Week of September 29, 2011
| <30>Business bankruptcies on pace to fall 22% in Miami-Dade
<01>By Scott Blake
After a surge in cases during 2010, business bankruptcy filings in South Florida have slowed in recent months, but opinions vary on whether it means the so-called "Great Recession" is subsiding.
From January through August, 886 businesses filed for bankruptcy protection in the Southern District of Florida, according to a Miami Today review of US Bankruptcy Court statistics.
The district is on pace for 1,329 business bankruptcy filings for all of 2011. That projects to be a drop of 22% from a high of 1,709 filings last year.
Some experts see this year's decrease as evidence that the worst of the recession is over.
Others say the decrease mainly shows that lenders — many pressed by their own money issues — are more willing to work with struggling businesses rather than to push them toward bankruptcy protection.
"You see it all — from deception to denial to tears," says Jim Martin, a "corporate turnaround" specialist at ACM Capital Partners, a Miami firm that works with financially distressed businesses and their creditors.
For business owners, "many of whom have only known success, comes the realization of failure and its aftermath," Mr. Martin says.
"For bankers," he adds, "the sheer number of troubled loans has meant reassigning career lenders to new roles. They've gone from closing loans to closing companies, in some cases the same ones that they once funded."
If a company files for bankruptcy protection, banks or other lenders may have long waits before a case is settled and any payments are received. Currently, the district has more than 33,000 cases pending from filings this year and in previous years, from both businesses and consumers.
From March 2010 to March 2011, an onslaught of business and consumer bankruptcy filings hit South Florida.
During that 12-month period, bankruptcy filings for the Southern District of Florida rose 26.5%, compared with the prior 12 months. That represented the largest percentage increase in the nation, according to the Administrative Office of US Courts.
When businesses seek bankruptcy protection, most end up selling their assets and going out of business rather than reorganizing to stay in business.
From January through August, 643 businesses in the district filed for Chapter 7 bankruptcy liquidation, while 205 filed for Chapter 11 bankruptcy reorganization, statistics show.
A big reason for the high number of liquidation cases, Mr. Martin says, is that companies that file for bankruptcy protection are finding it difficult to obtain "debtor in possession" financing. One high-profile case like that, he says, was electronics retail chain Circuit City, which couldn't get debtor in possession financing and was forced to liquidate.
Mr. Martin says many clients he sees come from the real estate and construction industries, which were hit hardest by the collapse of the housing price bubble in recent years.
As things go bad for a company, information to the bank often slows to a trickle or stops altogether, says Mr. Martin, who advises clients not to pull back from communicating with their creditors.
In many cases, the unavoidable result of the process is layoffs at these struggling companies since payroll is a major expense, Mr. Martin says, but it can be worth it if it saves a company from closing and putting more people out of work.
One way Mr. Martin's firm tries to save struggling companies is by analyzing their balance sheets and collateral, along with other key information, and presenting that information to selected lenders who may be able to provide those companies with a quick, much-needed cash or capital infusion.
In this extended economic downturn, traditional lenders such as banks can be hard to find, he says.
The lenders with whom Mr. Martin works are often nontraditional, from equipment supply firms and other "hard asset" lenders to lending firms owned by hedge funds, private equity firms and insurance companies.
"We provide them with all the information in a very orderly fashion so they can make a quick, informal decision," he says.
Meanwhile, consumer bankruptcy filings — those filed by individuals — make up the vast majority of cases.
The Southern District of Florida recorded 24,366 consumer bankruptcy filings from January through August. That number projects to a total of 36,549 filings for all of 2011. That would be a nearly 7% decrease from the district's 39,197 consumer filings last year, statistics show.
To make matters more complicated, many of those filing cases or their lawyers fail to comply with the district bankruptcy court's filing procedures, making it harder for the court to operate efficiently, Chief Judge Paul Hyman says in a recent court newsletter.
The primary reasons for the lack of compliance are "negligence and lack of consciousness on the part of some practitioners," the newsletter states, "coupled with the large number of new bankruptcy practitioners who do not understand the federal bankruptcy practice and the importance of adhering to court's local rules."
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