August 6, 2025 • 31 mins
Robert DiNozzi is Chief Growth Officer at Second Wind Consultants, where he leads brand strategy and key relationships with lenders, investors, intermediaries, and other stakeholders. He oversees corporate strategy, industry partnerships, and the development of growth models across banking, private equity, M&A, and franchising. DiNozzi also directs branding, content, and media efforts to convey Second Wind’s mission of preserving and unlocking business value.
Before joining Second Wind, DiNozzi spent 15 years in Hollywood as a film producer and executive, working with major studios like Warner Brothers, Disney, and Paramount. He produced the box-office hit Flightplan, founded a market-leading non-theatrical distribution company, and pioneered tech products, including a top-ranked voice-enabled productivity app and an accessible gaming platform. His experience spans creative development, structured finance, and global dealmaking.
An expert in strategic storytelling, DiNozzi is known for aligning teams around compelling narratives that drive engagement and growth. He’s led major brand collaborations with companies like Microsoft and BMW, and teaches the art of pitching story at the university level, combining his backgrounds in entertainment and business to inspire powerful communication.
During the show we discussed:
- Second Wind’s core mission in action
- Using the UCC to resolve debt
- Preserving value during business distress
- How Second Wind differs from bankruptcy
- Turning unsustainable businesses profitable
- Industry adaptability of Second Wind’s solutions
- Getting out of over-leveraged SBA loans
- Measuring long-term impact on businesses
- Common misconceptions about business turnaround
Resources:
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:02):
(Transcribed by TurboScribe.ai. Go Unlimited to remove this message.) Welcome to the Business Credit and Financing Show.
Each week, we talk about the growth strategies
that matter most to entrepreneurs.
Listen in as we discuss the secrets to
getting credit and money to start and grow
your business.
And enjoy as we talk with seasoned business
owners, coaches, and industry leaders on a variety
(00:22):
of topics from advertising and marketing to the
nuts and bolts of running a highly successful
business.
And now, to introduce the host of our
show, financial expert and award-winning author, Ty
Crandall.
Hello, and thanks for joining us today.
I'm super excited you could be here because
this is a topic we've never talked about
before, but we absolutely should.
(00:43):
I can't think, I think we're somewhere around
1,000 episodes, and I'm shocked that we
have not dove into this because we talk
a lot on the show about getting money
to be able to grow your business.
But here's the question, what happens when you
get in trouble?
What happens when you're overextended, when you've taken
out too much money?
With revenue lending, with merchant cash advances, with
these high-cost, short-term financing, it's not
that hard to get out of control and
(01:04):
to not be able to really get yourself
out of the situation that you're in.
So how do you do that?
Well, that's exactly what we're gonna talk about
today.
We're gonna talk about your business lifeline.
We're gonna talk about turning that kind of
distress into opportunity.
And with us today is Robert Di Nozzi,
and that's how it's pronounced in Italy, supposedly,
I've heard.
I don't know if that's accurate or not,
but it sounded way cooler than I was
gonna say it.
(01:24):
He's a chief growth officer at Second Wing
Consultants where he leads brand strategy and key
relationships with lenders, with investors, and with their
intermediaries as well, and as well with other
shake stakeholders.
Now, he oversees corporate strategy, industry-related partnerships
as well, and the development of growth models
across banking, private equity, M&A, and franchising.
Now, Robert also directs branding, content, and media
(01:46):
efforts to convey Second Wing's mission of preserving
and unlocking business value.
I hope he makes a lot of money
because he has a lot of hats that
he fills over there at Second Wing.
Before joining Second Wing, he actually spent 15
years in Hollywood as a film producer and
executive, working with major studios like Warner Brothers,
Disney, and Paramount.
He produced the box office hit, Flight Plan,
founded a market-leading, non-theatrical distribution company,
(02:10):
and pioneered tech products, including a top-ranked
voice-enabled productivity app, and an accessible gaming
platform as well.
He has experienced fans' creative development, structured finance,
and global deal-making.
An expert in strategic storytelling, he is known
for aligning teams around compelling narratives and driving
engagement and growth.
He's led major brand collaborations with companies like
(02:32):
Microsoft and BMW, and teaches the art of
pitching story at the university level, providing his
backgrounds in entertainment business to help inspire powerful
communication.
Robert, thanks for joining us today.
Wow, Ty, that was quite an introduction.
Thank you for having me.
Yeah, you've done a lot of cool stuff.
I just watched Flight Plan.
I'd actually forgotten half of those things, so
thanks for reminding me.
Yeah, well, it's good to have you on,
(02:53):
man.
You've had an interesting past before.
So I gotta ask you, what took you
from filmmaking to where you are in the
debt-resolution type space?
Well, we could spend 30 minutes on that
alone, but essentially, Hollywood, which was great and
a lot of fun and very rewarding for
a long time, was changing substantially, away from
the consumption of what we'd call movies proper
(03:14):
towards streaming serialized TV.
And that movement of both production and consumption
to the Amazon Primes, Netflixes, and those kinds
of things really shrunk the amounts of both
production and consumption in movies.
And those are very different mediums, even though
they're both entertainment, that we experience films.
Movies are a director and producer-driven medium,
(03:37):
and TV is a writer-driven medium.
And as a non-writing producer in television,
it's not a particularly attractive place to be.
So I was looking for a change.
The producer in me likes big ideas and
disruptive ideas.
And one of the most ripe places for
disruption is the distressed business space.
And this can segue us in.
(03:58):
Because here's the problem.
In distressed situations, it's very common to have
an over-leveraged balance sheet, a company that
cannot support its liabilities, but still has business
value underneath.
Meaning, if we wanna be sort of jargony
about it, you can have an EBITDA-positive
business that's cashflow negative because of debt service.
And in the United States, unfortunately, when a
(04:19):
business owner is faced with a liquidity crisis
or they're simply over-leveraged, they really think,
traditionally, that there are only one of two
plays.
One is bankruptcy and a judicial process to
resolve distress.
The other is more debt and try to
hope and pray that you can outpace that
(04:40):
debt with renewed growth.
So stacking more debt on top of old
typically does not work, does not end well
for anybody.
And unfortunately, Bankruptcy Code, which was designed to
repay creditors and give a business a chance
to restructure obligations and pay them back over
five years in a Chapter 11 filing, failed
(05:01):
the vast majority of lower-middle-market businesses.
Meaning, if you are the kinds of folks
that we're talking to today, your chances of
successfully completing a Chapter 11 plan are less
than 10%.
And basically, all small businesses that attempt and
fail, and the majority of those are liquidated,
leaving people worse off than before for having
tried them.
And unfortunately, very often, the first person that
(05:23):
a business owner in trouble calls when they're
in trouble is an attorney.
And attorneys know bankruptcy.
They know how to file bankruptcy plans.
That's what they know.
We approach it a little bit differently.
We do not operate, we do not resolve
distress with Bankruptcy Code or in courts or
with attorneys or legal morass or in public
-facing insolvency proceedings that degrade vendor relationships, that
(05:45):
degrade blue will.
Instead, we leverage something called the Uniform Commercial
Code.
And the Uniform Commercial Code is a set
of statutes that govern all commercial transactions in
the United States.
And it's been adopted equally by all 50
states.
And under the Uniform Commercial Code, there is
a different form of resolving business distress and
(06:05):
relaunching a business, which is called an Article
IX restructuring.
And Article IX refers to a provision in
the Uniform Commercial Code that allows a current
debtor and their senior lender to cooperate in
a restructuring that transitions the business from the
current over-leveraged operating entity into a new
(06:27):
operating entity in about five to eight weeks
with a clean balance sheet, which allows the
value to go on being created and allows
that guarantor to keep earning and succeeding and
thereby make reasonable personal guarantee settlements on loans
that were left behind in defaults in the
old operating entity.
But it's really about value preservation.
(06:48):
So this isn't like some get-out-of
-jail-free card.
It's what do you, you know, every business
owner that I've met wants to pay what
they owe.
Problem is, what do you do when you
can't?
And preserving value becomes something that can align
all stakeholders, meaning if you can preserve the
business, relaunch the business, then all parties benefit,
not just the business owner, but also creditors
(07:09):
in the old business, who quite honestly stand
to lose not quite just as much as
a business owner, but liquidation doesn't serve anyone.
When a senior lender liquidates a business, they
get pennies on the dollar for used equipment.
It's just complete waste.
It's a shambles.
So this is probably a longer answer than
you wanted to hear, but the goal, not
just for us as a firm, but in
the entire restructuring universe, we're members of something
(07:31):
called the Turnaround Management Association, which is the
largest global organization of restructuring professionals, attorneys, lenders,
that are interested in value preservation.
And everyone will tell you that judicial process
is not good at saving businesses and business
value.
And the people who really make out are
attorneys and trustees, and that's too bad.
(07:52):
So everyone is looking for out-of-court
options to quickly resolve distress and relaunch a
business.
So ultimately, that's what we're talking about.
We see a lot of folks who come
in stacked with merchant cash advances, or just
got into trouble.
We see generational issues, a son or daughter
took over business from a parent who passed
away suddenly and made some mistakes.
But the point is, when there's still a
(08:13):
good underlying business under there, there's a better
way to salvage it, remove it, extract it
from the over-levered operating entity than a
bankruptcy court.
And so I'll stop there, because I said
a lot.
So I own Company A.
Company A has too many high-priced merchant
cash advances.
The problem is, is that I might be
(08:34):
profitable, but I'm paying way too much on
debt service.
I'm paying way too much money in payments
to really be able to survive.
So I come to second wind, and what
you're doing is setting up a whole other
entity, and then moving, let's say, the IP,
everything in value from the primary entity to
the second entity, and then leaving the debt
(08:54):
in the first entity.
Am I describing this correctly so far?
Yeah, that's not bad.
And that's the full-blown corporate restructuring model.
Doesn't necessarily always have to go that far.
Sometimes, if it's manageable, some businesses can support
their MCA obligations with just a reamorization and
changing repayment terms and just getting cash flow
(09:15):
relief.
So sometimes it's not, on one end of
the spectrum, it's not always about reducing the
amount that you owe.
It's just renegotiating terms, and we do a
lot of that work as well.
But in situations that are more dire, where
even changing the payment terms or elongating them
isn't going to help, yes, because what will
happen invariably when that MCA borrower comes to
(09:36):
us or anywhere else is they are probably
moments away, weeks away from a default.
And what happens when you default with the
merchant cash advance lender, who tend to be
fairly aggressive, and with what you've signed in
their contracts, what's going to happen is your
operating accounts are going to be swept, and
your account debtors are likely going to receive
(09:56):
what are called Uniform Commercial Code 9-406
notices, which basically tell your debtor that those
receivables that they were going to pay you
are not due to you anymore.
They are due to the merchant cash advance.
So essentially, they're intercepting your receivables and cutting
off your cash flow, and that'll kill a
business overnight.
And I've actually had this happen before in
the past too, because I openly share some
(10:17):
of the crazy stuff when that happened in
the mortgage business and back in the day.
But this is actually a real thing.
I didn't even realize how far it went.
They put a lien on your future receivables,
and then they come in and they literally
shut down.
I wasn't able to use Stripe anymore.
Stripe's like, hey, there's a lien against this.
You can't even process payments.
And now I think about it.
(10:38):
I'm like, lucky they told me, because they
could have just taken the money and had
to give it to the lender, but they
said, we're not even going to process payments
because there's a lien outstanding.
So then they're taking your ability to even
make future money to get yourself out of
it.
So the nuclear options is what I just
described.
But what happens to the debt at that
point?
Like, does the debt just go unpaid in
(10:59):
that entity that we've kind of, I don't
want to say abandoned, but the entity we've
abandoned or walk away from?
No, well, so merchant cash advances are an
interesting use case because their collateral is future
receivables.
And so once you don't generate any more
future receivables, there's really nothing that they're secured
to.
But there's not a lot of regulation in
the industry.
(11:19):
The law is gray and it varies from
place to place in terms of what rulings
have been arrived at in various districts.
But the bottom line is, what would typically
end up happening is because the guarantees on
a merchant cash advance, they're not quite personal
guarantees.
They're not true personal guarantees, like when you
sign a loan to a bank.
They're called personal guarantees of performance.
(11:42):
Now, there's some ambiguity in there.
I don't want to bore your listeners with
it, but what it means is typically you
will arrive at a settlement figure that's in
the best interest of everybody.
You could litigate, they could litigate, and that
number typically winds up somewhere 25 to 35
cents on the dollar.
So what we typically do then is we
do the following.
Here's the, this is how we get a
(12:02):
business owner out of an MCHM without having
to go bankrupt personally.
You take the business through a restructuring.
Now there's a new business with a clean
balance sheet that they are earning out of.
In the old business, we have settled down
that merchant cash advance debt to something that
makes sense to the merchant cash advance lenders.
It's like, look, if you're trying to liquidate
this person and go after them, this is
what you'd get.
That number is 30 cents on the dollar.
(12:23):
Okay, let's work with 30 cents on the
dollar.
And then the business owner who now is
earning from that new company will earn and
save to make those settlements.
But they can, in other words, their settlement
savings will be cash flowed by a new
healthy company.
And typically on a 12 to 18 month
timeline, that's how they will resolve their merchant
cash advance obligations without a personal bankruptcy, just
(12:47):
by earning out of the company that they
built in the first place.
If you're working that way with the lender
to begin with, then why even do the
restructure?
Why is it not possible just to go
to the lender and say, hey lender, here's
the deal.
We'll settle this for 30 cents on the
dollar without moving everything.
Wouldn't it be great?
I know.
It sounds really good, yeah.
Yeah, I mean, partly that would help, but
(13:08):
the other thing is it would still be
next to impossible to finance that company.
So if the company, even if you reduced
the balances and the payments and everything, like
if you needed new working capital or anything
else, you're not gonna get it when a
new lender would come in in seventh position.
So if you really wanna relaunch business, you
need to have a clean balance sheet for
a new funder to come into.
(13:29):
Yeah, makes perfect sense.
Makes absolutely perfect sense.
So that being said, are you able to
negotiate it down to a month cents, sticking
on this number, but I'm saying, are you
able to take a debt normally and negotiate
it down to the 25, 30% without
all the litigation?
Because here's what I found.
These guys don't mess around.
I mean, within a week of you defaulting
(13:52):
on an MCA, it's practical, but they're filing
a lawsuit.
Within a week, it's astonishing to me that
I've seen that.
So we do not experience lawsuits or legal
actions.
We preclude them.
And we also take the business, like we
want to move the business operation.
We wanna take it through a restructuring as
soon as possible.
And when we've done that, we've now leveled
(14:14):
the playing field.
So the merchant cash advance lenders now do
not have the ability to hold over your
head the cutting off of your cash flow,
the sweeping of your accounts.
That doesn't exist for them anymore.
Those accounts aren't there anymore.
We are now in a new company and
a new operating entity that is completely separate
from the old operating entity.
So now we talked about, okay, so there
(14:34):
are no more receivables.
The operating entity that you lent to or
that you advanced to has no more receivables.
You have a guarantor who signed something of
a personal guarantee and the negotiation here isn't
magic.
It's simply this.
You could go after them.
You could liquidate them.
They could go, they could declare a personal
chapter set.
Let's just look at the numbers.
Let's do a liquidation analysis.
(14:56):
Let's look at their assets.
Let's look at what they have.
Let's look at what's on the table.
What would you get if you pursued them?
And if we can agree on that, then
rather than pursuing them, why don't we just
make that the number that they will repay
you as they earn out of the business
that we just saved?
And the irony about this is we end
up recovering a lot more for merchant cash
advance lenders.
When they, unfortunately, you have like a stack
(15:18):
of five or six and the collections actions
become really aggressive and you kill a business,
all of those junior lien humblers get nothing.
They literally get nothing.
They'll charge off the debt to a debt
collector and see nothing for it.
Whereas by preserving the business and their guarantor's
ability to earn from the new iteration of
the business operation, they're recovering 30, 30, call
(15:40):
it 35 cents on the dollar, 30, 35
cents on the dollar, which is a five,
six, seven X multiple over what they would
have gotten in charge of.
So believe it or not, it's not as
though the junior MCAs are like, I can't
believe, how can you do this?
It's in fact, we have, I remember one
time I met with some principals from On
Deck at a conference and explained to them
(16:02):
that they could recover on average 30 cents
on the dollar in junior MCA positions.
And now a quick break to hear from
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(16:23):
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forward slash consult.
When we went through this process, when they
weren't the senior lender, and that's, believe it
(16:43):
or not, that's a huge value proposition though,
because they lend aggressively, they charge for lending
aggressively.
They also take almost full losses when they're
in junior positions.
And this keeps them from taking full loss.
Oh, it makes perfect sense to me.
So here's the question.
What type of person do you help?
Is it the business owner that just got
their first MCA for 20K, 25K, and they
(17:05):
can't pay because the payments are three, four
K a month or weekly broken down?
Or is the person that's leveraged by a
certain amount?
Like what type of person that's watching this
can you help versus somebody you can't really
help?
Well, okay, so that's interesting.
Sometimes if it's like first MCA and it's
just a little bit unaffordable, I mean, we
do have a division that can work with
(17:26):
that borrower and with their creditors to just
change payment terms, try to make them more
affordable.
That's the easiest way, something like that.
Where we really come in with second wind
in an article nine restructuring is when that's
not gonna be the case, right?
That when the business is, doesn't have much
run, if we're talking about MCAs, when there's
not much run room left, there's a danger
of the accounts being swept.
(17:48):
They probably have already missed payments or something
like that.
And the writing's on the wall for the
business.
And so we work with businesses about 120
businesses a year and they range from lower
middle market businesses with a few million dollars
in revenue to much larger businesses with $150
million in revenue.
And up there, they tend to not have
merchant cash advance issues.
(18:08):
They have different issues.
But certainly we see in the lower middle
market, MCAs are almost always part of the
distress situation that we see now because they're
everywhere.
Yeah, so you're probably not doing a lot
with SBA loans and stuff like that.
No, we are.
Absolutely we are.
So in other words, in the lower middle
market, generally speaking, it's almost the rule, not
(18:28):
the exception, that the senior lender is an
SBA underwriting bank.
And then the guarantor with an SBA loan
has taken out merchant cash advances.
So in that situation, is the SBA still
getting paid back normally?
And the reason I ask is that I
think I understand that if you're defaulting an
(18:50):
SBA loan, your ability to get any kind
of government money is ruined until it's cured,
I believe is the case.
And it's a strong personal guarantee where they
can't come up with your personal assets.
So it seems to me like pretty severe
if you especially default on an SBA loan
because it's government versus like an MCA.
Right, and oftentimes having gotten involved with the
(19:10):
merchant cash advances will lead to default, lead
to that default with your primary lender, your
SBA lender.
Sure.
So what we do there is we go
to the SBA and we've done thousands of
SBA cases.
We go to the SBA underwriting bank and
chances are whatever bank it is, we've worked
with them many, many times before.
And we show them, we talk to whoever's
in portfolio or special assets, here's your credit,
(19:31):
here's the problem, here are the MCAs.
You don't have a lot of run room.
This is not a situation where you can
bring a financial advisor in and turn it
around.
Like literally in two weeks, there's gonna be
nothing there.
And they understand that.
So what we do is we come up
with a number that satisfies the bank for
the assets of the business.
And we bring in an asset-based lender,
factor inventory lender, ABL equipment lender, whatever on
(19:54):
the other side to finance the bank sale
of the business assets from the old operating
entity into the new one.
And then as far as the personal guarantee
on the deficient, like in other words, let's
say you owe the SBA a million dollars
and you have $500,000 worth of collateral.
Collateralized lenders would buy the assets from the
bank for the $500,000, leaving a $500
(20:15):
,000 deficiency that you've personally guaranteed.
So then what we do for the guarantor
is we take them through the offer and
compromise process.
And we take them through the SBA's offer
and compromise process to arrive at what number
the SBA will accept based on the earning
potential and assets of the guarantor.
It's very much like we talked about with
the MCAs.
They come up with a number.
(20:36):
And so whatever that number is, maybe it's
20 cents on the dollar, maybe it's 30
cents on the dollar.
Sometimes it's as low as five cents on
the dollar, but whatever that number is, is
now part of the plan because that's what
our client who came in needs to earn
over time out of the new business in
order to resolve that SBA personally guaranteed liability
without a bankruptcy.
(20:56):
So what is the impact on the other
side?
I already mentioned that I've seen them put
a lien on future receivables.
They shut down your ability to process payments
at places like Stripe.
You mentioned UCC filings in the beginning.
That could be a benefit, but then they're
also a hindrance because UCC filings are out
there on your business credit reports showing people
(21:16):
you have these outstanding debts.
What happens with all that stuff?
Because they're taking all these aggressive actions to
try to get you to pay, but what
happens with all those aggressive actions as you're
going through this resolution process?
So you asked on the other side.
So on the other side, there has been
a complete break, meaning there are no actions
on the other side.
So let me just take a step back
(21:37):
and explain what an Article 9 sale is.
So when you work with the bank, let's
say in this case, an SBA underwriting bank,
and they've agreed to a number for their
collateral, and they're going to then sell that
collateral into the new operating entity financed by
inventory lender and a factor, whatever the case
may be, Article 9 is a senior secured
lender provision that allows them to sell their
(22:00):
collateral to a buyer with the assurance that
all subordinate liens and liabilities below them are
removed from the assets.
So it's a way of resolving all liabilities
off of assets outside of court.
It just uses uniform commercial code instead of
bankruptcy code.
So as soon as the bank, I mean,
it's not like you have a business owner
selling their assets to a new operating entity.
(22:21):
It's technically speaking, I mean, technically, even though
it's a going concern and the outside world
never sees this, the bank is acknowledging the
insolvency.
The bank is foreclosing a friendly foreclosure on
the assets and selling them into the new
operating entity at fair market value.
We had a close to around of course
liquidation value, which is what they would have
gotten if the business failed and they had
to go to auction with all your stuff.
(22:41):
And in fact, it benefits the bank because
not only can the bank then sell their
collateral to an operating entity, but because there's
still an operating business to the extent the
bank was not made whole and there's a
deficiency, that new business can perhaps pay back
the bank a little bit more, which they
never would have gotten.
So the process really does align a current
(23:03):
senior lender and current business owner into this
transaction rather than having them be adversarial and
like fighting over this insolvent entity and the
borrower needs more money and more time and
the bank wants something, all that kind of
stuff.
You've given them both a reason to restructure
because that restructuring in a new operating entity
is both in the interests of the original
distressed business owner as well as the bank
(23:24):
trying to maximize recovery.
And on that other side, it's also oddly
enough in the best interest of the junior
creditors on the original company who would have
been wiped out in a liquidation.
And instead, their guarantor is now earning in
a healthy business and can make reasonable settlements
on those loans that were essentially removed from
the business operation through the Article 9 transaction.
(23:44):
What about industry?
Can you help and do this in any
industry?
Yeah, pretty much.
It's industry agnostic, all states.
Like I said, the Uniform Commercial Code is
uniform or uniformly adopted.
The only asset class that does not fall
underneath the Uniform Commercial Code is real property,
real estate.
And so it doesn't mean real estate isn't
a part of these scenarios.
It's just done as a different kind of
(24:06):
transaction that runs alongside with the one that
I've been describing.
So you mean like mortgages, for example?
Yeah, or land, yep.
Makes sense.
What's a scenario where you cannot help somebody?
When there is no business worth saving, right?
So like you don't take a business through
a process and get it a clean balance
sheet if even then it's not gonna succeed.
So if the business is so upside down,
(24:27):
meaning revenue has just gone through the floor
because some new widget came out and just
crushed the demand for the one thing that
this business met.
In other words, there needs to be a
viable business, a business model underneath the distress.
So if you remove the distress, do you
have even a positive or do you have
a profitable business?
And if the answer is yes, it's worth
taking through a process.
If the answer is no, then it's not.
(24:49):
But is there, I mean, the metric really
is, is there a business underneath the distress
that has a reason to exist that can
be profitable?
What if there's not?
You can't help them at that point?
Can you help somebody through?
Because a buddy of mine shutting down his
business had issues with the FTC.
He had a company come in with the
whole, it's not what you do at all,
but there's some similarities with what they're doing
(25:10):
to wind down the business, right?
What do they do with outstanding software contracts
and all this stuff for him to walk
away?
So those aren't scenarios for you.
Those are scenarios for another company that deals
with that wind down process.
I mean, we do wind, we tend, we
have done them.
Our mission is to preserve going concern business
value that would otherwise be lost to a
(25:32):
liquidation.
That's our strength, right?
It's not that we've never helped anyone with
a wind down.
We can do it, we have done it,
but it's not like a primary service that
we offer.
When a client comes in, sometimes we thought
there was a business that could be saved.
And then when we realized together that there's
not, then we walk them through a wind
down.
And for example, personal guaranteed resolution, things like
(25:52):
that.
So let me ask you this.
What's one thing that you wish people knew
about business distress and turnaround that most people
you talk to don't know?
That their first call shouldn't be an attorney.
Because again, I mean, attorneys operate in an
area, operate within judicial code, and that kills
almost as many businesses as high cost lending
(26:15):
does.
It is, there's a mythology around bankruptcy that
it's a second chance, it's all this, and
it's just not.
I mean, you lose complete control of the
business.
It's expensive.
Every creditor motion is like another proceeding.
And businesses in this end of the market
cannot operate in that kind of distressed environment
for 18 months with any realistic chance of
(26:35):
coming out of a bankruptcy alive.
It just doesn't work.
And so what happens is you spend all
this money filing a chapter 11 plan, it
fails, and then you end up having to
file a chapter seven liquidation plan.
And you've destroyed jobs, you've destroyed business value.
I can't tell you the number of times
I actually write for some of the secure
finance journals, like the Asset-Based Finance Journal
and ABL Advisor and things like that.
(26:57):
And sometimes I do case studies.
Businesses where a business was weeks away from
a liquidation, where the guarantor would have been
facing millions of dollars in personally guaranteed liabilities.
And two years later, business is worth $10
million, $20 million.
Old senior creditor got paid off in full.
It's like the magic really happens when you
can find a way to actually preserve what's
(27:18):
good about the business and let that be
the fountain from which everyone drinks.
Creditors get repaid more, business owner can solve
their problems, et cetera, et cetera, et cetera.
And bankruptcy code is not good at preserving
businesses, not in this end of the market.
And that's the problem.
And anybody in the restructuring world, anyone in
the banking world, anyone in the turnaround world,
(27:38):
like this isn't just me, they will all
tell you the same thing.
Invariably, out of court processes are preferred to
judicial processes when we're talking about preserving businesses
and owners.
Robert, somebody's watching this and they wanna talk
to you or your team more.
They feel like you're speaking directly to them.
They've got issues, they know they've got issues,
they're scared, they're freaked out.
(27:59):
What action should they take to be able
to talk to your team or be able
to get more info?
Well, they can visit the website and see
that, like, here's the other thing I'd love
people to know.
There is a lot of danger in the
so-called debt relief space.
And if it's okay, I'd like to dedicate
just a minute to a couple of cautionary
tales.
We are not a debt relief agency, but
if somebody is in distress, they are being
(28:20):
targeted all over on Facebook and LinkedIn with
ads for so-called debt relief companies.
All these debt relief companies work with one
of two models.
First one is stall and save.
So they tell you to stop paying your
creditors, all of your creditors, and you can
then, while you're just ignoring them, you can
save and then they'll go back to them
with a settlement offer.
That may have worked years ago with conventional
(28:40):
lenders.
It does not work with aggressive creditors.
It does not work with MCA lenders.
They will, not only are these companies huge
fee extraction machines, in fact, they have fees
called inactive debt fees.
So if they do nothing, don't talk to
anybody and don't call anyone, they can charge
you 20% of the debt that you've
enrolled.
There are incentives built in to not do
(29:00):
anything.
And then the MCAs invariably will kill your
operating accounts, intercept your receivables.
So these stall and save outfits, very dangerous.
The other ads that you'll see are reduce
your payments by 80%, reduce your payments by
80%.
Okay, you can reduce payments by 80%, 70
% through a renegotiation of payment terms.
(29:21):
Here's the problem.
If that is all a boiler room debt
relief operation is doing, if you have four
or five MCAs staffed, all it takes is
one of them to not agree and you
can't support the MCA payments and the cows
to cards come stumbling down.
It only takes one MCA lender to sweep
your accounts or to send 406 notices to
intercept your receivables.
(29:42):
And so if they don't have, they're not
a restructuring firm and don't have a way
to protect your operation, your cashflow, et cetera,
that's really dangerous.
And so it sounds good reduced by 80%,
but if that's the whole thing and they're
banking on global creditor agreement to that, that's
really risky.
And the stall and save thing is.
(Transcribed by TurboScribe.ai. Go Unlimited to remove this message.) Welcome to the Business Credit and Financing Show.
Each week, we talk about the growth strategies
that matter most to entrepreneurs.
Listen in as we discuss the secrets to
getting credit and money to start and grow
your business.
And enjoy as we talk with seasoned business
owners, coaches, and industry leaders on a variety
(00:22):
of topics from advertising and marketing to the
nuts and bolts of running a highly successful
business.
And now, to introduce the host of our
show, financial expert and award-winning author, Ty
Crandall.
Hello, and thanks for joining us today.
I'm super excited you could be here because
this is a topic we've never talked about
before, but we absolutely should.
(00:43):
I can't think, I think we're somewhere around
1,000 episodes, and I'm shocked that we
have not dove into this because we talk
a lot on the show about getting money
to be able to grow your business.
But here's the question, what happens when you
get in trouble?
What happens when you're overextended, when you've taken
out too much money?
With revenue lending, with merchant cash advances, with
these high-cost, short-term financing, it's not
that hard to get out of control and
(01:04):
to not be able to really get yourself
out of the situation that you're in.
So how do you do that?
Well, that's exactly what we're gonna talk about
today.
We're gonna talk about your business lifeline.
We're gonna talk about turning that kind of
distress into opportunity.
And with us today is Robert Di Nozzi,
and that's how it's pronounced in Italy, supposedly,
I've heard.
I don't know if that's accurate or not,
but it sounded way cooler than I was
gonna say it.
(01:24):
He's a chief growth officer at Second Wing
Consultants where he leads brand strategy and key
relationships with lenders, with investors, and with their
intermediaries as well, and as well with other
shake stakeholders.
Now, he oversees corporate strategy, industry-related partnerships
as well, and the development of growth models
across banking, private equity, M&A, and franchising.
Now, Robert also directs branding, content, and media
(01:46):
efforts to convey Second Wing's mission of preserving
and unlocking business value.
I hope he makes a lot of money
because he has a lot of hats that
he fills over there at Second Wing.
Before joining Second Wing, he actually spent 15
years in Hollywood as a film producer and
executive, working with major studios like Warner Brothers,
Disney, and Paramount.
He produced the box office hit, Flight Plan,
founded a market-leading, non-theatrical distribution company,
(02:10):
and pioneered tech products, including a top-ranked
voice-enabled productivity app, and an accessible gaming
platform as well.
He has experienced fans' creative development, structured finance,
and global deal-making.
An expert in strategic storytelling, he is known
for aligning teams around compelling narratives and driving
engagement and growth.
He's led major brand collaborations with companies like
(02:32):
Microsoft and BMW, and teaches the art of
pitching story at the university level, providing his
backgrounds in entertainment business to help inspire powerful
communication.
Robert, thanks for joining us today.
Wow, Ty, that was quite an introduction.
Thank you for having me.
Yeah, you've done a lot of cool stuff.
I just watched Flight Plan.
I'd actually forgotten half of those things, so
thanks for reminding me.
Yeah, well, it's good to have you on,
(02:53):
man.
You've had an interesting past before.
So I gotta ask you, what took you
from filmmaking to where you are in the
debt-resolution type space?
Well, we could spend 30 minutes on that
alone, but essentially, Hollywood, which was great and
a lot of fun and very rewarding for
a long time, was changing substantially, away from
the consumption of what we'd call movies proper
(03:14):
towards streaming serialized TV.
And that movement of both production and consumption
to the Amazon Primes, Netflixes, and those kinds
of things really shrunk the amounts of both
production and consumption in movies.
And those are very different mediums, even though
they're both entertainment, that we experience films.
Movies are a director and producer-driven medium,
(03:37):
and TV is a writer-driven medium.
And as a non-writing producer in television,
it's not a particularly attractive place to be.
So I was looking for a change.
The producer in me likes big ideas and
disruptive ideas.
And one of the most ripe places for
disruption is the distressed business space.
And this can segue us in.
(03:58):
Because here's the problem.
In distressed situations, it's very common to have
an over-leveraged balance sheet, a company that
cannot support its liabilities, but still has business
value underneath.
Meaning, if we wanna be sort of jargony
about it, you can have an EBITDA-positive
business that's cashflow negative because of debt service.
And in the United States, unfortunately, when a
(04:19):
business owner is faced with a liquidity crisis
or they're simply over-leveraged, they really think,
traditionally, that there are only one of two
plays.
One is bankruptcy and a judicial process to
resolve distress.
The other is more debt and try to
hope and pray that you can outpace that
(04:40):
debt with renewed growth.
So stacking more debt on top of old
typically does not work, does not end well
for anybody.
And unfortunately, Bankruptcy Code, which was designed to
repay creditors and give a business a chance
to restructure obligations and pay them back over
five years in a Chapter 11 filing, failed
(05:01):
the vast majority of lower-middle-market businesses.
Meaning, if you are the kinds of folks
that we're talking to today, your chances of
successfully completing a Chapter 11 plan are less
than 10%.
And basically, all small businesses that attempt and
fail, and the majority of those are liquidated,
leaving people worse off than before for having
tried them.
And unfortunately, very often, the first person that
(05:23):
a business owner in trouble calls when they're
in trouble is an attorney.
And attorneys know bankruptcy.
They know how to file bankruptcy plans.
That's what they know.
We approach it a little bit differently.
We do not operate, we do not resolve
distress with Bankruptcy Code or in courts or
with attorneys or legal morass or in public
-facing insolvency proceedings that degrade vendor relationships, that
(05:45):
degrade blue will.
Instead, we leverage something called the Uniform Commercial
Code.
And the Uniform Commercial Code is a set
of statutes that govern all commercial transactions in
the United States.
And it's been adopted equally by all 50
states.
And under the Uniform Commercial Code, there is
a different form of resolving business distress and
(06:05):
relaunching a business, which is called an Article
IX restructuring.
And Article IX refers to a provision in
the Uniform Commercial Code that allows a current
debtor and their senior lender to cooperate in
a restructuring that transitions the business from the
current over-leveraged operating entity into a new
(06:27):
operating entity in about five to eight weeks
with a clean balance sheet, which allows the
value to go on being created and allows
that guarantor to keep earning and succeeding and
thereby make reasonable personal guarantee settlements on loans
that were left behind in defaults in the
old operating entity.
But it's really about value preservation.
(06:48):
So this isn't like some get-out-of
-jail-free card.
It's what do you, you know, every business
owner that I've met wants to pay what
they owe.
Problem is, what do you do when you
can't?
And preserving value becomes something that can align
all stakeholders, meaning if you can preserve the
business, relaunch the business, then all parties benefit,
not just the business owner, but also creditors
(07:09):
in the old business, who quite honestly stand
to lose not quite just as much as
a business owner, but liquidation doesn't serve anyone.
When a senior lender liquidates a business, they
get pennies on the dollar for used equipment.
It's just complete waste.
It's a shambles.
So this is probably a longer answer than
you wanted to hear, but the goal, not
just for us as a firm, but in
the entire restructuring universe, we're members of something
(07:31):
called the Turnaround Management Association, which is the
largest global organization of restructuring professionals, attorneys, lenders,
that are interested in value preservation.
And everyone will tell you that judicial process
is not good at saving businesses and business
value.
And the people who really make out are
attorneys and trustees, and that's too bad.
(07:52):
So everyone is looking for out-of-court
options to quickly resolve distress and relaunch a
business.
So ultimately, that's what we're talking about.
We see a lot of folks who come
in stacked with merchant cash advances, or just
got into trouble.
We see generational issues, a son or daughter
took over business from a parent who passed
away suddenly and made some mistakes.
But the point is, when there's still a
(08:13):
good underlying business under there, there's a better
way to salvage it, remove it, extract it
from the over-levered operating entity than a
bankruptcy court.
And so I'll stop there, because I said
a lot.
So I own Company A.
Company A has too many high-priced merchant
cash advances.
The problem is, is that I might be
(08:34):
profitable, but I'm paying way too much on
debt service.
I'm paying way too much money in payments
to really be able to survive.
So I come to second wind, and what
you're doing is setting up a whole other
entity, and then moving, let's say, the IP,
everything in value from the primary entity to
the second entity, and then leaving the debt
(08:54):
in the first entity.
Am I describing this correctly so far?
Yeah, that's not bad.
And that's the full-blown corporate restructuring model.
Doesn't necessarily always have to go that far.
Sometimes, if it's manageable, some businesses can support
their MCA obligations with just a reamorization and
changing repayment terms and just getting cash flow
(09:15):
relief.
So sometimes it's not, on one end of
the spectrum, it's not always about reducing the
amount that you owe.
It's just renegotiating terms, and we do a
lot of that work as well.
But in situations that are more dire, where
even changing the payment terms or elongating them
isn't going to help, yes, because what will
happen invariably when that MCA borrower comes to
(09:36):
us or anywhere else is they are probably
moments away, weeks away from a default.
And what happens when you default with the
merchant cash advance lender, who tend to be
fairly aggressive, and with what you've signed in
their contracts, what's going to happen is your
operating accounts are going to be swept, and
your account debtors are likely going to receive
(09:56):
what are called Uniform Commercial Code 9-406
notices, which basically tell your debtor that those
receivables that they were going to pay you
are not due to you anymore.
They are due to the merchant cash advance.
So essentially, they're intercepting your receivables and cutting
off your cash flow, and that'll kill a
business overnight.
And I've actually had this happen before in
the past too, because I openly share some
(10:17):
of the crazy stuff when that happened in
the mortgage business and back in the day.
But this is actually a real thing.
I didn't even realize how far it went.
They put a lien on your future receivables,
and then they come in and they literally
shut down.
I wasn't able to use Stripe anymore.
Stripe's like, hey, there's a lien against this.
You can't even process payments.
And now I think about it.
(10:38):
I'm like, lucky they told me, because they
could have just taken the money and had
to give it to the lender, but they
said, we're not even going to process payments
because there's a lien outstanding.
So then they're taking your ability to even
make future money to get yourself out of
it.
So the nuclear options is what I just
described.
But what happens to the debt at that
point?
Like, does the debt just go unpaid in
(10:59):
that entity that we've kind of, I don't
want to say abandoned, but the entity we've
abandoned or walk away from?
No, well, so merchant cash advances are an
interesting use case because their collateral is future
receivables.
And so once you don't generate any more
future receivables, there's really nothing that they're secured
to.
But there's not a lot of regulation in
the industry.
(11:19):
The law is gray and it varies from
place to place in terms of what rulings
have been arrived at in various districts.
But the bottom line is, what would typically
end up happening is because the guarantees on
a merchant cash advance, they're not quite personal
guarantees.
They're not true personal guarantees, like when you
sign a loan to a bank.
They're called personal guarantees of performance.
(11:42):
Now, there's some ambiguity in there.
I don't want to bore your listeners with
it, but what it means is typically you
will arrive at a settlement figure that's in
the best interest of everybody.
You could litigate, they could litigate, and that
number typically winds up somewhere 25 to 35
cents on the dollar.
So what we typically do then is we
do the following.
Here's the, this is how we get a
(12:02):
business owner out of an MCHM without having
to go bankrupt personally.
You take the business through a restructuring.
Now there's a new business with a clean
balance sheet that they are earning out of.
In the old business, we have settled down
that merchant cash advance debt to something that
makes sense to the merchant cash advance lenders.
It's like, look, if you're trying to liquidate
this person and go after them, this is
what you'd get.
That number is 30 cents on the dollar.
(12:23):
Okay, let's work with 30 cents on the
dollar.
And then the business owner who now is
earning from that new company will earn and
save to make those settlements.
But they can, in other words, their settlement
savings will be cash flowed by a new
healthy company.
And typically on a 12 to 18 month
timeline, that's how they will resolve their merchant
cash advance obligations without a personal bankruptcy, just
(12:47):
by earning out of the company that they
built in the first place.
If you're working that way with the lender
to begin with, then why even do the
restructure?
Why is it not possible just to go
to the lender and say, hey lender, here's
the deal.
We'll settle this for 30 cents on the
dollar without moving everything.
Wouldn't it be great?
I know.
It sounds really good, yeah.
Yeah, I mean, partly that would help, but
(13:08):
the other thing is it would still be
next to impossible to finance that company.
So if the company, even if you reduced
the balances and the payments and everything, like
if you needed new working capital or anything
else, you're not gonna get it when a
new lender would come in in seventh position.
So if you really wanna relaunch business, you
need to have a clean balance sheet for
a new funder to come into.
(13:29):
Yeah, makes perfect sense.
Makes absolutely perfect sense.
So that being said, are you able to
negotiate it down to a month cents, sticking
on this number, but I'm saying, are you
able to take a debt normally and negotiate
it down to the 25, 30% without
all the litigation?
Because here's what I found.
These guys don't mess around.
I mean, within a week of you defaulting
(13:52):
on an MCA, it's practical, but they're filing
a lawsuit.
Within a week, it's astonishing to me that
I've seen that.
So we do not experience lawsuits or legal
actions.
We preclude them.
And we also take the business, like we
want to move the business operation.
We wanna take it through a restructuring as
soon as possible.
And when we've done that, we've now leveled
(14:14):
the playing field.
So the merchant cash advance lenders now do
not have the ability to hold over your
head the cutting off of your cash flow,
the sweeping of your accounts.
That doesn't exist for them anymore.
Those accounts aren't there anymore.
We are now in a new company and
a new operating entity that is completely separate
from the old operating entity.
So now we talked about, okay, so there
(14:34):
are no more receivables.
The operating entity that you lent to or
that you advanced to has no more receivables.
You have a guarantor who signed something of
a personal guarantee and the negotiation here isn't
magic.
It's simply this.
You could go after them.
You could liquidate them.
They could go, they could declare a personal
chapter set.
Let's just look at the numbers.
Let's do a liquidation analysis.
(14:56):
Let's look at their assets.
Let's look at what they have.
Let's look at what's on the table.
What would you get if you pursued them?
And if we can agree on that, then
rather than pursuing them, why don't we just
make that the number that they will repay
you as they earn out of the business
that we just saved?
And the irony about this is we end
up recovering a lot more for merchant cash
advance lenders.
When they, unfortunately, you have like a stack
(15:18):
of five or six and the collections actions
become really aggressive and you kill a business,
all of those junior lien humblers get nothing.
They literally get nothing.
They'll charge off the debt to a debt
collector and see nothing for it.
Whereas by preserving the business and their guarantor's
ability to earn from the new iteration of
the business operation, they're recovering 30, 30, call
(15:40):
it 35 cents on the dollar, 30, 35
cents on the dollar, which is a five,
six, seven X multiple over what they would
have gotten in charge of.
So believe it or not, it's not as
though the junior MCAs are like, I can't
believe, how can you do this?
It's in fact, we have, I remember one
time I met with some principals from On
Deck at a conference and explained to them
(16:02):
that they could recover on average 30 cents
on the dollar in junior MCA positions.
And now a quick break to hear from
our sponsor.
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(16:23):
the business reporting agencies without a personal guarantee
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forward slash consult.
When we went through this process, when they
weren't the senior lender, and that's, believe it
(16:43):
or not, that's a huge value proposition though,
because they lend aggressively, they charge for lending
aggressively.
They also take almost full losses when they're
in junior positions.
And this keeps them from taking full loss.
Oh, it makes perfect sense to me.
So here's the question.
What type of person do you help?
Is it the business owner that just got
their first MCA for 20K, 25K, and they
(17:05):
can't pay because the payments are three, four
K a month or weekly broken down?
Or is the person that's leveraged by a
certain amount?
Like what type of person that's watching this
can you help versus somebody you can't really
help?
Well, okay, so that's interesting.
Sometimes if it's like first MCA and it's
just a little bit unaffordable, I mean, we
do have a division that can work with
(17:26):
that borrower and with their creditors to just
change payment terms, try to make them more
affordable.
That's the easiest way, something like that.
Where we really come in with second wind
in an article nine restructuring is when that's
not gonna be the case, right?
That when the business is, doesn't have much
run, if we're talking about MCAs, when there's
not much run room left, there's a danger
of the accounts being swept.
(17:48):
They probably have already missed payments or something
like that.
And the writing's on the wall for the
business.
And so we work with businesses about 120
businesses a year and they range from lower
middle market businesses with a few million dollars
in revenue to much larger businesses with $150
million in revenue.
And up there, they tend to not have
merchant cash advance issues.
(18:08):
They have different issues.
But certainly we see in the lower middle
market, MCAs are almost always part of the
distress situation that we see now because they're
everywhere.
Yeah, so you're probably not doing a lot
with SBA loans and stuff like that.
No, we are.
Absolutely we are.
So in other words, in the lower middle
market, generally speaking, it's almost the rule, not
(18:28):
the exception, that the senior lender is an
SBA underwriting bank.
And then the guarantor with an SBA loan
has taken out merchant cash advances.
So in that situation, is the SBA still
getting paid back normally?
And the reason I ask is that I
think I understand that if you're defaulting an
(18:50):
SBA loan, your ability to get any kind
of government money is ruined until it's cured,
I believe is the case.
And it's a strong personal guarantee where they
can't come up with your personal assets.
So it seems to me like pretty severe
if you especially default on an SBA loan
because it's government versus like an MCA.
Right, and oftentimes having gotten involved with the
(19:10):
merchant cash advances will lead to default, lead
to that default with your primary lender, your
SBA lender.
Sure.
So what we do there is we go
to the SBA and we've done thousands of
SBA cases.
We go to the SBA underwriting bank and
chances are whatever bank it is, we've worked
with them many, many times before.
And we show them, we talk to whoever's
in portfolio or special assets, here's your credit,
(19:31):
here's the problem, here are the MCAs.
You don't have a lot of run room.
This is not a situation where you can
bring a financial advisor in and turn it
around.
Like literally in two weeks, there's gonna be
nothing there.
And they understand that.
So what we do is we come up
with a number that satisfies the bank for
the assets of the business.
And we bring in an asset-based lender,
factor inventory lender, ABL equipment lender, whatever on
(19:54):
the other side to finance the bank sale
of the business assets from the old operating
entity into the new one.
And then as far as the personal guarantee
on the deficient, like in other words, let's
say you owe the SBA a million dollars
and you have $500,000 worth of collateral.
Collateralized lenders would buy the assets from the
bank for the $500,000, leaving a $500
(20:15):
,000 deficiency that you've personally guaranteed.
So then what we do for the guarantor
is we take them through the offer and
compromise process.
And we take them through the SBA's offer
and compromise process to arrive at what number
the SBA will accept based on the earning
potential and assets of the guarantor.
It's very much like we talked about with
the MCAs.
They come up with a number.
(20:36):
And so whatever that number is, maybe it's
20 cents on the dollar, maybe it's 30
cents on the dollar.
Sometimes it's as low as five cents on
the dollar, but whatever that number is, is
now part of the plan because that's what
our client who came in needs to earn
over time out of the new business in
order to resolve that SBA personally guaranteed liability
without a bankruptcy.
(20:56):
So what is the impact on the other
side?
I already mentioned that I've seen them put
a lien on future receivables.
They shut down your ability to process payments
at places like Stripe.
You mentioned UCC filings in the beginning.
That could be a benefit, but then they're
also a hindrance because UCC filings are out
there on your business credit reports showing people
(21:16):
you have these outstanding debts.
What happens with all that stuff?
Because they're taking all these aggressive actions to
try to get you to pay, but what
happens with all those aggressive actions as you're
going through this resolution process?
So you asked on the other side.
So on the other side, there has been
a complete break, meaning there are no actions
on the other side.
So let me just take a step back
(21:37):
and explain what an Article 9 sale is.
So when you work with the bank, let's
say in this case, an SBA underwriting bank,
and they've agreed to a number for their
collateral, and they're going to then sell that
collateral into the new operating entity financed by
inventory lender and a factor, whatever the case
may be, Article 9 is a senior secured
lender provision that allows them to sell their
(22:00):
collateral to a buyer with the assurance that
all subordinate liens and liabilities below them are
removed from the assets.
So it's a way of resolving all liabilities
off of assets outside of court.
It just uses uniform commercial code instead of
bankruptcy code.
So as soon as the bank, I mean,
it's not like you have a business owner
selling their assets to a new operating entity.
(22:21):
It's technically speaking, I mean, technically, even though
it's a going concern and the outside world
never sees this, the bank is acknowledging the
insolvency.
The bank is foreclosing a friendly foreclosure on
the assets and selling them into the new
operating entity at fair market value.
We had a close to around of course
liquidation value, which is what they would have
gotten if the business failed and they had
to go to auction with all your stuff.
(22:41):
And in fact, it benefits the bank because
not only can the bank then sell their
collateral to an operating entity, but because there's
still an operating business to the extent the
bank was not made whole and there's a
deficiency, that new business can perhaps pay back
the bank a little bit more, which they
never would have gotten.
So the process really does align a current
(23:03):
senior lender and current business owner into this
transaction rather than having them be adversarial and
like fighting over this insolvent entity and the
borrower needs more money and more time and
the bank wants something, all that kind of
stuff.
You've given them both a reason to restructure
because that restructuring in a new operating entity
is both in the interests of the original
distressed business owner as well as the bank
(23:24):
trying to maximize recovery.
And on that other side, it's also oddly
enough in the best interest of the junior
creditors on the original company who would have
been wiped out in a liquidation.
And instead, their guarantor is now earning in
a healthy business and can make reasonable settlements
on those loans that were essentially removed from
the business operation through the Article 9 transaction.
(23:44):
What about industry?
Can you help and do this in any
industry?
Yeah, pretty much.
It's industry agnostic, all states.
Like I said, the Uniform Commercial Code is
uniform or uniformly adopted.
The only asset class that does not fall
underneath the Uniform Commercial Code is real property,
real estate.
And so it doesn't mean real estate isn't
a part of these scenarios.
It's just done as a different kind of
(24:06):
transaction that runs alongside with the one that
I've been describing.
So you mean like mortgages, for example?
Yeah, or land, yep.
Makes sense.
What's a scenario where you cannot help somebody?
When there is no business worth saving, right?
So like you don't take a business through
a process and get it a clean balance
sheet if even then it's not gonna succeed.
So if the business is so upside down,
(24:27):
meaning revenue has just gone through the floor
because some new widget came out and just
crushed the demand for the one thing that
this business met.
In other words, there needs to be a
viable business, a business model underneath the distress.
So if you remove the distress, do you
have even a positive or do you have
a profitable business?
And if the answer is yes, it's worth
taking through a process.
If the answer is no, then it's not.
(24:49):
But is there, I mean, the metric really
is, is there a business underneath the distress
that has a reason to exist that can
be profitable?
What if there's not?
You can't help them at that point?
Can you help somebody through?
Because a buddy of mine shutting down his
business had issues with the FTC.
He had a company come in with the
whole, it's not what you do at all,
but there's some similarities with what they're doing
(25:10):
to wind down the business, right?
What do they do with outstanding software contracts
and all this stuff for him to walk
away?
So those aren't scenarios for you.
Those are scenarios for another company that deals
with that wind down process.
I mean, we do wind, we tend, we
have done them.
Our mission is to preserve going concern business
value that would otherwise be lost to a
(25:32):
liquidation.
That's our strength, right?
It's not that we've never helped anyone with
a wind down.
We can do it, we have done it,
but it's not like a primary service that
we offer.
When a client comes in, sometimes we thought
there was a business that could be saved.
And then when we realized together that there's
not, then we walk them through a wind
down.
And for example, personal guaranteed resolution, things like
(25:52):
that.
So let me ask you this.
What's one thing that you wish people knew
about business distress and turnaround that most people
you talk to don't know?
That their first call shouldn't be an attorney.
Because again, I mean, attorneys operate in an
area, operate within judicial code, and that kills
almost as many businesses as high cost lending
(26:15):
does.
It is, there's a mythology around bankruptcy that
it's a second chance, it's all this, and
it's just not.
I mean, you lose complete control of the
business.
It's expensive.
Every creditor motion is like another proceeding.
And businesses in this end of the market
cannot operate in that kind of distressed environment
for 18 months with any realistic chance of
(26:35):
coming out of a bankruptcy alive.
It just doesn't work.
And so what happens is you spend all
this money filing a chapter 11 plan, it
fails, and then you end up having to
file a chapter seven liquidation plan.
And you've destroyed jobs, you've destroyed business value.
I can't tell you the number of times
I actually write for some of the secure
finance journals, like the Asset-Based Finance Journal
and ABL Advisor and things like that.
(26:57):
And sometimes I do case studies.
Businesses where a business was weeks away from
a liquidation, where the guarantor would have been
facing millions of dollars in personally guaranteed liabilities.
And two years later, business is worth $10
million, $20 million.
Old senior creditor got paid off in full.
It's like the magic really happens when you
can find a way to actually preserve what's
(27:18):
good about the business and let that be
the fountain from which everyone drinks.
Creditors get repaid more, business owner can solve
their problems, et cetera, et cetera, et cetera.
And bankruptcy code is not good at preserving
businesses, not in this end of the market.
And that's the problem.
And anybody in the restructuring world, anyone in
the banking world, anyone in the turnaround world,
(27:38):
like this isn't just me, they will all
tell you the same thing.
Invariably, out of court processes are preferred to
judicial processes when we're talking about preserving businesses
and owners.
Robert, somebody's watching this and they wanna talk
to you or your team more.
They feel like you're speaking directly to them.
They've got issues, they know they've got issues,
they're scared, they're freaked out.
(27:59):
What action should they take to be able
to talk to your team or be able
to get more info?
Well, they can visit the website and see
that, like, here's the other thing I'd love
people to know.
There is a lot of danger in the
so-called debt relief space.
And if it's okay, I'd like to dedicate
just a minute to a couple of cautionary
tales.
We are not a debt relief agency, but
if somebody is in distress, they are being
(28:20):
targeted all over on Facebook and LinkedIn with
ads for so-called debt relief companies.
All these debt relief companies work with one
of two models.
First one is stall and save.
So they tell you to stop paying your
creditors, all of your creditors, and you can
then, while you're just ignoring them, you can
save and then they'll go back to them
with a settlement offer.
That may have worked years ago with conventional
(28:40):
lenders.
It does not work with aggressive creditors.
It does not work with MCA lenders.
They will, not only are these companies huge
fee extraction machines, in fact, they have fees
called inactive debt fees.
So if they do nothing, don't talk to
anybody and don't call anyone, they can charge
you 20% of the debt that you've
enrolled.
There are incentives built in to not do
(29:00):
anything.
And then the MCAs invariably will kill your
operating accounts, intercept your receivables.
So these stall and save outfits, very dangerous.
The other ads that you'll see are reduce
your payments by 80%, reduce your payments by
80%.
Okay, you can reduce payments by 80%, 70
% through a renegotiation of payment terms.
(29:21):
Here's the problem.
If that is all a boiler room debt
relief operation is doing, if you have four
or five MCAs staffed, all it takes is
one of them to not agree and you
can't support the MCA payments and the cows
to cards come stumbling down.
It only takes one MCA lender to sweep
your accounts or to send 406 notices to
intercept your receivables.
(29:42):
And so if they don't have, they're not
a restructuring firm and don't have a way
to protect your operation, your cashflow, et cetera,
that's really dangerous.
And so it sounds good reduced by 80%,
but if that's the whole thing and they're
banking on global creditor agreement to that, that's
really risky.
And the stall and save thing is.
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