This post is part of a series of posts entitled First Considerations for the Financially Distressed Business. For a comprehensive list of articles contained in this series, click here.
Similar to debtors, not all creditors are built the same. As businesses consider filing for bankruptcy or otherwise restructuring their debt, creditors should be uniquely advised on their approach to a restructuring depending on the type of relationship they have with their debtor. A successful solution for one type of creditor might be deeply consequential for another. For example, those creditors with a contractual relationship with a debtor (e.g., landlord/ tenant) may need to think strategically before looking to either bankruptcy or restructuring. Under the Bankruptcy Code, remedies that are available under a contract are sometimes impaired when a debtor files bankruptcy. In a landlord-lease situation, a distressed debtor filing for bankruptcy may prohibit the landlord from terminating the lease on account of a pre-bankruptcy default, a remedy available to the landlord prior to the filing of bankruptcy. Overall, creditors should consider the composition of their relationships and how the contractual landscape can be affected once bankruptcy is initiated. A restructuring professional can help identify those specific relationships and find safeguarded solutions.