Title: Shareholder and Bankruptcy Attorney, Murphy & King
Industry experience: 28 years
When companies can’t make their loan payments, that’s when bankruptcy attorneys like Andrew Lizotte step in. Lizotte is a shareholder at the law firm Murphy & King and has extensive experience representing different factions in bankruptcy proceedings including operating Chapter 11 businesses, committees of unsecured creditors, lenders, both liquidating and operating trustees, examiners and individuals. His experience has gained him expertise on how bankruptcies can be solved, and how banks can make their loans wisely. Prior to his current role, Lizotte was law clerk to the late U.S. District Court bankruptcy judge James F. Queenan Jr. Before that he worked at KPMG. Banker & Tradesman caught up with Lizotte to discuss bankruptcy proceedings and how banks can make smarter choices to not only avoid bankruptcy, but to come up with smart solutions when facing it.
Q: What is the main reason most companies you work with end up declaring bankruptcy?
A: There are multiple paths that can lead companies into a workout or bankruptcy proceeding. In some instances, disruption of an industry from outside forces makes continuation of the status quo impossible. For example, our office has worked with more than one borrower in the challenged taxicab industry. The vagaries of the economic cycle often led by commercial real estate and changes in interest rates can lead to a wave of filings. Occasionally, a change in a company’s leadership, a mistake in judgment or an adverse result in litigation can be the precipitating cause.
Q: What is one recent interesting bankruptcy case that you did in Massachusetts?
A: Our office serves as counsel to the Chapter 11 bankruptcy trustee for TelexFree, one of the largest Ponzi schemes in United States history. The case, while based in Massachusetts, involved upwards of a million participants in the scheme from dozens of countries. Over the course of the past few years, we have worked with the trustee and his financial advisors to establish the existence of the Ponzi scheme and to establish a process for recovering funds and distributing those funds to participants who were harmed by the scheme.
In that regard, we assisted the trustee in bringing actions against participants who were “net winners” from their involvement in the scheme and have worked collaboratively with federal authorities in connection with recovery of asset forfeitures. We also worked with the trustee and his advisors in establishing a methodology for determining allowable claims and creating an orderly process to resolve more than 130,000 claims filed in the case. The case has thus far been a good example of multiple parties working together to unravel and administer a complex business case for the benefit of those harmed.
Q: Is there a specific geography in Massachusetts where you see a lot of commercial real estate bankruptcy cases?
A: Most of the commercial bankruptcy cases we have seen tend to be focused in the Greater Boston area, extending out to Routes 128 and 495. Beyond geography, difficulties tend to be based on industry trends such as the rise of e-commerce, its effect on brick and mortar stores and shopping malls and continuing efforts to repurpose some of this real estate.
Q: When it comes to bankruptcy, what do financial institutions get right in the process? What is one thing you wish they did better when negotiating a bankruptcy?
A: Resolution of a troubled loan often works best when there is a cooperative approach. This type of collaboration may include providing a borrower with the opportunity needed to sell off unproductive assets or business lines that will enable the borrower to return to profitability and restructure the loan so that it is again performing. The borrower and lender can also work consensually to achieve a sale or refinancing that will provide a recovery greater than that which would be obtained in a liquidation.
In many instances we will prepare a liquidation projection of the borrower and use that analysis as the springboard for negotiations on a repayment proposal. An aggressive approach to resolving a distressed loan that is not sufficiently tethered to achievable goals often results in mounting professional costs and distraction from the pursuit of a practical business solution.
Q: Is there a metric that financial institutions should be looking at when making loans that they don’t pay close attention to now?
A: In addition to traditional metrics for loan evaluation such as collateral coverage and immediate prior performance, prospective lenders may also consider broader industry trends including potential for disruption in an industry and adaptation to any disruption that may arise from innovation or changes in the regulatory or policy environment. An example of this would be a consideration of potential impact that certain sectors may experience from changing regulations relating to trade and tariffs.
Five Facts About Lizotte:
- Favorite movie: “The Fighter”
- Favorite place to visit: Narragansett, Rhode Island
- Favorite musician: John Mellencamp
- Favorite hobby: Spending time with his family
- Favorite food: DQ Blizzards