Alternative Workouts Part 2: All About Operating Company Liquidation
In complex scenarios in need of workout services, bankruptcy is not the only option. In fact, there are many alternative paths forward for business entities, their leaders and creditors when finding themselves challenged financially or operationally, or facing insolvency.
In Part 1 of the series, we introduced the Assignment for the Benefit of Creditors, commonly known as an “ABC.” As part of this ongoing series, Douglas Wilson Companies details a number of these alternative solutions with examples and case studies from 36-plus years of experience providing specialized services for workout scenarios. From Chief Restructuring Officer to Receiver, Partition Referee and more, these roles make a critical difference for entities in distress and can be significantly less costly than traditional bankruptcy proceedings.
Part 2: All About Operating Company Liquidation
Every operating company comes with numerous potential pitfalls, many of which are not obvious. These pitfalls may include ownership disputes, regulatory changes, under-capitalization, unsustainable growth or market disruptors that are completely unforeseen.
When operating companies face distress related to these scenarios, the path forward often seems limited and can be quite challenging. Rather than immediately turning to a bankruptcy filing, however, many companies would be well-served to explore the other options available, including liquidation. DWC, with its more than 36 years of working with businesses facing these types of challenges, will work with the operating company, its decision makers and counsel, to assess the issues and make the proper recommendation.
For companies that have valuable assets, liquidating those assets — whether real estate, intellectual property, physical inventory, equipment or other types — is a critical step toward repaying creditors and winding down the business.
In two recent scenarios, DWC managed the liquidation and wind down process for companies in distress; each facing very unique challenges in their respective markets.
JL Furnishings: A Manufacturing Company Liquidation
JL Furnishings was a well-established Los Angeles-based furniture manufacturing company that had a significant warehouse and manufacturing operation in North Carolina. The company served hospitality industry customers in providing custom furnishings for hotel lobbies, lounges and other common areas in need of furnishings.
The company, which counted roughly $100 million in annual sales, closed its doors so suddenly that even many of the employees had not been informed of the closure. DWC was assigned as Receiver to help the primary lender, JP Morgan, achieve some repayment of its loan.
As Receiver, DWC had to first communicate with employees to inform them of the company’s distress. The Receiver also worked to address all employment issues, including compliance with federal and state employment law.
DWC then set out to liquidate the JL Furnishings’ operations and inventory, including furniture, fabric and other materials, all housed in a 100,000 square foot warehouse.
The company also had unfulfilled orders in need of delivery, which required cataloging all pending orders, clarifying their status, and determining whether the orders could be completed.
“It was a matter of cleaning up significant operational issues, notifying all creditors, notifying vendors and doing so in a very efficient way under the state court order,” says DWC Chairman and CEO Douglas Wilson. “Our work involved monthly reporting, going through notice procedures and recouping all possible value in order that the operating company could repay their creditors, all while swiftly navigating the nuances of furniture manufacturing and delivery.”
J.E. Higgins Lumber Company: Family-Owned Business Distress
J.E. Higgins Lumber Company was a large-scale, regional lumber company and supplier of various construction-related hardwood, flooring and window framing products. At its peak, the 125-year-old company had annual sales exceeding $300 million, with more than a dozen locations and over 600 employees.
When the company suddenly faced financial stress, DWC was appointed as Receiver to wind down the business and return value to creditors.
DWC swiftly gained an on-site presence to conduct a review of the company’s financial position and to establish steps to complete the wind down. These included creating a strategic liquidation plan, obtaining court approval to liquidate J.E. Higgins’ assets while overseeing its interim operations, overseeing collection of accounts receivable, selling real estate assets, directing liquidation of inventory, resolving outstanding liens and defending the company against any claims.
With diverse assets including a variety of lumber products, the assignment required a specialized approach.
“The assignment involved a highly technical and specialized liquidation,” Wilson says. “Fortunately, having been in the business of workouts for many years, DWC has relationships with many firms that are specialized in many forms and types of liquidation. One size does not fit all when it comes to liquidating assets to achieve the best possible result for creditors.”
Exploring Liquidation Options
Because each operating company faces individual market factors and often a specialized approach is required, companies pursuing a path to liquidation outside of bankruptcy are well served to work with experienced professionals who are equipped to advise on the numerous issues that arise when a company is insolvent. These may include:
- Employment issues and complying with all applicable employment law
- Knowledge of specialized liquidation agents with relevant expertise and experience
- Accounting needs and best practices
- Communication with creditors, vendors, employees and officials
- And more
“There are many nuances to a successful liquidation, and working with an experienced group can make all the difference when it comes to recovering value from a distressed entity,” Wilson says. “Often a swift liquidation can be much more effective and less expensive than pursuing a bankruptcy process.”
