Lessons for Death
6. Be certain all trailing liabilities have been captured in the bankruptcy budget.
Every company has expenses that sometimes show up after a bankruptcy has been completed; for example, health insurance or worker’s compensation claims. An illness or injury may happen today, but the bills don’t show up for weeks or months. When preparing a budget for a bankruptcy be certain to put in estimates for any trailing expenses that will trickle in after the bankruptcy has ended. If you don’t budget for this, employees, who in many cases will lose their jobs, will be stuck with those bills. Health insurance providers or healthcare professionals (doctors, hospitals, etc.) will absolutely hound them for payment.
Task: In preparing the DIP budget, make a list of all healthcare, workers’ compensation claims, taxes, customer deposits, and any other possible insurance items that need to be covered. Sometimes, DIP lenders are not concerned about these items because those liabilities do not accrue to them. Their goal is to get their loan repaid. They will support the business only to the extent that it preserves value to repay their loan—and that is fine; they have no obligation to even fund a bankruptcy. They can legally foreclose on all of the assets in the loan agreement and liquidate them. You and your advisors need to create a path to protect as many people as possible. This may mean cutting more expenses to be certain the “vital” expenses are covered during and after the bankruptcy.