Liquidations - America's Great Growth Industry

For years, the Restructuring practice in this country was fundamentally different than the U.K. practice. In this country, we had the "second chance" system. In the UK, it was more like three strikes and you are out.

In the U.S., Chapter 11 was designed to provide the troubled debtor with a second chance through a reorganization process. Heck, some companies even took multiple trips through Chapter 11, (hence the evolution of the concept of Chapter 22 [twice through an 11], Chapter 33 [three times an 11], etc.).

Our system was in sharp contrast to the U.K. norm where a failing business is effectively put in the hands of a trustee for sale to a third party.

For years, legal scholars debated the advantages and disadvantages of the two very different systems.

I find it somewhat ironic that the U.S. system has evolved to one that, at least for the time being, looks more like the U.K. system. Very, very few companies are emerging from bankruptcy. The norm in the U.S. has become a very quick sale of the "good" assets through a Section 363 sale.

Experienced Restructuring professionals know, as well as I do, some of the reasons for this change. Among the reasons are:

1. Near complete absence of DIP financing other than by hostage or vulture lenders,
2. Common absence of unpledged assets or assets with greater value than secured debt associated with the asset, and
3. Unprecedented levels of uncertainty as to the economy and as to changing industry conditions.

Today, with rare exceptions, most Restructuring firms are getting more of their revenue from liquidation activities than the from turnaround activities.

Of course, most professionals dont see it as very grand and glorious to present oneself as a liquidator. So, organizations like the Turnaround Management Association (“TMA”) flourish, while the commensurate liquidation association has yet to be even formed.

Let's be clear:

One of this country's greatest growth industries is liquidations.

Those who recognize this fact, embrace the notion, and aggressively pursue the opportunity will be among the winners among professional service firms in the coming decade.

It is fascinating to watch some law firms, some consultants, and some specialty firms quietly building the future winners...while some dinosaurs congregate around the watering hole BSing about how well they are doing and subtly asking each other when the market for turnaround work will heat up.

Change presents such great opportunities for those who truly embrace it.