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5 Lessons Learned Going Through Complex Bankruptcy

09.14.2020

The economic turmoil inflicted by the COVID-19 pandemic is visible as U.S. corporate bankruptcies approach a 10-year high. With declining revenues across many sectors and uncertainty about when the pandemic will be under control, business leaders are contemplating some difficult choices.

As the in-house tax planning leader for a publicly traded company that went through a complex multinational bankruptcy, I experienced all facets of the process. Some of the lessons I learned include:

  1. Tax considerations must be part of a holistic bankruptcy process. A tax strategy can be a large value driver and is impacted by many of the decisions made throughout the process. Having a trusted advisor throughout is critical for optimizing the best solutions.
  2. Managing cash flow is essential. Any opportunities to defer payments or collect refunds can have dramatic effects on the cash flow of the company and its reorganization activities.
  3. A top priority will be for the company to secure financing and agreement on a collateral package with lenders. Fully understanding the tax ramifications of debt exchanges and pledged collateral is imperative to prevent an undesired result.
  4. Being proactive can be the difference in creating additional value through opportunistic reorganizations, elections or carrybacks. Balancing proactive planning while navigating the limitations imposed by other stakeholders is challenging but manageable to allow for accretive planning.
  5. Making decisions based on gut instincts can be dangerous. In the increasingly complex and evolving tax landscape, modelling and analysis are key to finding the optimal solutions.

While everyone’s circumstances and facts are different, I was able to enhance cash flow with hundreds of millions of dollars in cash refunds and create several billion dollars in tax attributes that survived bankruptcy. The lessons learned and technical experience gained focusing on distressed transactions for the last several years can be applied across diverse industries and the full spectrum of organizations large or small. 

For more insights about dealing with this period of disruption, visit our COVID-19 Business Response Services page or our Turnaround and Restructuring Services page.

To discuss your business’ unique situation, contact John Schwartze, Tax Principal, at 314.824.5237 or jschwartze@bswllc.com.

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