By Al Davis
Running a business is hard. Guiding one through distress is harder. Any experienced business attorney engaged in a complex bankruptcy, receivership, or turnaround can surely attest to that claim.
The range of challenges runs the gamut: owner/partner battles, creditor disputes, management misconduct, contract breaches, fraud, and more. Counsel may have a host of legal remedies available to resolve these issues, but what about the operational impacts that have left the business either on the brink — or in — financial insolvency?
In other words, who should the attorney turn to, or recommend to management and the board — and, optimally, create value — while the legal process unfolds? The answer, of course, hinges on multiple variables, beginning with which form of restructuring is chosen. For this article, I will focus exclusively on receiverships.
Most would agree that experience is the principal factor in the selection process. Where it gets sticky, however, is deciding which type of experience is most valuable. The lines can quickly blur when you look at the diverse professional backgrounds of those who specialize in the field and where their strengths lie.
In general, the backgrounds of most receivers or turnaround professionals fall into one of two categories: financial advisors who model scenarios but do not run the business, or legal fiduciaries who administer bankruptcy proceedings or assignments for the benefit of creditors.
In certain types of real estate receiverships, for example, a business attorney may place a premium on finding a specialist with strong banking, accounting, or legal experience. These are valuable skills for managing rent rolls, parking revenues, or asset pools that generate passive income. Their primary role is to serve as a custodian, providing administrative oversight and managing cash flow.
Even in general receiverships, which allow the sale of real estate assets that may include a business component, the receiver is more focused on the financial and legal aspects of the valuation and sales process, rather than the business itself. This type of specialist is often engaged once a company becomes legally insolvent or a prior turnaround has failed.
An operational receiver or corporate turnaround expert, on the other hand, brings a different skill set — and is often retained before the company fails. These are often seasoned executives with multiple years in CXO roles, leading strategic growth initiatives, managing teams, and overseeing significant budgets. Their specific industry or business experience is quite often the X-factor in not only generating the best possible financial outcome for stakeholders but often saving the company as a going concern.
The scope of work in an operational receivership is diverse and complex. Financial controls must be rebuilt, cash flow stabilized, and difficult conversations undertaken with lenders and creditors — all while the firm is busy retaining customers and vendors. Any viable go-forward plan they develop must be created, vetted, and supported by the court and multiple stakeholders.
Experience in leading an executive management team and managing the workforce is critical. There is intense pressure to execute within strict timelines in order to bring about results and gain the trust of employees. As any chief executive or leader will tell you, even the most well-conceived strategic plan is doomed to failure without buy-in from the troops.
While most receivers or turnaround experts will tout their diverse experience in distressed asset scenarios, a deeper dive — not only in looking at the financial outcomes produced, but the way in which value was created — can help an attorney ensure they recommend the right receiver for the right case.
Like any professional advisor, receivers are shaped by their professional experiences, both before and after they entered the field. That collective experience forms the lens through which they see an ailing business and how they choose to treat it. Depending on the complexities involved, there can be any number of remedies. Finding the right one is the Rx for success.
Al Davis serves as Principal at LLC, a corporate and board advisory firm that specializes in restructuring and receiverships. He is a Court Appointed General Receiver in the State of Washington as well as an interim CEO and advisor to middle market companies. He can be reached at adavis@revitalizationpartners.com or 206.903.1855.
