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OILFIELD SERVICE COMPANY / OILFIELD TRUCKING COMPANY BANKRUPTCY

Adverse economic conditions can often lead to need for a company to file for Chapter 7 Bankruptcy or for reorganization under Chapter 11 of the Bankruptcy Code.

Factors such as illness, death, mismanagement, staffing problems, underbidding, inability to timely collect receivables, theft, decrease in business, ever increasing expenses, failure to pay state or federal taxes can lead to the end of profitability of a company. When the big oil companies don’t pay their bills on time and make excuses for not paying their drivers and suppliers, this is a bad sign for the oilfield industry. Recognizing the cause of these factors will help identify the problem. The solution can be more difficult.

Will a failing business improve with time or an infusion of money, staffing or expertise and at what risk over what period of time? These are important issues which a business owner must seriously evaluate.

Many business owners are too optimistic and cannot see the lack of economic reality in continuing the business. Oilfield service companies and trucking companies are labor intensive. Their equipment is usually financed or leased often at high interest rates under oppressive terms by predatory lenders. Some of these lenders demand daily payments under the guise of purchasing receivables which may have already been pledged to another creditor. Some companies are plagued with careless or bad staff or drivers which can cause losses to the company. Other companies just cannot find the right workers for the job and remain understaffed. Without good drivers the oilfield trucking company cannot profitably operate. The same applies to oilfield service companies which rely upon their staff to operate well.

Oftentimes the cost of running a fleet of trucks exceeds the income from the loads carried. With interstate carriers many trucks must return to Texas without a backhaul load which may make the original trip unprofitable due to the cost to return home. Ever increasing rent, overhead, labor, insurance, financing payments, fuel, repairs, tires, permits and taxes may lead to the company shutting down and filing for Chapter 7 bankruptcy. If the business is still there as well as cash flow the business might be a candidate for a Chapter 11 reorganization. However, most Chapter 11 cases do not succeed. They usually lack the cash flow necessary to fund a successful reorganization.

If the cash flow just isn’t there, a company should consider filing a Chapter 7 liquidation. There comes a point in time when the company owner must decide whether to keep putting money, resources and time into a business which continues to lose money and is unprofitable. This is damage control.

Most business owners are required to personally guarantee company debt. These obligations may drastically increase as the company is unable to pay its bills and the guaranteed debt increases.

Good advice on how to handle these problems is essential for a business owner. Martin Seidler has advised oilfield service companies and oilfield trucking companies and their owners for over 40 years. He has reorganized some but most have filed for relief under Chapter 7 of the Bankruptcy Code. He has also administered the estates of many bankrupt companies in Chapter 7 as a Chapter 7 Bankruptcy Trustee in thousands of cases over the years. Given his background he is able to present a well- rounded view of the alternatives to the owner of a distressed business.