Updated: Aug 7, 2021
Our firm receives dozens of calls from small public companies that have been misled by rogue advisors claiming they do restructurings, debt remediation and turnarounds. We won’t name who the advisors are here, but these names may find their way into lawsuits filed in federal courts soon.
Many small public companies trading on the OTC Markets that carry convertible and other debt are easily baited by groups offering to resolve their debt, or turnaround their company. However, the services they provide, if any, are very far from any actual restructuring or turnaround that your company may actually need. Many of these companies do the bait and switch – they claim they can raise money or provide funding to pay off your existing loans, in order to “help you out”, then substitute themselves, or friends company's for your existing debt. In most of these situations, the “restructuring” group buys existing convertible debt,
then converts those loans themselves with little to no adjustments to the original transactions’ terms. How exactly does this help you? It doesn’t! It just kicks the can down the road a little longer. They still convert at the stated discounts and most of the conversions are death spiral conversions driving the price of your company’s stock down and they will hold your feet to the fire if there are any defaults, etc….. just like any other creditor, so again, exactly how does THAT help you or your company?
What about these so-called “turnaround” groups that allegedly claim to help public companies that trade in the OTC Markets? Most of these turnaround companies are just debt negotiators, nothing more. Most of these groups charge ridiculously exorbitant fees and they know these small public companies are vulnerable. We have seen the deals they have negotiated for their clients and we have seen the fees that they charge these companies. It’s unacceptable. What a waste of time, energy and resources.
Our firm just handled three merchant cash advance cases that were purportedly settled by a fairly known and widely marketed “turnaround” group. It turned out that the transactions they negotiated deals for violated certain state usury laws and were VOID to begin with – but the turnaround “guys” never conducted a legal analysis of the transaction(s) and just negotiated a payment schedule - in 2 instances, for MORE than what was owed. Where exactly is the value in that? Debt involves contracts, and if the “restructuring” group does not conduct the initial necessary legal analysis, then how can you be sure what you are agreeing to is even right, let alone legal.
It all sounded good in the beginning, didn’t it? Sounded like a plausible way to handle your debts, was it? IT IS A COMPLETE WASTE OF TIME and these scam artist companies probably put you into a greater financial hole.
These “groups” are solely out for themselves. They could care less about your company or its shareholders. Want to find a real solution? A real effective restructuring is very complicated with many moving parts and should include, at least consider, capitalization, both from a stock perspective as well as future funding’s once the company is stabilized. You should consult with a real restructuring firm that can create a logical strategy to restructure the company on a timely basis while legitimately remediating the debt on the books and then assist with “clean” funding going forward.
Joey Chancis is an Executive Restructuring Advisor at The Basile Law Firm, P.C. that focuses a large portion of the firms practice on restructuring public companies. While Ms. Chancis is not an attorney, she works closely with attorneys assigned by the firm and the client’s management team to develop a restructuring plan specifically designed for the client. Joey is always available to discuss how a restructuring can help your company – as a former CEO of her own public company, she knows the stress and complexities of what you are going through. You can contact Joey at Joey@thebasilelawfirm.com for more information.