SECTION 4. PSYCHOLOGICAL TSUNAMI
The Damocles sword of bankruptcy is not the loss of wealth per se but, above all, the psychological state that comes over a man who was successful just yesterday, dividing his life into before and after.
PROBLEM 9
Given: an entrepreneur, who is usually well known in the place where he was born, where he grew up and where he has developed his business, cannot simply hide from his recent popularity at the drop of a hat. Just yesterday, he and his company were on billboards, on magazine covers, on employees name tags, on the side of cars, on the business cards given to numerous officials, suppliers, and customers, the company was a respected employer Then suddenly, the soon-to-be bankrupt has to sever his connections with everyone. He locks himself in his luxurious country estate or drives off behind the wheel of an expensive car wherever the road takes him.
Question: what exactly is a psychological tsunami? It sweeps over everyone in equal measure, irrespective of the size of the business. When debts exceed the ability to pay them off, it is only the dishonest and criminally inclined who can remain indifferent. The rest of us realize that once all the resources we have feverishly sought to avert disaster are exhausted, the great water will inevitably come to wash it all away.
A ruthless tsunami tears down harbors, seaside villages, and coastal towns, flings ships of all sizes and displacements onto the shore, smashing everything into tiny pieces. Similarly, bankruptcy shreds the usual rhythms and values, veers the meaning of life, and destroys what was dear just yesterday. The psychological tsunami smashes and ruins the lives of all people, however famous they can be, pulverizes tangible and intangible assets of any value, nullifies everything that has been built over years or even decades and provided a living for tens and hundreds of families. Those who are not legally savvy or do not have their in-house legal service feel even worse as they realize that they will not just fail to pay their debts but will be also dragged into the maelstrom of criminal prosecution.
Solution: Unfortunately, as practice shows, no one usually prepares for a potential bankruptcy or even thinks about exploring a civilized mechanism of protection from creditors well in advance of it. Nobody wants to even conceive that this can be possible for a business that was successful just yesterday.
Why do we listen to preflight safety briefings for the umpteenth time: what to do in case of ditching, how to inflate a life jacket and blow the whistle? Why do we practice running to the lifeboats on a cruise so that we know in an emergency which lifeboat is ours, where to find it and how to put on our life vests? And why do we not prepare in advance for a potential bankruptcy? It may be just around the corner, especially after yet another economic crisis.
Every single soon-to-be bankrupt becomes panic-stricken, desperately grasping at straws, as the vortex of impending bankruptcy begins to suck him in.
One should always prepare for bankruptcy by running command-post exercises or management games, just as the military officers run simulations on maps or in a giant sandbox, recreating the terrain of the eventual theatre of operation. It is crucial to keep drilling who will do what when the inevitable bankruptcy first starts gently knocking on the window and then bangs on all the doors. Check the lifeboats and life jackets, make sure the oxygen cylinders are full and the parachute is properly packed. If bankruptcy cannot take you by surprise, there will be no panic, no psychological tsunami.
SECTION 5. CENTRIFUGAL FORCE
To fear is human:
some are afraid of water,
others are afraid of confined spaces,
yet others are afraid of heights,
and some are afraid of a little bit of everything.
PROBLEM 10
Given: there is no one who is not afraid of going bankrupt. But people treat bankruptcy in different ways. Some know how to deal with it in a civilized way, how to manage their assets competently in times of trouble. Others begin panicking, rushing around, blaming everyone else, and feeling sorry for themselves.
As a general rule, the soon-to-be or fresh bankrupt can lose sleep for up to several days. Then depression sets in, sometimes extremely severe and unknown to him who has been so strong and unyielding in any business fight, who used to know no fear in the face of guns and knuckledusters of a gang of robbers or the wrath of corrupt officials and cynical controllers, who has always been ready to go through hell and high water for his business, no matter the weather and time of day.
Question: what happens when he suddenly finds himself facing bankruptcy?
First, an entrepreneur does not want to be called bankrupt; he fears it like the plague, actively fending off the very word bankrupt both publicly and privately.
Second, when businessmen start to sense the looming bankruptcy, they begin to spin the centrifuge of problems, seeking advice from everyone and putting in the know even those who are not supposed to be aware of the impending plight.
Solution: do not be confrontational, let alone threatening. Always remember that energy is already being drained, and the next step in business and relationships is total panic. Suppliers stop delivering, banks stop lending, partners refuse to fund joint projects as a result the cash flow is disrupted, your best employees quit, top managers leave, sometimes even your nearest and dearest shun you.
PROBLEM 11
Given: the maelstrom of problems accelerates as bailiffs arrive and litigation begins. Court orders and restrictions, including temporary arrest of or a ban on property that no longer can be sold or registered, can quickly follow. Foreign travel can be restricted. The centrifugal force of bankruptcy proceedings squeezes out the entrepreneur and deprives him of the right to manage his property and business processes.
Question: what happens next? A group of toxic creditors appear with a financial manager and then a crisis manager. Negotiations out of the question, all they want is to seize and sell all the debtors assets. They do not care that in most cases they can get all their money back much faster and in full if they allow the company to be kept afloat. Practice shows that bankruptcy takes at least three years (unless it is the bankruptcy of a guarantor who has no assets such proceedings are fast-moving and take about 12 months).
Refusing to relinquish ownership and business management rights, not recognizing the substance and legitimacy of the creditors claims all while being on the brink of bankruptcy can sometimes turn up the pressure for the entrepreneur by inviting the threat of criminal prosecution for actions that can be qualified as contrived bankruptcy.
Solution: it is crucial to contact experienced lawyers or attorneys as soon as you realize that bankruptcy is imminent. The larger and more complex the business, the more important it is to have a team of lawyers with different skills. One of them can be an excellent negotiator capable of finding common ground with creditors in all disputes; another can be a brilliant theoretician with a keen eye for the attacking partys Achilles heel and who is also able to competently cover the defending partys weaknesses. There is no such thing as an all-in-one lawyer.
The businessman must get thoroughly immersed into the subject at hand to avoid being thrown out of the process thanks to his own inactivity and stupidity, which will only accelerate the centrifugal forces stripping him of his assets. Apart from the bankruptcy law, this immersion must be into the court practice and, better yet, into the experience of those who have gone through bankruptcy firsthand. But you will have to learn as you go, because time will be extremely short. It is critical not to miss the moment when the invaders, who are skillful at taking away someone elses property and at neutralizing the resistance of the current asset owner, cross the border.
If you do not want to trigger the centrifugal force of the imminent bankruptcy and associated procedures, do not shout at every corner about your business troubles. Nor try to call to account those you consider culpable for your predicament, as it will only facilitate the centrifugal process that will throw you out of your asset rights and empty your pockets faster than you can do anything sensible. Its not just money, it is also lack thereof that loves silence.
The centrifuge of events should be as far away as possible from the source of power that will initiate the bankruptcy process. Do not be the one to plug it in.
SECTION 6. CONTRIVED BANKRUPTCY
An old story says that if you call an honest woman a trollop in public, it is she who will have to vindicate herself, not the one who slandered her.
PROBLEM 12
Given: a friend of mine who was first summoned to appear before an investigator could not have imagined in his wildest dreams that he would face criminal prosecution. He was quite sure that all his actions were extremely sound and commercially legitimate. He would joke with his lawyer while waiting in the corridor and even tried to make a cheerful compliment to the investigator.
The whole affair seemed cut-and-dried: the businessman had used his line of credit to raise money for buying a regular shipment of tomatoes from Turkey, drew up a contract to that effect and began waiting for the goods to be delivered. But on their way back a dozen juggernauts with fresh tomatoes were held up at the border checkpoint because of the political conflict between Russia and Turkey. All transit was suddenly blocked, as Russia imposed a ban on Turkish vegetables, including tomatoes, yet the bank flatly refused to recognize it as force majeure.
Question: but what does criminal prosecution have to do with all this? It turned out that a bank employee had decided to clamp down on the borrower by submitting a statement to the police about an illegally obtained loan. This effectively incriminated the businessman as someone who had tried to embezzle the money from the bank.
Investigators did not care a thing about the businessmans motives for buying the tomatoes because they had a statement from the bank on their desk and needed to showcase an improved crime detection rate no matter what. The banker intentionally went with extortion because he was trying to earn brownie points at work the borrowed money had not been returned, and it was not his job to rummage through the routine evidence. He reckoned that after some shakedown, the businessman would find the money to pay back the loan one way or another, frantically trying to avoid criminal prosecution. Even sudden political disputes between countries can cause a business to collapse.