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.