CORPORATE TRANSACTIONS & COMPLIANCE BLOG

Financial Restructuring in the U.S.: An Increasing Demand for Due Diligence Ahead

By: Bruce S. Gallo, Esq., COGENCY GLOBAL, on Jun 11, 2020 5:00:00 AM

With an increasing number of bankruptcy projects on the legal horizon comes an increased need for thorough public record due diligence.

Due Diligence in Financial Restructuring and Bankruptcy Work-1The global pandemic sparked by the novel coronavirus has had an indelible impact on business forecasts around the world. Due to economic uncertainty, fewer transactions are being worked and parties have sought ways out of deals that were agreed upon prior to the crisis. 

In tandem with these transactional disruptions, it’s likely that there will be an increase in financial restructuring as businesses navigate around the risk of bankruptcy that comes with economic instability.

Due Diligence in Financial Restructuring and Bankruptcy Work

Over the past few months, businesses in the U.S. have been re-examining their credit positions as they face (or try to avoid) bankruptcy, working with lenders to make adjustments to their current agreements and perhaps turning to restructuring as a means of riding through this period of financial uncertainty. Legal professionals can expect to see a heightened degree of refinancing, bridge financing, loan restructurings and workout agreements, as well as corporate restructurings through combinations or dissolutions that can eliminate untenable businesses or reduce costs. 

With this increased restructuring activity, the importance of thorough public record due diligence cannot be understated. 

Any of the transactions mentioned above will generally require a new round of public record due diligence. With the U.S. in particular, this includes searching UCC liens, federal tax liens, state tax liens and judgment liens along with litigation searches, bankruptcy searches and intellectual property due diligence searches. It’s also important to ensure that entities are in good standing prior to closings, and that there are no upcoming due dates or events that, if missed, could affect the entity’s corporate status and hinder a closing.

Many of the above transactions also have UCC financing statement implications that require timely filing of UCC3s, often within four months of the transaction, to maintain priority and perfection. Some transactions may even result in changing the state where the UCC is filed, thus requiring the filing of a new UCC1 in a different state.

While a large number of filing offices are simply not open for the physical processing of filings and searches, the majority of states have online platforms that enable electronic filings. There are online, collaborative tools that help manage UCC preparation, XML electronic filing and tracking – this is especially helpful while teams are working remotely.

What’s Your Path Forward?

Financial restructuring projects – especially bankruptcy proceedings – are highly complex. With the influx of restructuring work on the horizon, this is the moment for law firms, large and small, to determine a strategy for meeting the demand. Does your firm or practice group have the capacity for this increase? If needed, how quickly can new hires gain the experience needed to navigate these specialised projects? 

Along with these questions, it’s worth considering what added value can come from engaging experienced public record due diligence professionals for these financial restructuring projects.

 

Our team of local jurisdiction specialists work from strategic locations across the world to offer the due diligence services you need. Contact us today to see how we can help.

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This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

 

Topics: International Corporate Services