An Alternative Approach To Maximizing Value In An Insolvent Environment
When all efforts to save a foundering business have failed, a business owner’s next fiduciary priority is to maximize value for creditors. When confronted by the fact that a business has reached the point of no return, there are several options to maximize value, including a forced or orderly liquidation of the business. While both options can be conducted with or without court supervision, the difference between the two options is that an orderly liquidation almost always results in a better outcome for creditors and, quite possibly, for business owners.
In an orderly liquidation, the primary resource utilized (compared to a forced liquidation) is time. Given enough time to strategically put its affairs in order, a business can expect to maximize value to stakeholders by allowing the business cycle to be completed. By having time to fulfill remaining customer orders, a company may be able to effectively use current inventory on-hand, collect receivables without massive discounting and dispose of intangible assets and plant, property and equipment in a non-fire sale manner.
Silverman Consulting has been involved in numerous orderly liquidations since our inception. For most companies in liquidation, receivables and inventory comprise a large portion of their asset base and also present the greatest volatility if not handled properly. We take pride in maximizing the return on asset values through creative means, including a sale of the business enterprise to a strategic buyer, working with lenders and creditors on a plan of liquidation which allows full utilization of inventory on-hand (even if it requires additional inventory to be purchased) and working with customers to not leave them “high and dry” without a supplier. The latter allows for the full payment of all receivables due to the liquidating company.
We have had significant success in finding value that others might overlook, such as:
- We recently sold an agricultural products manufacturer and distributor at auction by identifying numerous potential buyers using our research platform.
- Assets not purchase:d by the buyer were later liquidated by our consultants.
- Desired outcome is repayment of all secured debt, the extinguishing of owner’s personal guaranties and a significant repayment of unsecured debt.
- We performed an orderly liquidation of a large telecom manufacturer, resulting in the repayment of all debt and a dividend to the owners.
- A creative solution was the formation of a Special Purpose Entity (SPE) in order to “sell” all of the company’s impaired assets to the lenders.
- The new owners – the syndication of lenders – paid for these assets with an agreement that they be paid the net proceeds of the tax refund the company would receive by recognizing the substantial loss on these assets before year end.
- The resulting $21 million tax refund helped repay the debt and we were able to liquidate the SPE assets for an additional $7 million.
- Also, this process involved the sale of the profitable core business to a strategic buyer.
- We liquidated a heavy construction equipment dealer by identifying over-valued machines in inventory, selling those machines and executing a sale of the company to a strategic buyer already involved with the business.
- The creditors were repaid in full, the owner's guaranties with their lender were extinguished and they remained as landlords for the new business.
- The combined company is thriving today in a very tough industry.