Liabilities Exceeded Assets Case Study

Client’s liabilities exceeded assets.

The client was insolvent.

Smith Schafer Approach

Informal troubled debt restructuring. We reviewed the client’s list of vendors and selected the largest 25 accounts. We contacted vendors to explain clients’ situation and request acceptance of a discounted amount as settlement in full on the outstanding balance. These vendor’s accounts were several months in arrears. Those who chose to participate signed a simple document acknowledging partial payment as payment in full.

Results

Fractional payments ranged from 20-50 percent of the original balance. Many of these vendors continued to sell to this company, although some required COD terms. The client reduced accounts payable by about $45,000, which allowed the company to become solvent and avoid bankruptcy.