1:30 in the morning they come to get their money, these insistent creditors, their collective heads bobbing up and down like the little wooden figures on an old jack-in-the-box. If that sounds like your company in 2026, you have probably asked yourself the obvious question. What’s the solution? Chapter 11? That’s an option. But it’s protracted, costly and it involves intrusive court supervision of your company. Nevertheless, there is much more to saving a company than simply retreating behind the sheltering walls of a bankruptcy court.
A business in a downward spiral will not straighten itself out. Merely avoiding creditors and going into hiding cannot give the company the fresh start it needs. First, you can’t “fix” your company in a vacuum. There’s always a creditor on your shoulder, a looming deadline, a looming claim, a looming obligation. Second, a corporate bankruptcy is not the only solution to your problem. It’s a shame that, in the face of a dramatic downturn, some businesses wait until they are forced into receivership or bankruptcy.
The most common tool for the reorganization of a company is Chapter 11. Chapter 11 enables a company to adjust its liabilities and emerge from bankruptcy stronger than before. It’s not perfect, of course. The process takes time, requires more supervision than the owner might want, and costs a lot of money that the company doesn’t have. Let’s face it: Chapter 11 is not for everybody. There are better ways. These are three of them: an assignment for the benefit of creditors; federal or state court receivership; and an out-of-court workout. Your choice will depend on your goals.
Assignment for the Benefit of Creditors
The first is the assignment for the benefit of creditors, or ABC. The ABC is a voluntary assignment of all or most of the debtor’s property to an assignee in trust. The assignee collects the money owed to the debtor, sells property, distributes to creditors and returns any surplus to the debtor. It’s a voluntary process. No one is forcing you to do this. Largely governed by state law, ABC’s benefits lie in the cost savings, the speed and flexibility. Then again, it’s not for everyone.
In other words, bankruptcy halts most lawsuits, but the assignment for the benefit of creditors does not. Lawsuits can go right on. There is no automatic stay in an ABC, so existing litigation may proceed and new lawsuits may be filed. So creditors can continue to sue you. And sometimes they will. If your creditors sue, you will still have to defend your company. Because the owner puts it in motion, the timing is controlled by the business. On the other hand, it is an end to your company as you’ve known it.
The Court Appoints the Receiver
The second is receivership, in federal or state court. In a receivership, the court appoints the receiver who acts on behalf of the company, and who can either operate or liquidate it. The appointment is sometimes sought by one or more lenders. Businesses may also seek receivership for purposes of rehabilitating their business or liquidating it for the benefit of creditors. The receiver’s powers and duties - things like monetizing assets and distributing the proceeds - are spelled out in the court’s appointment order. In that way, the receiver is similar to the trustee in bankruptcy, but it’s more flexible, less formal, and less cumbersome. The order appointing the receiver will typically contain some form of stay, limiting litigation. That is a real difference from an ABC. Again, the owner gives up control. In a very real sense, you’ll be handing over the keys to your company and giving up your autonomy.
Out-of-court Workout
The final avenue is the out-of-court workout. No court involvement, no court fees, but a lot more legwork. A workout or out-of-court restructuring takes place not under the authority of the court, but between the debtor and its creditors. If your goal is to put distance between yourself and the courts, then out-of-court workouts are the way to go. So you can save money by saving the court fees, but it takes time, and that’s the tradeoff you make.
In the form of forbearance agreements, the option provides flexibility in the amount of payments and in the time allowed. There may be a long-term financial downside. If your lenders are going to have to liquidate your collateral anyway, they may be willing to forbear in exchange for a viable business plan. They’d rather have a little more of what they are owed later, than pennies on the dollar right now. Lenders who can and will insist on liquidating the collateral might not bend, unless the borrower has a plan of operations that has a realistic chance of working. Good intentions don’t make a bad debt good. Picture the conversation from the lender’s chair: “If I liquidate the collateral today, I’m taking pennies on the dollar. If I can give you a chance to keep operating, I might get a lot more than a penny on the dollar later.” If you are behind on payments, the lender might be disinclined to go the forbearance route if it can’t see how a business plan would work.
Behind on the loan? Perhaps you have a business plan to keep moving and ride out the storm. And a little flexibility on the loan terms can help you reorganize and get back on track. This is a chance to salvage something valuable. Workouts, though, are a “what you do” business, not a “what you know” business. You go to them. Don’t wait until you’re already in a hole. If you are behind on your debt payments, you must pursue this proactively to avert further damage.
So which road is right for you? Maybe none of them are perfect, but there’s also no perfect solution. It all depends on your objectives. An ABC suits an owner ready to let the business go, provided no creditor lawsuit is likely to get in the way. Receivership? That depends on your goal. It can fit a company that could benefit from reorganizing and can live with a receiver in charge. The out-of-court workout is best if you’re behind, but have a viable long-term plan. But pursue it as aggressively and proactively as you can because an effective workout can provide the debtor with time and reduce its debt. In every case, the more quickly the effort is made, the better. If you can solve the problem before it’s too late, don’t wait and don’t act alone.
But this is your company. Make your decision. Take action. Take control. If you can, avoid giving up your autonomy. Things can get pretty hopeless but there are alternatives. Get to know some of them. You may be surprised at what you find.
