisor who has helped businesses through difficulty will know what to look for. And they’ll provide expert advice to put the business in the best possible position. Many times it’s important for an owner to get a second set of eyes to break the trance and help them to see the forest for the trees.
So… which one do I need? For a lot of owners the honest answer may be both: a financial advisor to evaluate the whole business, and a firm to negotiate the debt. At Delancey Street the first consultation is free and confidential. If your case cannot be won, or a cheaper option exists, we tell you on the first call. Our fee is one percentage of the total enrolled debt, quoted in writing before any work begins.
