How We Help Attorneys

How We Help Attorneys

Compromise Settlements

The troubled company cannot afford an expensive and time-consuming Chapter 11, nor does it have the resources to negotiate a full payout through a long-term extension agreement. However, it does have access, either directly or through a third party, to limited funds for a settlement to satisfy creditors in the short term and allow the distressed business to survive.

The mechanism for a successful compromise settlement is a two-step CMA process: (1) the formation of acreditors’ committee to review updated financial and operating information to determine whether the offer is at least equal to or greater than creditors would expect to receive through liquidation of the business and, (2) the solicitation and acceptance of the offer by creditors.

CMA facilitates the process by serving as a communications liaison between all parties and stabilizing valuable relationships. It then manages the solicitation process and serves as disbursing agent to ensure an equitable recovery for all creditors. The client’s credibility is strengthened through collaboration with a representative group of creditors, the committee, and the prospects for recovery are greatly improved.

The advantage of a Compromise Settlement is that it results in creditors agreeing to accept less than the total amount of their claims, in full settlement. The client emerges with a stronger balance sheet and the ability to go forward unencumbered by trade debt.

Extension Agreements

The distressed business believes it can survive and pay creditors in full, but needs time to stabilize its relationship with vendors and reorganize its affairs. CMA’s classic out-of-court alternative to a costly and time consuming Chapter 11 is accomplished through a meeting between the debtor and its unsecured creditors, the formation of a creditors’ committee, the establishment of a moratorium on collection activity and litigation to allow the business to reorganize, and the negotiation of an extended payment plan.

The debtor’s operating environment changes dramatically following the meeting with creditors. CMA, serving as Committee Secretary, issues strategic communications, which stabilize creditor confidence and lend credibility to the informal workout process. Prospects for litigation are greatly diminished, if not completely eliminated, and the client retains control of the business, enabling it to implement management decisions without the restrictions of the bankruptcy court. CMA is typically granted a blanket security interest in the debtor’s assets, which is held in trust for the fair and equitable treatment of all unsecured creditors.

The creditor’s committee serves in an advisory role and monitors the debtor’s operations during the moratorium with a view toward negotiating a payment plan which is feasible for the debtor and acceptable to the majority of creditors. CMA can serve as facilitator or mediator to help resolve disputed claims, thus ensuring the participation of a creditor in the payment program. CMA also serves a fiduciary role by acting as Disbursing Agent under a Workout Agreement.

General Assignment for the Benefit of Creditors

The general assignment is a common law analogue to a Chapter 7 Bankruptcy. The Assignment is created by contract and can be a quicker, more efficient and less expensive method of winding down the operations of a company, liquidation of its assets and distribution of the proceeds to creditors.

As an assignee, CMA can operate a business for a limited time to seek “going concern” value from prospective buyers or to maximize the collections on accounts receivable. In many instances, a general assignment is used to effect the quick sale of assets of a distressed company to a buyer for a purchase price negotiated prior to the assignment. Since an assignee is exempt from the requirements of California’s bulk sales laws, the asset sale can be completed without the notice requirements and risk associated with bulk sales. In all general assignments, CMA attempts to realize the maximum liquidation value for all assets, as permitted under the circumstances of each individual case.

Like a trustee, an assignee has the power to sue for recovery of preferences and fraudulent conveyances.

An assignee distributes the proceeds from its liquidation of assets according to a priority scheme that is similar to that contained in the bankruptcy code. CMA makes every effort to issue dividends to creditors as soon as funds are available. Unsecured creditors receive pro rata distributions which may commence anytime after the “bar date” to file claims.

CMA’s expertise in liquidating numerous companies through general assignments over the past century is unparalleled.

Committee Secretary

The key to any successful out-of-court arrangement is communication and professional administration. CMA has over a century of experience serving as Secretary to creditor’s committees. Its strategic communications provide creditors with answers to previously unanswered questions, reducing the probability of lawsuits and restoring creditor confidence. CMA’s presence lends credibility to any out-of-court workout; it serves as “information central” in every case and communicates with creditors on a one-to-one basis as needed.

CMA coordinates all committee communications and ensures the smooth administration of the case. Attorneys and other professionals rely on CMA to facilitate the negotiating process leading up to a formal proposal to creditors. The detailed sets of minutes provided to committee members and regular status bulletins to creditors are crucial to the out-of-court workout process. CMA’s advanced database software ensures effective communication and claims management.

CMA brings this same level of professional expertise to a formal Chapter 11 case when it is designated as Secretary to the Official Creditors’ Committee by the Bankruptcy Court. The Association has a long history of serving in this specialized capacity and is frequently used by insolvency attorneys to enhance the administration and communication in a Chapter 11.

Plan Trustee / Estate Representative / Sole Responsible Officer

In certain instances, a Chapter 11 Plan of Reorganization will provide for sale to a buyer substantially all the assets required for operations. However, certain of the debtor’s assets will not be acquired by the buyer. Under such plans, CMA often receives appointment as the Plan Trustee or Estate’s Representative with the authority to direct the liquidation of the remaining assets, pursue avoidance actions or object to claims. CMA’s directors have received personal appointment through a Debtor’s plan of liquidation as Sole Responsible Officer with the power to personally direct the liquidation of certain assets, subject to the Bankruptcy Court’s supervision.

Disbursing Agent

The Adjustment Bureau of CMA regularly serves as disbursing agent for the administration of payments to creditors as a function of court-approved reorganization plans, out-of-court debt re-payment arrangements and distributions to creditors following liquidation of an insolvent business.

Creditor repayment plans often provide for multiple dividend payments to creditors over time. A series of payments to creditors over months or years can impose an extraordinary administrative burden on a re-organized company. In addition, creditors may lack confidence that a debtor’s management will treat creditors equally. Utilization of CMA as a third-party administrator removes from management of the re-organized or liquidated company the responsibility and liability for distributions to creditors.

CMA’s experienced staff utilizes advanced database management techniques to quickly and efficiently manipulate large amounts of claims information into accurate distributions and meaningful reports that directly respond to most inquiries. In addition, CMA uses the assembled data for frequent communication to creditors about the status of an on-going case. Because of its non-profit standing and long history of service to the credit community, CMA’s engagement as disbursing agent gives creditors the assurance that distributions will be fair, and payments will be timely and accurate.

CMA will often hold in trust, for the benefit of all creditors entitled to payments under the plan, a security interest in the debtor’s assets. The security interest granted to CMA, as stakeholder, ensures that the debtor will meet its obligations under the plan and that no individual creditors will be able to attach the debtor’s assets and receive more than the other creditors. If the debtor defaults on its obligations to fund the plan payments, CMA will seek instructions from a creditors’ committee regarding the remedies available in the plan, including foreclosure under the security interest and liquidation of the collateral, if appropriate.

Appointment of CMA as a disbursing agent is frequently a provision contained in an out-of-court debt repayment plan or Chapter 11 Plan of Reorganization. CMA’s staff can serve as a valuable resource in the drafting of plan provisions relating to distributions to creditors. Creditor acceptance of the plan signifies acknowledgment that CMA will administer payments under the plan. CMA can serve with or without bond. CMA’s standard compensation is a small percentage of the total amount distributed to creditors.

How We Help Business Owners

How we help business owners.

Cash flow problems plague most businesses from time to time. A deceptively simple solution is to slow down payments to vendors. However, payments past invoice terms can have a snowball effect: Vendors may shorten terms on future sales; accounts convert to C.O.D.; credit references reflect a declining confidence in a company’s ability to pay; collection calls intensify; lawsuits are threatened. In effect, cash usually becomes tighter, eventually affecting the company’s ability to operate. In response, management must focus on short-term fixes to immediate problems, and it becomes distracted from its primary objectives. The business can be at risk of failure.

Frequently, a company suffering from the effects of diminished cash flow seeks relief from its debts through a bankruptcy proceeding. CMA’s Adjustment Bureau offers effective alternatives to bankruptcy. CMA’s fully developed and tested programs reorganize debt and rehabilitate insolvent companies at a fraction of the costs and none of notoriety that bankruptcy carries.

Through CMA’s out-of-court workouts management can work informally with creditors to reorganize debt or position a company for merger, acquisition or new investment. If liquidation is appropriate, CMA has extensive experience as assignee under an assignment for the benefit of creditors for most types of businesses.

While most debtor companies are referred to CMA by collection attorneys, bankruptcy attorneys and credit professionals, a company in need of assistance can initiate on its own the process toward reorganization. Through contact with CMA’s estate managers, management can discuss the situation with knowledgeable professionals and get answers to questions about how CMA’s services can help.

When a debtor company’s management is ready to get started, CMA sends its letter which describes the services CMA will provide and the terms of its engagement. The debtor company provides CMA with a mailing list for its creditors. CMA mails a general invitation to creditors which explains that the debtor company has asked CMA to schedule a meeting to discuss the current situation and possible solutions. The meeting is frequently held at a neutral location, like CMA’s offices or a meeting room convenient to most creditors.

At the meeting CMA facilitates dialog between the debtor company’s management and the creditors who attend. Management delivers a presentation designed to explain the need for creditor cooperation and how reorganization will work. Creditors are encouraged to form a working creditors’ committee to monitor the debtor company’s steps toward a return to profitability and the development of a negotiated plan for payment of outstanding claims. A creditors’ committee frequently will ask the debtor company to give creditors generally a lien on all the debtor company’s assets in exchange for the committee’s recommendation to all creditors for a moratorium on efforts to collect from the debtor company. CMA sends to all creditors a written report on the creditors’ meeting and the committee’s recommendations. Thereafter, CMA sends creditors status reports on developments toward a plan for repayment of creditor claims.

Through negotiations with the creditors’ committee, the debtor company develops a plan for repayment of creditor claims. Each plan is different and unique to the character and status of each debtor company. However, each plan should represent the best results creditors can expect, considering the circumstances. Plans frequently are compromise settlements, extension agreements or liquidating plans. The plan is mailed to creditors with a ballot for creditors to indicate their consent. If consent is received from creditors holding in aggregate a requisite percentage of the debt, the plan becomes effective. CMA handles distributions to creditors provided under the plan.

Through a successful plan, a debtor company gets relief from its unsecured trade debts. Creditors receive the payments they agreed to accept in exchange for satisfaction of their claims. Through their voluntary cooperation with the process and the successful rehabilitation of the debtor company, creditors preserve a customer for their goods or services.

How We Help Credit Professionals

How we help Creditors

The essential skills of a credit professional include the efficient management of aged receivables. Information about customers who are not timely paying their bills is critical for decisions regarding the account. Prompt action in response to information received can greatly improve recovery from account debtors in financial distress. CMA’s Adjustment Bureau provides valuable assistance to the credit professional to maximize recovery on troubled accounts.

Information

Reliable information about the financial condition of a distressed account can sometimes elude the most diligent credit professional. Calls to the debtor frequently are not returned, senior managers are not available, data is unreliable and changing daily. CMA member services such as credit reporting andindustry trade groups provide valuable third-party information about other vendors’ experience with the debtor. However, direct communication with the debtor is clearly the most effective way to evaluate collection options and to make informed decisions. Formation of a committee composed of creditors of the debtor and meetings between a committee and the debtor’s representatives will usually re-open dialog. The debtor’s management, in turn, finds that discussions with a representative group of creditors provides some relief from individual information demands from multiple creditors.

CMA’s Adjustment Bureau can assist with the formation of an informal creditors’ committee. At the request of one or more creditors, we can identify and communicate with other creditors of the debtor who have reported the account as delinquent. When creditors are willing to participate on a committee, we contact the debtor to request a meeting between the committee and the debtor to discuss solutions to the debtor’s situation. At such meeting, CMA acts to facilitate communication between the parties to develop a plan for resolving the delinquent accounts.

Frequently, a debtor will seek CMA’s assistance with formation of a creditors’ committee in an attempt to negotiate an out-of-court reorganization. The debtor provides CMA with addresses for its open accounts payable; CMA sends creditors an invitation to a meeting with the debtor. At the meeting the debtor provides financial information on its current status and requests creditors present to form a committee to monitor operations and/or to negotiate a plan for payment of creditor claims. CMA facilitates the exchange between creditors and the debtor and regularly communicates with all creditors of the debtor about the process.

Action

Once formed, the creditors’ committee acts in the interest of all creditors of the debtor. Committees often recommend that all creditors observe for a limited period of time a moratorium on activities to collect from the debtor until the committee can assess the debtor’s viability and negotiate a repayment plan. In exchange for the moratorium, the committee can make demands on a debtor for regular financial reports and other actions which it deems to be in the best interest of all creditors generally. In addition, the committee can require the debtor to grant creditors a blanket security interest in its assets. The security interest usually is held by CMA, in trust for all creditors of the debtor. The existence of a creditor lien on all a debtor’s assets discourages individual creditors from attempting to “get ahead” of other creditors by way of attachment or asset seizure.

During the negotiating process and pending creditor acceptance of a repayment plan, the debtor operates its business, usually paying vendors C.O.D. for goods and services.

If the committee determines that the debtor is not viable or the debtor fails to cooperate, the committee can elect to disband and advise general creditors through CMA of its action. Creditors then individually proceed with their collection remedies. If the debtor elects to file a proceeding for reorganization under the bankruptcy code, the informal committee is frequently selected to serve as the official creditors’ committee.

When a debtor’s business cannot survive and must be liquidated, CMA frequently accepts from the debtor a general assignment for the benefit of creditors. As assignee, CMA liquidates all the debtor’s assets and distributes the proceeds pro rata to creditors, according to a priority scheme similar to that followed in bankruptcy proceedings.

Results

For more than seventy-five years CMA has been involved with formation of creditors’ committees, out-of-court reorganizations and the non-judicial liquidation of an insolvent debtor’s assets. Experience shows that, as an alternative to formal bankruptcy proceedings, most companies can reorganize debt or be liquidated more quickly, more efficiently, and distributions to creditors occur sooner through proceedings administered by CMA.

Informal negotiations with creditors for reorganization of debt are significantly less expensive than formal proceeding through Chapter 11 bankruptcy. Legal expenses are minimized, and management of the debtor is less distracted by the financial reporting requirements of a Chapter 11 debtor-in-possession. An informal proceeding offers greater flexibility for reaching a consensual repayment plan.