THE RIGHT TO RESTRUCTURE.

What are the criteria for determining if a company should be allowed court protection to restructure? Who should decide if a company should be allowed to restructure?

Clearly, these are critical issues, particularly given the number of companies that seek court protection from their creditors for a second and even a third time--including such high-profile examples as Eaton's and Agnew Shoes, as discussed below.

We may well ask if the present system is working. From our perspective, the answer is no. We propose that, to strengthen the system, a strategic analysis should be an essential requirement for any business seeking court protection.

THE CURRENT SYSTEM

We currently rely on our judicial system, specifically commercial court judges, to decide which companies are worthy of court protection from their creditors while they restructure their operations. The court bases its decision on an analysis prepared by the company and its legal team, focusing on the financial plight of the debtor as well as the social and economic impact of job losses if the company is liquidated. The underlying premise is that if a company can find financial relief from its creditors, then it can be successfully restructured.

However, what about the company that is facing a financial crisis because of operational or business issues? Can this company be successfully restructured by granting it temporary asylum from paying its creditors?

The process outlined above is far too limited in this instance. It ignores many factors that should be considered in determining whether a company can be successfully restructured. This includes the future potential of a business, which should be the primary consideration of any decision to restructure. This potential can be assessed by a strategic analysis of the business, which would include not only an examination of the business itself, but the industry in which it operates and the economy.