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Communicating through a Tsunami of Pandemic-Induced Bankruptcies

August 3, 2020

Among everything else, COVID-19 has had a profound impact on consumer spending. Recent research from FleishmanHillard TRUE Global Intelligence shows 64% of consumers have stopped purchasing non-essential items and plan to continue to do so post-pandemic, and 81% expect their financial situation to stay the same or get worse over the next six months.

The U.S. economy is consumer-driven and once spending fades, the economy is significantly impacted. This reduced spending is currently amplified by a number of factors including record unemployment, businesses and individuals not paying rent, the potential for high numbers of loan defaults following record requests for hardship deferments and consumers hoarding cash. Despite the economy partially reopening since the pandemic’s peak, businesses will encounter a swell of delayed symptoms.

Following the drop in consumer spending, economists predict a cascade of bankruptcies. This pattern has already proved true in the retail industry. Companies across all sectors are taking on new debt to raise capital and stave off possible bankruptcy. Although necessary in dire economic circumstances, this debt may come back to bite businesses if they are unable to recover fast enough, leaving them at greater risk of bankruptcy in the future.

No company is immune to risk in this fragile economic state. Whether your company is in bankruptcy or managing the second-hand effects, as a communicator, you need to be prepared to address the impacts.

How Bankruptcy Works

Filing for bankruptcy provides a company protection from its creditors and current debts while it undertakes a reorganization. Reorganization efforts are focused on returning the company to profitability, usually by unburdening the firm from current financial obligations while reorienting its employment structure, labor contracts, go-to-market strategy and everything in between.

It’s important to remember, in most cases, a company continues to operate during bankruptcy. In fact, courts can mandate the company continue to operate, retain essential employees and force suppliers to continue doing business with them, despite the potential of not being paid.

So how can you prepare for this likely wave of bankruptcies? Moving forward, you’ll want to understand your company’s financial health, specifically the considerations around filing for bankruptcy. To start, ask your leadership the following questions to take inventory of your current situation.

  1. How exposed is the business to the recovering economy?
  2. How long can we continue to operate at current levels (even with layoffs, cost cutting, furloughs, etc.) before we must consider more drastic financial moves?
  3. If partners in our supply chain start to seek the protection of Chapter 11, what does that mean for our long-term prospects?
  4. Do we have a need to restructure? Have we thought about how to communicate this or maintain our reputation throughout the process?
  5. Does our current financial status make us an acquisition target? Would we consider making acquisitions or divestitures to maintain our current level of operations?

How to Communicate During Bankruptcy Proceedings

For those considering bankruptcy, it’s crucial you regularly communicate with your key stakeholders to build trust and loyalty through the long, complicated path ahead. As you progress through this difficult transformation, the number of stakeholders requiring information and updates from the company grows exponentially – as does emotion – and you’ll be responsible for managing both.

Through each stage – reorganization, exit and reintroduction – employees, customers, business partners, investors and other stakeholders ride an emotional roller coaster fueled by uncertainty and operated by you. Consistent and transparent communications will help stakeholders understand management’s plan for reorganization, instilling confidence in the people critical to driving the transformation forward.

During a bankruptcy, the stakes are higher than ever before, and stakeholders will never forget if you misled or wronged them during this time. Prioritize communications even more than normal, because it will be the glue that holds your company together.

How to Prepare

Despite the constant uncertainty COVID-19 has already exposed us to, the forthcoming deluge of bankruptcies should not come as a surprise. It’s inevitable – inevitable companies will continue to file for bankruptcy, and inevitable your business and industry will be affected, directly or indirectly.

Most people have never experienced a corporate bankruptcy directly – and hopefully you never will. However, as bankruptcy cases continue to rise and uproot what were once reliable and stable markets, it’s crucial you assess what this could mean for your business and stakeholders.

Whether filing for bankruptcy or simply trying to navigate the potential flood of industry changes, the FleishmanHillard financial communications team is here to provide guidance, best practices and strategic insights to help keep your stakeholders engaged and your company prepared for the challenges ahead.