The Examiners: Let Businesses Fix Their Mistakes

When a company files for Chapter 11 protection a second, third or even fourth time, who’s to blame?

From an investor’s perspective, the search for blame around multiple Chapter 11 filings is unproductive. Businesses can find themselves in serial financial troubles for all sorts of reasons: management missteps, unforeseen shake-ups in the market, assuming too much leverage, taking miscalculated risks, dramatic cost or pricing changes, shifts in customer psyche, innovation—the list could go on almost indefinitely.

Just as entrepreneurs don’t always get it right the first time, neither do established businesses, but that doesn’t mean that the potential isn’t there. Without the ability for companies to get up and dust themselves off after stumbling—once, twice or even more times—the fear of failure would become paralyzing.

I’ve often compared turnaround investing to opening an emergency room for businesses. Left untreated, many of these entities would be headed to liquidation. If there’s an opportunity to give new life to a business model that may have fallen out of favor with the market, investors should do so with vigor.

We don’t put a quota on the number of times an individual can be treated in an ER, nor should we with a business. Instead of assigning blame, we should take inspiration from management teams’ and investors’ continued efforts to overcome obstacles in the pursuit of success.

Thankfully, we have a system that understands imperfections exist and rewards those who are willing to work and think creatively to unlock the potential wherever it may lie. Sometimes it’s not feasible to continue. But if there is a viable path forward, why would we not try to follow that path? After all, capping the number of times a business can pursue a restructuring would have devastating consequence. One could argue that absent these tools, we wouldn’t have an American automobile or airline industry today.

Our uniquely American approach to the bankruptcy process provides a fair process for businesses to move beyond past failures. Those who obsess over pointing the finger at the cause of past distress often lack the outlook and focus to see the way forward.

Marc Leder, co-chief executive officer of Sun Capital Partners Inc. of Boca Raton, Fla., has been engaged in leveraged buyouts, investment banking and business operations for more than 25 years.