Last week, a well-known Los Angeles based bankruptcy firm which had previously advised in the chapter 11 proceedings of Lehman Brothers and Enron announced that it would be closing. This followed last June’s layoffs of 60 bankruptcy attorneys at Weil, Gotshal & Manges, one of the nation’s leading bankruptcy practices. According to the United States Courts website, chapter 11 filings fell from over 15,000 in 2010 to under 10,000 in 2013.
The economy has not recovered in a way that would explain this decline in case filings, but other economic factors help explain the trend. Many troubled companies now have better refinancing options because of the still low borrowing rates. Banks are loosening lending restrictions, in part because of the costs associated with chapter 11. Additionally, an increasing number of cases that are filed are of a short duration, with a pre-packaged sale or plan.
I am a restructuring attorney, not a bankruptcy attorney. The latter is too limiting. More than 80 percent of the clients we assist restructure outside of chapter 11. Our role is as a business advisor to guide the troubled company through the many options available for a successful turnaround. Bankruptcy is but one option available to troubled companies, and it should often be the last option.