The Bankruptcy Domino Effect

The impacts of bankruptcy in construction can be far reaching. In this webinar we’ll explore the domino effect that inevitably happens when a company files for bankruptcy and the strategies credit professionals can use to avoid the cascade.

Join this discussion with Mark Edwards, the Sales Director at Creditsafe USA and Richard Gleed, the Product and Development Director at Creditsafe to discuss how to manage the chain reaction which starts when a company is unable to pay their customers, partners, and suppliers.  

In this session and Q&A you’ll find out:

• What causes the domino effect is and how it affects bankruptcy filings
• How perfected lien rights can protect against a bankruptcy filing
• Utilizing a Chapter 5 bankruptcy to have more protection and avoid losing equity with your suppliers

Transcript

Lori J. Drake, CBA (00:02):
Good afternoon everybody. And thank you for joining us today. As we talk about the bankruptcy domino effect, I’m Laurie I’m with Levelset. If you want to go ahead and change the slide mark. If you don’t know what Levelset does we handle mechanics lien rights. We go ahead and file liens for you. Send notices, do waivers. We now have contractor profiles and risk reports, as well as the payment professionals community that you’re watching this webinar through right now, today we have with us Mark Edwards and Richard bleed from credit safe. Thanks for joining us today.

Mark Edwards (00:33):
Thank you for having us, Lori.

Lori J. Drake, CBA (00:36):
You guys want to go ahead and introduce yourself?

Mark Edwards (00:39):
Yeah, absolutely. So I thought in terms of structure, Lori, I’ll give you a more, give everyone an overview of credit safe and who we are, what we do, then we’ll touch upon the topic we’re here to discuss on that is the, uh, the bankruptcy, what is bankruptcy, and then I’ll handle it to Richard, to dive into some of the trends that we’re seeing. Um, and then hopefully we have some questions at the end that we may be able to, uh, to assist you guys with. Perfect. So I’m just going to go through these slides. It’s a very quick introduction to credits if it’s by no means meant to be a, sort of a, a sales pitch, but just to give you a feel for what we do credit safe is, uh, an international credit information provider. We delivered 220 million credit reports annually. Um, we have 115,000 customers globally, uh, with 500,000 users daily, our platform, uh, gives the ability for users to pull, um, up to 365 million credit reports across 161 countries where the fastest growing company in the credit information space, uh, grow in at 13% a year delivering about 200 million in revenue for 2021.

Mark Edwards (01:50):
And we like to say we’re the world’s most used provider of, uh, business credit intelligence. Um, and the reason we say that is because the way our packages are sold, people use more reports with credit. So in terms of our journey, um, the map shows you where we have our headquarters. We were founded in Norway in 1999 in the year 2000. We established our corporate headquarters in the United Kingdom, uh, where both Richard and I started our careers. And then pretty much every 18 months after 2000, we’ve opened up a new credit, safe entity. And by credit save entity, we own maintain the data as well as have a sales presence. We established in the U S in September, 2012. Our latest venture was credit safe Canada, which was 2020, as I mentioned, where the world’s most shoes provider of credit information. Uh, this map here shows, uh, those countries highlighted in red, where we offer, um, credit information, those countries in gray, where we offer, uh, freshly investigative reports, our core products and services can be broken down into three categories, credit at risk.

Mark Edwards (03:01):
So that includes credit scores and limits domestic and international reports, director, and officer information and business monitoring compliance. So know your customer checks, ID verification, anti money laundering, paps and sanctioned, Treyson data services and analytics, customer profile, portfolio analysis, and optimization, credit performance, custom scorecards, and onboarding automation. Laurie, I realized that I talk very fast. So if I start racing off, please, uh, please give me a check. No problem. Some of the customers that we work with, we have a really broken down into three categories. So we have our core customers that would go to our website and pull a credit report. Uh, companies like Rubbermaid in Japan, Trask, NASA, and we have, uh, what we call primary account customers that consume our data directly into their, um, CRM or ERP systems such as Oracle or Salesforce companies like Amazon PayPal. Uh, I’ve actually removed the data resellers.

Mark Edwards (04:02):
It’s probably not appropriate to, um, to, to list them here, but we have lots of company. We operate in, uh, an incestuous industry and all of the information providers are buying or selling data to one another. Uh, but we have lots of data partners as well. Okay, I’m going to take a step back. Um, and we’ll start focusing on the, the topic of bankruptcy. So before I dive into the topic, it’s probably worth just noting that this webinar is not necessarily designed to give, um, legal advice. So if you have specific questions, I would just recommend speaking to a competent legal counsel on that. So what is bankruptcy? Business? Bankruptcy is complex and [inaudible], um, very serious, but it doesn’t necessarily mean the end of the road fall for a business. There are many businesses out there that are become bankrupt, um, and survived and gone on to flourish.

Mark Edwards (05:01):
But bankruptcy is a federal legal procedure for dealing with debt problems for both individuals and businesses. Specifically, it’s a case that’s filed under one of the chapters of title 11 of the United States code known as the bankruptcy code. The fundamental goal of bankruptcy is to, uh, give a financial fresh start from burden burdensome debt. You may hear the term bankruptcy relief, um, uh, sorry, you may hear the term bankruptcy relief filing a bankruptcy can help the data, whether it’s a person or business, um, make a plan to repay their debt. Sorry, I got lost in my notes that bankruptcy cases normally begin with a data files, a petition of the bankruptcy courts. Um, not a very good here. I apologize, um, that will be filed either by, uh, an individual spouses together, a corporation or another entity. Uh, these cases then are referred to by the chapters.

Mark Edwards (06:03):
So there’s several different chapters. Uh, the most common ones we’ll see is chapter 12, which is, uh, more applicable to farmers. Um, that’s one we’re not really going to touch on today. Chapter nine, uh, allows for municipalities to file for bankruptcy protection. Chapter 13 is the reorganization of a company so it can remain doing business, um, where the court approved the mandated paid payment plan. Chapter 15 allows for international companies to gain access to the, um, to the us bankruptcy courts. But in most cases, you’ll hear chapter seven or chapter 11, chapter seven, simply liquidates the company’s assets. While chapter 11 allows the company to continue trading under a reorganization plan. Under chapter seven, the company will stop all operations and completely go out of business firms or the chapter 11 of pass the stage of reorganization, um, and must sell off any non-exempt assets to, to creditors.

Mark Edwards (07:10):
A trustee will be appointed to liquidate or sell the assets, the money that is used to pay off any debts of the business creditors to the, um, debtors of chapter seven, uh, are then divided into two. You have your secured creditors, which are prioritized and unsecured creditors on average secure creditors while we receive about 77 cents on the dollar, and non-secured on average received 2 cents on the dollar. So there’s quite a considerable difference between being a secured creditor and a non secured creditor. Um, there’s just a, you know, a huge disparity, but please note, these are just averages and that the amounts do differ in chapter 11, the company doesn’t go out of business. Um, but the court gives the business the opportunity to reorganize his debts in the hopes that he can emerge as a healthy organization. In 2020, there was 6,917 chapter 11, um, and was one of the worst years in terms of recession. I don’t want to step into a, it’s a Richard section here. So I’m going to leave that, uh, another, um, term you made years chapter 22, and that’s when, uh, uh, it’s not necessarily a legal term, but as a nickname for a company that enters chapter 11 twice. Yeah.

Mark Edwards (08:27):
Inevitable when dealing, or when selling business to business, you will encounter a bankruptcy of a customer, a supplier, or any other business relationship to, uh, to avoid the inevitable, um, uh, disruption. This can cause your business. We use information from companies such as credit. So to anticipate this invites in the future to de-risk the, um, offering the credit. And so when we’re looking to predict a bankruptcy or reduce the risk being negatively impacted by bankruptcy, the level of data that’s available to aid your decision is going to largely be determined by the size of the organization and prominence of the company. So for example, a large public company, the information is going to be far more readily available than a local SME, a small media, more micro entity, nonetheless, good credit management is key. So assuming the correct due diligence was done to the point of origination, what we’re really talking about is monitoring the account to track some of the following changes.

Mark Edwards (09:27):
And a couple of things I would look out for when trying to predict, um, a bankruptcy are changes in the payments speed of a, of a, an organization difficulties, being able to reach that business frequent changes in key personnel. We’re also looking at, um, credit scores and ratings of that company being downgraded. There’s several predicting factors that can, uh, reduce a company’s credit score and also negative changes to the filed financials. The webinar was billed as the domino effect in, in bankruptcy. And I just want to touch upon that, um, for a second, just before we, uh, before I hand over to Richard, this is a very interesting, um, uh, topic. So being in sales, one of the most common objectives we hear when trying to sell our products is, um, we only sell to blue chip companies and therefore the companies that we’d sell to don’t go bankrupt, the domino effect or ripple effect is not necessarily an official term rather than a phenomenon that we see whereby a significant bankruptcy or an organization will send disruptions through supply chains, regions, uh, some cases, whole industries.

Mark Edwards (10:44):
Uh, there’s two examples. I just want to quickly go over bill for, uh, before I do hand over to, uh, to Richard that I find particularly interesting. And, um, I probably could have done more recent, but the first one I wants to talk about is, uh, um, is in shipping the Korean company called Hanjin the filed for bankruptcy in 2016 at the time, this was one of the largest shipping companies in the world. Uh, at the time of bankruptcy in 96 of the ships with, um, were stranded at sea where the cargo of, um, $14 billion when the debts of the companies were reviewed, it was estimated to, uh, $10 billion were out to its creditors. So not only do we have a massive amount of companies who, uh, who had supplies on that ship that never reached their sort of final destination, they were never going to get paid.

Mark Edwards (11:33):
The timing was significant because the time of the bankruptcy was August. So a lot of companies were ramping up their supplies in anticipation for Thanksgiving and Christmas, the goods in those, uh, in those cases, a lot of the time didn’t reach the destination companies like Nightcore impacted. Uh, but the biggest burden was to the small who are further down the chain. The second example that I find courts and dressed in is the city of Detroit. Now this is obviously not a business bankruptcy, rather a municipality bankruptcy chapter 13, [inaudible] filed for bankruptcy in July, 2013. At the time, it was the largest municipal bankruptcy in the U S they had over a hundred thousand creditors. Uh, so over a hundred thousand people companies, business organizations that were owed money by the municipality of the, of Detroit, the interesting thing in this particular example, I think it links back to that domino effect is Detroit’s fortunes have always been closely linked with that, or the auto industry, the bankruptcy of Detroit was, um, proceeded by two major bankruptcies, uh, in 2009 of Chrysler and general motors of, um, both have since emerged from, uh, from bankruptcy. But I think there’s a clear link there about the domino effect and the impact it can have on regions, supply chains, industries with that. I’m going to hand over to Richard, Gleeds talk about some of the trends that we do see,

Richard Gleed (13:06):
Thank you very much, mark. Um, as mark mentioned, I’m Richard Glade. Hello. Um, I’m the product and development director for credit safe. And, uh, as mark said as well, it’s a bit embarrassing back in, I think you say 2001 mark or 2000, we joined the company back then. So it’s coming back, coming up to about 20 years. I’ve been working for the company moving round as we expanded over Europe. And then mark came over here seven years ago, and then shortly after I followed after him, really. So we’re both living here now, married in the U S and living here, being here and talking about bankruptcy,

Mark Edwards (13:44):
We’re not married to each other. Um, Richard is also very modest. He was the group, uh, data and product director for credit safe group. So, uh, essentially it has an intimate knowledge of all of our databases in each of the territories that we operate was either responsible for creating the product or manage the people that created the product. So, uh, he’s a man with a, with a lot of knowledge.

Richard Gleed (14:10):
Well, thank you very much. That’s very kind of new work. So if we switch to the first slide, then, um, we’ll, we’ll jump in here. And, um, obviously as you can see from this table here, um, I’m actually kind of, clickbaiting you everybody into this year to actually, you know, you can see this, these figures here, when it says 2 21, it’s actually running on the 12 months prior. And it’s actually saying since pretty much since COVID, we’re having less bankruptcies, um, which, you know, I I’ve done that purposely because I’m expecting the reaction of that cannot be true. Um, it is the lowest fake filing figure since 1985. And as you can see, it’s dropped 17.7% and that’s coming from the U S government. So, you know, when, when we’re talking about the accuracy of the data, if you look about little URL there that will show you that is coming from them.

Richard Gleed (15:09):
And, um, obviously it shocks people that not only is it business filings, dropping, but also, um, the non-business filings are dropping as well, which we’ll be including kind of the smaller companies, um, which are, you know, the individuals are going bankrupt themselves. So then we start looking into, well, why is, why have bankruptcies drop? Cause that’s the kind of opposites to what you were expecting. Really, obviously, with everything we see in the news and everything that we’ve experienced ourselves, we would be expecting a huge increase in bankruptcies as well. Just looking at the figures, you can see that, you know, clearly if we’re talking about businesses has gone bankrupt even over the last three years, uh, five years, um, there is clearly more than the highest figure there of 23,443. There’s clearly more than that amount of companies going bankrupt each year. Um, so, you know, not all companies are actually declaring bankruptcy.

Richard Gleed (16:09):
They’re just going, they’re just ceasing to exist. They’re closing their doors, but why are the other reasons why it’s dropped compared to other years? Well, obviously we know that there was a huge amount of support from the government. Um, we also know as well, there is limited access to the courts. Um, I don’t have the most recent figures, but back in kind of early may, they were still, um, quite a large amount of third. The courts in the U S were close. So those bankruptcies wouldn’t be able to be processed. And even some of them, you know, a large percentage was still had limited access. You know, these closures could be down to, you know, not being able to get people to staff them, to operate properly, um, or just pure, purposely closing those courts down to reduce the amount of overhead there and just directing people to where the courts really, um, some, what were the other reasons why companies didn’t maybe go, go bankrupt?

Richard Gleed (17:07):
Well, it was quite commonplace for companies to be allowed to furlough staff. So a lot of companies maybe which previously would have gone bankrupt in financial difficulty, um, they were able to kind of release their staff and allowing them to continue to operate. Um, I think one of the, you know, one of the big ones which were actually, um, you know, looking at here is there’s something called bankruptcy lag. Um, you know, with regards to that, um, we don’t know how long this is going to continue to affect them. What I can say, see as back in the great, great recession back in 2007, we didn’t start to see the filings really start to, um, increase. Um, and they peaked in 2010, 2010, well, after the financial crisis had, had kind of ended really. Um, so I really, you know, I really just wanted to kind of show you here that, you know, the biggest thing I want to talk about though, is, um, which I will later is the business closures, which are not filing for bankruptcy. So I think if we can go to the next one, mark. Yep.

Richard Gleed (18:26):
It is with mentioning though that the companies which are filing the bankruptcy, um, it is generally, uh, these larger companies which are filing for bankruptcy, um, PRI public and large private bankruptcies is the highest it’s been in 10 years. And Lori, I will share some URLs that I’m going to refer to in this. That was a publication that, um, you know, w which showed that, you know, they are still at the highest in 10 years. Um, and again, as mark alluded to earlier or talked about earlier, just because a company is bankrupt, it doesn’t mean it’s closed, uh, JC Penney filed for bankruptcy recently. Um, you know, we’re still all going in there and buying our shopping from there every everyday, of course. Um, you know, um, and the other thing, I guess, why larger companies are probably at the highest bankruptcy in the last 10 years is the larger companies know how to navigate the bankruptcy process, um, which, you know, protects them and gives them that clean slate that mark was talking about rarely, um, here.

Richard Gleed (19:30):
Um, what we’ve done is we’ve just crunched those numbers we saw previously, and there’s a different way of looking at them. Um, you know, looking at the total of number of bankruptcies per state, pretty much just shows you what are the most densely populated areas for companies. And so it’s not really worth much on it. So, so then on the right-hand side, what I’ve done is divided that by the number of companies and it doesn’t change the order massively. Um, but, but he’s do get a different outputs on that, you know, so we are seeing more companies in Delaware going where it’s for overall. It actually is number one with regards to when you divide it by the number of companies registered in that, uh, state really. Um, and then, you know, I don’t think there’s any shock with regards to the industries. Um, we’re seeing eating and drinking places, business services, which is generic.

Richard Gleed (20:21):
I think one of the shocking ones, there is people seeing health services as you know, the top three. Um, but I think we do have to remember that, you know, health services covers quite a wide area and that covered a lot of things like cosmetic surgeries and things like this, which were just unable to operate with all these overheads and, or, or just closes in place and, and all these other, uh, restrictions that they had really. Um, but then we can lead onto what I was talking about earlier, which is business closures really freaking go to the next one, mark. So we talked earlier, I said earlier about a majority of companies don’t declare bankruptcy. So looking at bankruptcy is really the wrong thing. Sometimes, obviously that is an indicator of companies ceasing to exist or, or going through the bankruptcy process. But we to work out when business are closed saying it is a much more difficult, um, subject, you know, we, all of us companies, um, credit safe and its competitors are doing the best job to, we monitor multiple areas where there’s no factual information.

Richard Gleed (21:30):
So secretary of state, um, if a company does go inactive, then there, we will pick up that information. Um, but some companies may not even been registered at secretary of state. Obviously we monitor social media. Um, we look for things where they, you know, people are indicating their closure closing, and we use that as an, uh, as a trigger to see if they’ve gone through bankruptcy, obviously credit safe as well, collect huge amounts of payment data from companies. If we all of a sudden start seeing our companies saying, they’re not paying, they’re going delinquent, that could be a trigger for us to investigate, has this business closed, or there’s all of a sudden this company writes off all it’s that. So, you know, that’s one of the areas we can look and see if a business is closed. Um, again, we will check URLs for companies.

Richard Gleed (22:19):
We check phone numbers for companies ensure those are active. Again, it would be a surefire way of seeing if a company is active or not, um, is if their phone stops is disconnected or their phone stops working, um, you know, that will allow us to see if they’ve closed. Um, we do do all manual investigations as well. If a customer just says to us, uh, you know, this business is closed. We do obviously have to do investigations to ensure that is accurate before updating our database. And we keep an eye out for, you know, the, the biggest news companies where they may not be going through bankruptcy yet, but they’re starting to show signs of stress the company. And we would reflect that in there. Um, or it might not even be going into bankruptcy. It might be like local media monitoring and things like that. We use to update that. So

Mark Edwards (23:11):
Page Richard is just a series of protocols that we go through the way we’re essentially looking for a pulse of a business, excuse that they’re still trading or not trading.

Richard Gleed (23:21):
Correct. Yeah. And I, and I think it’s just important to see, whereas this bankruptcy is very factual. We’ve seen that we know the exact figures of bankruptcy, um, with, um, closures. It’s, it’s more of a, um, you know, what we would see as a closure of a company, somebody else may not see that, you know, it’s, uh, there’s a lot more work that goes through working out when are closing

Mark Edwards (23:47):
Several categories. Isn’t there, there could be the, uh, the couple are retired and closed. The business down legitimately is companies that just stop trading with lots of debt, just shut the doors. We’re not paying anyone. So there’s, there’s, there’s distinctions of business closures within that.

Richard Gleed (24:03):
Yeah. And I would even say in, obviously with COVID, the difficult one was, we’ve never seen so many large, temporary close closures. You know, it was a lot of companies which did just didn’t open up again. You know, they may not have been answering the phone. They, their website might be saying close, Google might be saying, they’re close a lot of these indicators, but they’re actually only temporary really close. And then they read open when those quarantine, um, rules were lifted. Really. Um, yeah. If I think we can go to the next one then I guess so, you know, I, I’ve already talked about business closures is really what we should be looking at more than bankruptcies. You know, that’s really, what’s generally when mark says we’re going to be affected by bankruptcy is really actually probably saying a lot more of the time. You’re more likely to be affected by a closure of a company which has never seen bankruptcy, the company or the individual running that company.

Richard Gleed (24:59):
Doesn’t go through bankruptcy. Um, you know, I think this was a very useful report. I found, I believe it, I know it’s by Facebook, uh, but it is also by the small business bureau. I think it is. Um, and you know, it was the, one of the most accurate reports I could find or correlated to kind of credit safe state database. Um, they did this by, um, sampling, I think it was around 50,000 or a hundred thousand companies. And I think, you know, the interesting thing about that was when you look at business closure data out in the, you know, you Google it, you’ll see all these conflict in, uh, conflict and information, but this one was actually a very large sample. So it kind of had some good basis to it really, it was as factual as it was going to get really, um, as you can see, we, this, the industry is affected.

Richard Gleed (26:00):
We’re kind of in line with what we were talking, what I showed with the bankruptcies. Um, and it’s also, it’s a bit, it’s a bit outdated now, but it is actually saying that it believes, um, that the, um, I did look for an updated report, but it is saying that they believe that they were peaking again with regards to, um, business closures. Um, and I think that’s really, yeah, I think we could probably talk about predictions. Um, you know, and I think, you know, I think we’ll all agree that it’s quite hard at the moment. I don’t think two years ago, two years ago, two years ago, anybody would have predicted that, you know, we would have had all of these things. So it’s quite hard for us to predict how a particular industry or area will be affected when things are changing so constantly at the moment.

Richard Gleed (26:54):
Um, but with regards to our ratings and limits, we, because we’re monitoring on a company level, we can still, those behaviors are still ranking at the moment. So even if, if a company is still paying poorly than obviously we we’re able to protect that, that company is likely to run into trouble. So even though that things are changing, constantly, companies are still demonstrating the same behaviors. If they’re picking up tax liens or judgments and things like that, then we know that they’re still just as likely to, um, struggle and perform, uh, later, um, economic place. Sorry, I’m

Mark Edwards (27:32):
Sorry. Question, Richard regarding, you mentioned something earlier about the bankruptcy lag, um, and I guess, uh, the, the bankruptcy lag is due to companies you, uh, taken a while to use up their reserves. It may take a year, it may take two years. It may take three years, whatever that is. Uh, and we expect to see, uh, we suggested that we expect to see a wave of bankruptcies, um, in the, in the coming years. And does that apply the same to business closures as well?

Richard Gleed (27:59):
Yeah, I think it does. Yeah. I think the whole point is that all these companies, which have used up these reserves and stuff, we don’t, we still not fully out of, um, you know, th th the COVID, you know, environment really, you know, are we going to see a push of these, you know, as, um, support from the government, then, um, we’re going to start to see more and more bankruptcies. And, and like, they do say that that will continue. We will continue to see the effects of this for, you know, uh, you know, years afterwards I would say is the point. So, yeah, I do think, you know, if there is a prediction, I do think there is something I’m saying where we’re going to continue to see businesses failing for quite some time as a result of COVID as they, you know, I think we’re even starting to see a second part of this now where people can’t even employ people. Um, so they’re, they’re, they’re struggling from that point of view to keep up and service their products and customers. Um, you know, so, so that’s another point of view, which I don’t think anybody really saw, um, you know, until recently, right. Certainly

Mark Edwards (29:04):
A unique challenge to a business that probably no one’s predicted for awhile.

Richard Gleed (29:10):
Um, that is it for me. I’ve got I’ve I can obviously take any questions or anything like that. Um, I guess we can talk about what to continue, what to, what can you do really here? Um, and I think it’s, you’ve already touched on this markets continue to be diligent, monitor your companies, check all the companies and suppliers you’re dealing with. Um, you know, there’s a lot of companies out there who, you know, we’re offering the, you know, how to adjust your credit policies and everything. Some seek some advice on to do these things. Um, I just, I think the point is to be diligent and be aware that we’re not quite just because we’re starting to come out of it. Things are relaxing. We’re not quite out of the woods yet. So to continue to manage your credit effectively, really

Mark Edwards (29:56):
One thing I would add to that, uh, and again, uh, for the audience, share it, please don’t think this is a shaming of sales pitch. One of the things that Creditsafe is able to do when we do it free of charge for any business customer or non-customer is a portfolio health check. Um, what that entails is you’re able to send, um, in this instance would be me via Lori, a, a file of your customers, and we run a health check. We’ll give you all of the information back on the company itself on your portfolio and say, okay, um, you’ve got a hundred customers, 5% of high risk, 20% of low risk, and it’s really worth doing to keep an eye on your, uh, on your receivables, just to, uh, identify where the risk is. If you’re, again, if you’re a credit of customer or not, this is available to, um, to all businesses.

Lori J. Drake, CBA (30:47):
That’s really good. I’ll stick that in the email that sends out the recording as well. If you want to send in your portfolio, we’ll get that on to mark to get back the information that would be interesting to see.

Mark Edwards (30:57):
I’m not sure whether we, uh, we took the opportunity, Lori, but I wanted to thank you for setting this up. Uh, you on levels that with credits I’ve really does appreciate it.

Lori J. Drake, CBA (31:05):
Absolutely. And we do have some questions for you guys, if you’re ready, please do. All right. So Larry asks in regards to the number of bankruptcy filings that you were going over, how do they calculate in people that are late filing the returns?

Richard Gleed (31:23):
So I don’t think that comes into a factor. So if somebody is late with their tax returns, that wouldn’t force them into bankruptcy, um, whether, whether they go into court proceedings, which then forced them, forces them to bankrupt go into bankruptcy proceedings. But I would say that they’re totally independent. Is that a bad thing?

Mark Edwards (31:44):
I think, um, the, those factors are the numbers that you quoted, where companies that actually entered bankruptcy and they were the official filings of the courts. I don’t think we’ll understand the impact of late filings for a few years. This is an example of the bankruptcy. Like, so one of the reasons you can get pushed into bankruptcy is by the IRS. And I don’t think we’re going to see that wave of companies, um, for the next 12, 24 months. Maybe that’s when they’ll kick in, but we don’t. I don’t think we understand the impact of what’s going to happen there yet.

Lori J. Drake, CBA (32:18):
I agree with that, uh, Sonia asked in regards to a chapter 22, how many times can a company file?

Mark Edwards (32:26):
I believe the, um, the answers are limited. Um, so, you know, it can be as many times we’ve, I don’t know the dates off the top of my head, which is going to be a bad one, but, uh, when we run analysis, we look at the number of times a companies enter bankruptcy and it’s commonplace to see three or four, um, over the history. There’s, you know, there’s companies that are 200 years old that, um, you know, they’re fall multiple times. We just got to keep in mind. The, the overall goal of the bankruptcy is to come out as a better business. So, um, I, I believe the answer is unlimited. I’ve never been asked that question actually. Right.

Richard Gleed (33:05):
I think you’re right based upon what I’ve seen. And it’s worth mentioning that the people who are going in for that reorganization and things like that, they are your larger companies, your general motors, your JC Penney’s. Yeah. The companies that, you know, know how to navigate that. And obviously as well, the government doesn’t want those companies to cease to exist being large employers and everything. So, um, typically a, uh, a very small company is unlikely to do that. They’re more likely to just go for the chapter seven, really just

Mark Edwards (33:40):
A little bit more, uh, uh, additional information. When a company and enters into a chapter 11, the judge will approve the reorganization plan. So as long as the reorganization plan is solid, and the judge believes it’s a viable, um, uh, entity to continue business, then they’ll allow that. The other thing I just wanted to, uh, just just mentioned, cause I think it’s interesting is when a company comes out of bankruptcy, the actual impact to its credit credit score will drop, um, over the course of the year. So a company that has entered, sorry, there’s left bankruptcy is one year out of bankruptcy will have the impact to the credit score will be heavily weighted than a company that’s been five years out of bankruptcy. So it’ll drop off and the same with your individual credit reports as well.

Lori J. Drake, CBA (34:35):
Uh, we have a question from Sarah. Do you know anything about a chapter five bankruptcy?

Mark Edwards (34:42):
I have never heard of a chapter five bankruptcy, but I will go away and research it. I don’t think it’s typically something that we come across in a and trade credit circles anyway.

Lori J. Drake, CBA (34:54):
Yeah. I’ll have to look that up. I haven’t heard of it either. Uh, let’s see. Amy says where, oh, it’s back to your first example. Where does the cargo go? That gets stranded in the ocean.

Mark Edwards (35:08):
That’s an interesting question because it’s, uh, particularly in the scenario of Hanjin, one of the biggest challenges is the company had no money to, um, to pay the ports they were about to enter into. So obviously to, to use the services of the pole, they use some of the, the, the, the cargo that was on bold, but it’s a very difficult question to answer because laws of being stranded at sea are different in every single country. And it’s really not my area of expertise, but it’s, um, I would assume the ports or the secured creditor, um, and some of that, um, uh, goods would have been auctioned off to pay for the, for the port.

Lori J. Drake, CBA (35:55):
Hmm. That makes sense. I had never really thought about that. Let’s see, we got a question for Paul. You mentioned to avoid bankruptcy that credit management is key. Can you elaborate on that?

Mark Edwards (36:08):
I, so there’s two things in that comments, um, bankruptcy or business closure. Um, I think if you’re selling business to business, it’s, uh, well, if you’re selling on credit is inevitable that the time’s going to come where you’re going to deal with either a bankruptcy or a, um, a business closure and the services credit safe offers allow you to mitigate that risk. I don’t think it’s, you know, we can’t be seen as a crystal bowl sometimes you’ve got it right. Sometimes we’ve got it wrong. Um, we don’t have all of the information, hopefully.

Richard Gleed (36:44):
No, absolutely.

Mark Edwards (36:45):
Yeah. Um, but you know, they’re all companies that go under the radar and just become bankrupt unexpectedly. The, um, but the services we offer should be able to help you mitigate that risk by monitoring an organization. So there are, um, key predictors when a company goes into bankruptcy that we can send you an alert for. So if the payment behavior deteriorates, if there’s changes in the key personnel, if the rates suddenly plummets, and then you, it’s up to you to be proactive in saying change of understanding the impact to your business. Um, good communication with your customer here is key as well. Um, if that customer goes silent, obviously there’s another red, red flag there as well. Paul, I think, I hope I’ve answered the question. Um, let me know if you wanted to elaborate. Do you want

Richard Gleed (37:38):
To add some, well, I guess the only other thing is by limiting your exposure really isn’t it as well, you know, whereas you’re dealing with a company, normally you may look at RV information or other information, uh, and enter into different terms that you would normally with that customer. And then in that way, protecting yourself really. So like you say, reducing that exposure, um, you may still deal with those companies, but you may deal on cash terms or something like that.

Lori J. Drake, CBA (38:05):
Perfect. That looks like the last question. And do you want to go to the next slide? I think after the Q and a, uh, actually we just had another question pop up while you’re moving there. Larry says, do you file bankruptcy at the end of the year?

Mark Edwards (38:24):
No, you could file bankruptcy. Um, essentially what happens is when your debts become too burdensome, your data’s will actually push for you to become a bankrupt. So they’ll, um, either you’re going to be sued or, um, they’ll push you into bankruptcy. I mean, it’s good, you know, the bankruptcy protection, if you think you can, uh, uh, emerge from it, it makes sense that you deal with this in a sensible way and go down that road where some other companies will just shut off and ignore it. And at that point, it’s kind of, you know, you are in insolvent. So, but to answer your question, it can happen at any day of the year.

Lori J. Drake, CBA (39:06):
I think. Thank you. Looks like that’s the end of our questions. I want to thank you guys again for presenting this information to us as a rhinos, bankruptcies are big out there. So more information we get the better, uh, like I mentioned, I will send a copy of the recording in an email, along with, uh, Marcus information or my information will come with the email. Obviously, if you want to send over a portfolio of your customers, he would be happy to get you over those risk ratings of your current customer base. Uh, this slide is just letting you know, I run the payment professionals community for Levelset basically, it’s just a group of credit professionals to get together, have networking events. We do webinars event, I, excuse me, classes, write articles, uh, just a lot of fun stuff. And we love to have you be part of that, that you just go to Levelset dot com slash pay pros register. And if you want to go one more side, thank you. And last but not least the credit manager of the month, we recognize one credit manager a month that just stands out in the industry. Uh, please nominate somebody that you think goes above and beyond. It’s just Levelset dot com dash C M O M for credit manager of the month. Again. Thank you. Thank you, mark and Richard for joining us today and everybody else that’s been able to attend as well. And I look forward to seeing you guys at the next one.

Lori J. Drake, CBA (40:31):
Thank you.