Joseph C. Barsalona II Quoted in The Deal, “Private Credit, Investor Sophistication Drive Liquidations Down”

Joseph C. Barsalona II, partner in the Bankruptcy, Restructuring and Creditors’ Rights practice at Pashman Stein Walder Hayden P.C., was recently quoted in an article in The Deal titled, “Private Credit, Investor Sophistication Drive Liquidations Down.” The article discusses how companies that are currently entering bankruptcy are opting to liquidate at the lowest level in 15 years. During the first nine months of 2024, there were 184 liquidations in Chapter 7 or Chapter 11 out of the 513 U.S. corporate bankruptcies, representing a rate of 35.9%, which is the lowest figure since 2011.

Interest in inventive liability management transactions, something of a phenomenon in recent months, has also played a role in keeping deep distress away from courtrooms, said Joseph C. Barsalona II.

“I've seen a lot from my secured lender clients that a lot of [secured lenders] are just exercising state court remedies rather than paying for a Chapter 11 winddown," said Barsalona. “If you do a state court foreclosure like an article 9 or a strict foreclosure, there's very minimal work and legal cost to get the asset."

"In [Chapter 11] now, thanks to Purdue, you're not getting the types of releases you used to get. Everyone used to say, ‘Go into 11 and you'll get your release; that's what's worth paying for’, but you don't get that anymore because of Purdue," Barsalona said.

"Lenders don't want to pay legal costs of a creditor coming in and suing for substantial control, piercing the corporate veil or fraudulent transfer — and a ton of these lenders are doing transactions like LBOs that could be avoided in bankruptcy, and want a release from all parties. Now, that's been taken away, so if it's just a Chapter 11 to wind down, and their costs will be a couple million more, they'll do [things] out of court," said Barsalona.