On April 25, we published an article in The Legal titled “Identifying Signs a Company is in Financial Distress.” That article addressed the issues that general counsel should look to for indications that a company is either in or sliding into a financially distressed situation. Among the red flags that we identified were cashflow issues, repeated litigation, labor problems, the company’s inability to perform contracts and debt-heavy balance sheets. We also suggested that general counsel’s next step would be to contact outside professionals to assist in analysis of the company’s situation, interpretation of where to go next and, ultimately, negotiation on behalf of the financially distressed company.
However, general counsel’s role in a financially distressed company does not end at contacting outside professionals. Once a company has determined that it is in a distressed situation, general counsel can play an essential role in resolving its debt structure. Here we address general counsel’s duties when the company decides to (1) work out payment plans with creditors informally; (2) sign a forbearance agreement with secured lenders; or (3) file a bankruptcy proceeding.
