Dealing with distressed companies and assets requires profound experience in the transactional aspects of mergers and acquisitions and bankruptcy and business reorganization law. Whether the buyer of the distressed company is a strategic buyer or a private equity investor, the key to successful transactions is to identify the right opportunities and mitigate risk. The best way to do this is to assemble a team of experienced professionals who can help to structure and close the most appropriate and beneficial transaction.
The Role of a Law Firm in a Sale
The role of a distressed M&A law firm is critical. It helps preserve value, restructure debt, and reduce liabilities. A sale of a distressed company typically involves companies that have filed for bankruptcy. These transactions require expertise and attention to detail to ensure both parties’ best financial results. For sellers, the process can be stressful. As such, it’s essential to prioritize your personal needs and wellness throughout the process.
Similarly, buyers should be aware of the potential stressors and the importance of prioritizing their well-being. For example, they should be mindful that they may be relocating or taking on a new job at a different firm, which could make them less productive than they would otherwise be. As with any transition, it’s essential to have a thoughtful plan in place. This can include a transition timeline and ensuring critical information about the law firm is adequately passed on to the buyer. The law firm selling must give written notice of the proposed sale to their clients, stating their rights and how the seller plans to transfer their files to another lawyer or law firm. Additionally, the seller must enter a non-disclosure agreement with the client to protect their confidential and personal information.
The Role of a Law Firm in a Restructuring
Distressed companies need lawyers to help them navigate the legal, operational, and financial aspects of resolving problems. This is especially true when a business has reached the point where it can no longer continue to function. When a company is in financial distress, it may attempt to resolve this by rescheduling its debt and issuing new loans or equity-for-debt swaps. These methods allow creditors to convert debts into company shares and give them a more significant say in the company’s management. The restructuring also includes reorganizing a company’s legal and ownership structures to make it more profitable or adaptable to changing market conditions and corporate needs. A successful reorganization can save the company from going under and can effectively turn a failing business around. As a result, many law firms are merging or splitting up as they pursue new clients and practice areas that require specialized expertise. While results vary, these transitions are often necessary to grow the firm and provide the best service to its clients. The role of a restructuring lawyer is to guide distressed companies, their creditors, and investors through the reorganization process. The firm can provide this expertise by drawing upon resources from multiple practices within the firm, including bankruptcy/creditors’ rights, tax, litigation, finance, and benefits. This gives the firm the broadest possible perspective on a given matter and offers the most comprehensive solutions.
The Role of a Law Firm in a Purchase
When another company is purchasing a distressed company, it is necessary to conduct thorough due diligence. This includes assessing the company’s employees, contracts, clients, business associations, etc. It also includes drafting agreements with the buyer needed to complete the deal. For example, a law firm’s client list and referral sources may be key value drivers that the purchasing company needs to consider when evaluating the firm’s sale price. A lawyer or law practice broker familiar with the buying and selling of legal firms can help determine these value drivers and the expected post-transition retention level. In addition to a thorough due diligence process, a law firm buyer must have a succession plan. This can help ensure the firm’s employees and clients smoothly transition. In addition, it allows for passing essential law firm information such as accounts, passwords, and insurance details.
The Role of a Law Firm in a Liquidation
When a company enters liquidation, its assets are sold, and the proceeds are distributed to creditors. The process is triggered when a business is insolvent and unable to pay its debts. It can be voluntary or involuntary, depending on the situation. A company going into liquidation may be a good opportunity for investors looking to purchase assets at bargain prices. However, the process is often complicated and requires extensive legal expertise. Liquidators are appointed by the court to handle these situations. They must be able to identify all of the company’s assets and settle all claims against them. They must also collect all of the money owed to the company and then distribute the proceeds to creditors and shareholders. The role of a law firm in liquidation is essential because it can help to ensure that all parties receive their rightful share of the assets. It can also help to ensure that the right people are notified about the liquidation.
