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A client suggested I write the “Ten Commandments” of Chapter 11, responding to clients’ misperceptions and mis-expectations of the process. The time for those rules to descend from above1 arrived. They may not be “the” Ten Commandments. But they’re useful.
I. THOU SHALT BE ALERT TO EVILS – Too many folks seek chapter 11 relief when it’s too late to save the venture. If a problem exists and the first turn-around effort failed, trying a second, without professional help may exhaust precious resources preventing a successful extraction from a death spiral.
II. THOU SHALT SEEK WISDOM – If you’re considering bankruptcy, find a pro. Don’t use your regular lawyer (although a firm may have who you need). You wouldn’t have your family doctor do heart surgery. Ask for a referral.
III. THOU SHALT BE CANDID WITH YOUR ADVISORS – Don’t expect good advice from bad information. You’re seeking help for a problem. Describe the problems you have, not the problem you wish you had or are not embarrassed to tell. You don’t want my surprise to be your demise.
IV. THOU SHALT PREPARE – This is a corollary to number III. It’s hard to give all the information needed without the work of gathering materials and information. Planning ahead and asking questions so you can prepare will make this trek less arduous.
V. THOU SHALT NOT THINK – The words “I thought” usually precede a tale of disaster. Stop thinking. Start knowing. This reorganization process faces enough uncertainties. Avoiding uncertainty helps a lot … everywhere. Careful thinking and planning must suffice when knowing is not available. That’s achieved by using what you know.
VI. THOU SHALT BE HONEST – It was once said about one of the best lawyers I know, “He’ll never lie to you. He’ll just say what you want to hear.” You have to be honest. Sometimes, it means saying ‘I don’t know’, ‘I forgot’ or ‘I didn’t do what I should have done to know.’ Hiding facts can have criminal repercussions too. You’ll need the confidence of creditors and interested parties to succeed. If you’ve been dishonest, reorganization is a good time to change. Don’t be embarrassed by saying exactly what happened. It’ll be more embarrassing and damaging having someone else disclose the truth.
VII. THOU SHALT BE REALISTIC – Chapter 11 is not a panacea. It provides an opportunity to reorganize. Do not expect the process to reveal what is needed to reorganize. Not every venture can be saved. Most chapter 11 cases fail. The time to develop an exit strategy is before entering chapter 11.
VIII. THOU SHALT DO AS INSTRUCTED – This is a corollary to “thou shalt not think.” If you’re in the middle of surgery, second guessing the surgeon is unwise. You could wake up dead. Chapter 11 has lots of annoying, intrusive procedures. However, surviving and benefitting from process requires prompt compliance. We didn’t create these rules. Part of our job is helping you navigate them. If you’re told to paddle … paddle. Question time is before entering the canoe or between rapids.
IX. THOU SHALT REMEMBER WHAT THIS IS ABOUT – This is a corollary to #1. It’s also about #1: the entrepreneur. We might not be able to save the Titanic. However, saving the Astors and crew has promise. We discourage spending resources on a lost cause. Save them for the next venture that has a better chance. Quoting Churchill, “Success consists of going from failure to failure without loss of enthusiasm.” He’d know.
X. THOU SHALT MAINTAIN A SENSE OF HUMOR – This goes for every aspect of life. So, it should apply here. Especially if I’m looking for a tenth commandment. Keeping a sense of humor in the face of adversity provides perspective. You may see solutions to problems that a more rigid demeanor would deny you. People who don’t think out of the box force themselves to live in boxes.
1 These were written on a flight between LAX and JFK.