July 28, 2010
Fundamental Fixes for Today’s “Broken Benches”
According to the Online Etymology Dictionary, the term bankrupt originated in the 1530s from the Italian banca rotta, which means "a broken bench"; this phrase is derived from banca, which means "moneylender's shop” (bench), and rotta, which refers to "broken, defeated, interrupted" and was remodeled on the Latin rupta, "to break." The verb bankrupt was first recorded in the 1550s, and characterized the Italian practice of breaking the marketplace benches of bankrupt merchants.
The American Bankruptcy Institute reports that 60,857 businesses filed for bankruptcy in 2009, up from 43,546 in 2008. The bankruptcy filing rate for early 2010 appeared to keep pace with quarterly levels seen in 2009, with 14,607 filings recorded in Q1. A recent article in The Economist points out that bankruptcy law has evolved in favor of corporate debtors, and the complexity of CLOs and other similar debt structures more frequently leaves lenders opting to wait to collect until the borrower’s situation turns around.
An effective plan for emerging from bankruptcy in today’s economy should favor repair, not disposal, of the “broken bench.” Reconstruction initiatives might include these core areas:
- Anchoring loose legs more firmly in detailed financial information on business operations and cash flow
- Repairing cracks on the surface by upgrading talent
- Eliminating wood-boring pests of inefficiency by undergoing fundamental business process reorganization with fewer fixed and more variable costs
There may currently be a glut of “broken benches” in our modern marketplace, but The Economist’s viewpoint suggests today’s conditions may offer bankrupt businesses a unique opportunity to get back on a solid platform for growth.