Financial restructuring or filing for bankruptcy protection is a means to save a distressed company, giving it the opportunity to fix its problems and continue as a going concern. But as it’s a long process involving stakeholders from employees to creditors to regulators and bankruptcy courts.
Communications play such an important role in the bankruptcy process. For a company to turn things around and fix the issues that led to insolvency, it must be able to message its plan to all stakeholders at each key point throughout the process.
But, the process can be long and complex, and each phase requires a different approach to communications to garner support. Below, we outline a few communications tips for each step of the bankruptcy filing process.
1. Petition Filing
During this step, when the public and other interested parties first learn about the company’s financial difficulties, companies should clearly explain why they need to seek bankruptcy court protection and their plans for the future.
Make sure to:
- Communicate what went wrong
- Detail how it can be fixed
- Elaborate on plans to emerge from the bankruptcy as a stronger company
2. First Day Motions
At this point, the company will ask for approval to take certain steps to operate through the bankruptcy process, such as using cash on hand to pay bills or extend certain court deadlines. Public communications during this phase should focus on managing stakeholder perceptions and building support for your big-picture plan.
Make sure to:
- Communicate why vendors should continue to provide services to the company (e.g., why creditors should continue injecting funds to maintain payroll or why a landlord should wait out the bankruptcy filing rather than take away keys to the building)
- Detail why employees should stick it out with the company rather than seek new opportunities
3. Exclusivity Period
After filing the bankruptcy petition, the company has 120 days with the exclusive right to file a plan of reorganization. During this time period, it is critical that companies use communications to garner support and consensus around that plan with creditors, landlords, vendors, employees, and other interested parties.
Make sure to:
- Discuss why the plan will work, seeking to appeal to both the hearts and minds of all interested parties (and the judge)
- Communicate why the company’s plan (rather than any competing plans submitted by creditors following the exclusivity period) will produce the ideal result.
4. Plan Confirmation
With approval from the judge, the debtor will start soliciting votes on the reorganization plan, which includes an outline of how much each creditor will receive based on their claims. This is one of the most newsworthy events during the filing, so communications should clearly describe how the reorganization will better position the company financially and operationally going forward.
Make sure to:
- Explain how the company plans to put the past behind them
- Communicate positive aspects of the newly restructured company (e.g., reduced debt burden, streamlined opportunities)
- Detail how the bankruptcy process has ultimately allowed the company to fix its problems and why it is optimistic about the future
5. Exit
As the company exits the bankruptcy process, it should engage with stakeholders and the public to rebuild any eroded trust and provide insight into the “new” company.
Make sure to:
- Communicate why stakeholders can be confident in the company’s new management team, revised strategy, or any other structural or operational changes
- Understand current stakeholder perceptions and implement a strategy to change those perceptions moving forward
While every case is different, prioritizing communications during each step of the bankruptcy filing process can help companies move forward with a reduced debt burden, a clean slate, and a plan for a successful future. For a deeper look into the bankruptcy filing process and the strategic role of communications during each step of the process, download our eBook, Communications During Bankruptcy and Restructuring: Oxygen in the Corporate ER.
