Location: New York
Author: Tim Yost
Date: Tuesday, July 21, 2009
A hefty 59% of leading restructuring experts in the nation polled say Washington should move to reform flaws in the U.S. Bankruptcy Code, according to a survey by the global business-advisory firm AlixPartners LLP.
In that same survey, when asked to identify an industry that “people aren’t paying much attention to now but will see a surprising amount of restructuring” in the year ahead, 38% of respondents said municipalities, 19% said hospitals and 13% said the energy industry. That question was in addition to an earlier one in which respondents were asked to name the top 3 industries “most likely” to see restructuring in the next 12 months, a list headed up by autos, retail, commercial real estate and banking/finance.
The survey, which was conducted by AlixPartners among 48 select bankruptcy lawyers, bankers, fund managers and other restructuring professionals, also found 67% of those polled saying the economy won’t recover from the current recession until 2011 at the earliest, with 26% saying 2012 or later. Also, 62% said they see don’t private equity becoming a major player in American M&A again until at least 2011, with 32% saying 2012 or later.
“Given the severity of this recession, it looks like American industry and private-equity firms have their work cut out for them for some time to come,” said Peter Fitzsimmons, AlixPartners’ president of North America and also co-lead of the firm’s turnaround and restructuring practice. “As we move through the recession, it’s not just industries like autos and retail that are being affected—as the experts in this survey noted. In fact, virtually every industry imaginable got at least one vote to the ‘most-likely’ list, including restaurants, aerospace, media, travel & leisure, professional-services firms and even ‘green-technology’ companies. Companies that hope to skirt danger during this period need to be more aggressive than perhaps they can even imagine at controlling costs and freeing up cash.”
When asked which part of the Bankruptcy Code most needs to be reformed, 50% of the respondents voting said the so-called “lease-assumption” language in Section 365 of the Code, which restricts the amount of time a bankrupt company has to assume or reject non-residential property leases to no more than 210 days after the commencement of its Chapter 11 case. This section, amended in 2005, has been blamed by some for leaving some companies, particularly retailers, with no choice but liquidation inside bankruptcy.
Meantime, 19% of those voting pointed to the “exclusivity” language in Section 1121 as most in need of change, referring to the time period (exclusivity period) in which a debtor company retains the sole right to file a plan of reorganization—a time period that was effectively shortened in 2005. And another 19% said the “retention” language in Section 503, which sets stricter standards today than in the past as to employee retention at debtor companies, needs to be reformed the most.
In all, 41% of all those polled said the Code is “seriously” flawed.
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