Bankruptcy stats are experiencing an unfortunate rebound after lower rates were seen during the COVID-19 pandemic. Even popular American brands that have been around for decades, like Revlon and Bed, Bath & Beyond, have experienced bankruptcy in the last couple of years.
“Business filings rose 40.4 percent, from 13,481 to 18,926,” in 2023, according to the Administrative Office of the U.S. Courts.
Of course, these numbers are nowhere near the volume of corporate bankruptcies filed in the aftermath of The Great Recession in 2008. Still, with so many companies facing bankruptcy, foreclosures, and restructuring, what can be done to alleviate administrative burdens and make the process as efficient as possible?
Virtual data rooms (VDRs) are an indispensable tool for facilitating the bankruptcy and restructuring process. How do virtual data rooms and bankruptcy fit together? VDRs can help companies experiencing bankruptcy or restructuring by:
- Saving time
- Boosting security
- Saving money
Let’s explore how VDRs accomplish these three objectives. Before we dig in, here is a quick rundown on bankruptcy and restructuring.
Put simply, bankruptcy is a legal lifeline for companies that have debts they are unable to pay. There are six types of bankruptcy, with Chapters 7 and 11 being the most common for businesses. Chapter 7 bankruptcy involves going completely out of business, while Chapter 11 allows a company to continue operating while a financial restructuring takes place in hopes of recovering profitable business functions.
“Bankruptcy gives creditors an opportunity for repayment when assets belonging to an individual or business are liquidated,” explains Debt.org. “All bankruptcy cases are filed in federal court. Judges examine the bankruptcy filing to determine a debtor’s eligibility and then decide whether to discharge that debt.”
Typically, bankruptcy does not bode well for investors and stakeholders, and it can severely tarnish a brand’s reputation in the minds of consumers.
Still, one company’s bankruptcy can present a golden opportunity for another. For example, after Bed, Bath & Beyond filed for Chapter 11 bankruptcy, “Overstock.com paid $21.5 million for Bed, Bath & Beyond’s intellectual property and digital assets,” reports Forbes. Overstock’s CEO reportedly loved the brand itself and saw the purchase as an opportunity to reinvent Overstock’s brand while updating Bed, Bath & Beyond’s business model.
Still, such restructuring involves a huge amount of time, coordination, administrative power, legal consultation, and, yes, money. How can virtual data rooms help ease these burdens and mitigate the risks of bankruptcy and restructuring?
3 Ways VDRs Help During Bankruptcy and Restructuring
Note these three key ways in which virtual data rooms soften the blow of bankruptcy:
1. VDRs Save Time
If your company is buried in debt and bleeding resources by the day, time is certainly of the essence. Still, filing for bankruptcy can be a complex and time-intensive process, especially when it comes to gathering all of the financial documents to furnish to the federal court.
The court must be informed of current expenditures, debts, incomes, contracts, leases, assets, liabilities, and all other relevant financial information, including tax documents. Additionally, when filing for Chapter 11 bankruptcy, companies need to propose a plan of reorganization to the court.
“When a company files for Chapter 11, it is assigned a committee that represents the interests of creditors and stockholders. This committee works with the company to develop a plan to reorganize the business and get it out of debt, reshaping it into a profitable entity,” explains Investopedia. “Shareholders may be given a vote on the plan, but that is never guaranteed. If shareholders or creditors reject the plan, sometimes it may be scrapped for a new plan, but it is not necessarily dead. The court may still deem the plan suitable and put it into effect.”
Organizing all of this information and sharing it between relevant parties to a bankruptcy filing can be a logistical and administrative nightmare. Thankfully, using a VDR can help streamline the process, saving precious time. How?
A virtual data room gives a company a centralized location for organizing, reviewing, and sharing information. All relevant parties can be granted access to the portal or specific documents for real-time collaboration. That way, everyone from executives to legal counsel can stay on the same page and keep the process moving forward without administrative inefficiencies caused by outdated file-sharing and organization methods.
2. VDRs Boost Security
Standard file storage and sharing platforms can leave companies vulnerable to hackers and other cybersecurity threats. Bankruptcy paperwork is full of sensitive information. At such a critical time as filing for bankruptcy, the last thing a company needs is a costly data leak.
“It is well known that a cyber incident can sink an organization’s stock price, especially in the short term,” says Harvard Business Review. “Publicly traded companies suffered an average decline of 7.5% in their stock values after a data breach, coupled with a mean market cap loss of $5.4 billion. Even more concerning is the fact that it took 46 days, on average, for these companies to recover their stock prices to pre-breach levels, if they were able to do so at all.”
Given the risks of a data breach, financially ailing companies cannot afford to take security lightly. One way to mitigate cybersecurity threats is by using a virtual data room. VDRs give companies filing for bankruptcy a secure place to store their sensitive financial data. Modern VDR technology also gives document owners unprecedented digital rights management, allowing them to control who can view, edit, download, and even print a document.
3. VDRs Save Money
When a company is drowning in debt, every penny counts. Even filing for bankruptcy inflicts the cost of court fees, legal counsel, administrative power, and other expenses. Can a virtual data room help save money? Yes.
While VDRs are a paid service, the service can often pay for itself due to the efficiencies afforded by the technology. How? VDRs save significant time in corresponding, collaborating, and organizing documents, helping slice inefficiencies and significantly reduce time-intensive administrative functions.
How can your company start leveraging VDR technology?
Secure VDR for Bankruptcy and Restructuring
CapLinked offers a next-level virtual data room solution for help with bankruptcy and restructuring. Our virtual data rooms can help facilitate and de-stress the process by giving members of your organization and relevant parties a user-friendly platform for collaboration and document sharing. Beyond that, our data rooms are backed by military-grade 256-bit encryption for your peace of mind during a stressful time.
Start with our free trial. We’re convinced it will be worth your while.
