By John E. Hyde, Managing Director – Special Situations, Graphic Arts Advisors, LLC
When financial challenges mount and the business continues to tread water, owners and senior management of companies in the printing, mailing, and graphic communications industries usually focus on the immediate steps needed to stay afloat: cutting costs, securing new capital, or restructuring debt. Then the thought process often turns to finding a buyer for the business or closing the doors without an M&A solution. Along the way, the word “bankruptcy” comes into the conversation.
While the numbers and legal procedures are at the forefront, one critical factor often gets overlooked: privacy. The path you choose can have lasting consequences for how much sensitive business information becomes public knowledge. Bankruptcy can inadvertently serve as a legal security leak of your most sensitive data.
Bankruptcy as a Last Resort… Or is it?
Bankruptcy comes to mind quickly because it's the knee-jerk reaction stemming from years of seeing those corny billboard advertisements and hearing late-night infomercials. “We can’t afford these lease payments, the bank is all over me, and the vendors are cutting us off,” says more than one business owner. “So, we’re going to have to go bankrupt.” But then reality kicks in when the business owner learns more about the real challenges inherent in filing for bankruptcy. Most business owners pull back, often changing direction in favor of non-bankruptcy solutions. One of those reality checks involves privacy implications.
What Gets Disclosed in Bankruptcy?
Bankruptcy requires disclosure of all the company’s creditors. No one worries too much about listing banks, credit cards, trade vendors, and leases, but what about Aunt Betsy or Uncle Bob who helped cover payroll a few weeks ago? They will end up on the creditors’ list, and their names and addresses will be visible to the other creditors and to anyone who searches the bankruptcy case through online tools. Beyond disclosure of the roster of creditors, other disclosures may be necessary depending on the circumstances of the case. Examples include customer lists, payroll information, and income tax returns. The debtor’s skilled bankruptcy lawyer can object to certain disclosures, and it would not come as a surprise to seasoned bankruptcy watchers that legal fees can seriously add up in litigation over the scope and necessity of sensitive disclosures.
Now think about that. Unless you have the right bankruptcy lawyer and the ability to hunker down in legal defense mode, there is a reasonable possibility of public disclosure about owners' compensation, payroll costs, and revenues from specific customers (e.g., the Debtor’s detailed AR aging report) and this is not the full list.
The Privacy Advantage of Non-Bankruptcy Solutions
By comparison, in non-bankruptcy cases, there is much more control and discretion over how information is used; in most cases, granular details do not have to be disclosed, and, if they do, disclosure is on a limited, confidential basis. The process requires a willingness to disclose, but in practice, such details rarely come to light.
The Critical Fork in the Road
Sitting at that fork in the road between non-bankruptcy and bankruptcy, it's important to consider the privacy implications.
The choice between bankruptcy and a non-bankruptcy approach is not just a financial decision, but also about how much of your business’s inner workings will be exposed to the world. While bankruptcy offers a structured legal path, it comes with significant public disclosure requirements. Non-bankruptcy solutions often offer greater flexibility, allowing business leaders to protect sensitive data while still working toward a resolution. Before making your choice, weigh not only the dollars and cents, but also the lasting impact on your company’s privacy.
