The challenge may be even more difficult in light of personal incentives that do little to deter CFOs from rubber-stamping poor plans. "Unfortunately, we see a lot of situations where CFOs are [encouraged] with big retention bonuses to get the company out of bankruptcy faster than they really should," says Larratt-Smith. However, he adds, "strong CFOs won't ever allow themselves to be swayed by that, because they also know that there's nothing worse on your résumé than a Chapter 22."

And once out of bankruptcy, CFOs must step into their classic role: the naysayer. CFOs "need to be the voice of reason for a company that is often not yet back on terra firma," says Whyte. "They're the guardians of the bank. And if the cash is not watched closely, the company could find itself back on the road to bankruptcy in a very short time."

Sidebar: Sold-Out Performances
Companies rarely officially liquidate through a Chapter 7 filing, considered a clear sign of failure by most bankruptcy experts. These days, though, many are effectively opting to liquidate by selling off major assets within bankruptcy protection, à la Comdisco, Budget, and TWA, and then dissolve.

Why the shift? The strategy used to be impractical, since judges required a formal plan of reorganization and creditors' approval before allowing the deals. Since the mid-1990s, though, judges have been using a provision of the federal bankruptcy code known as section 363 to push the sales through without the process. Including those so-called 363 sales, liquidations have risen from an historical 5 percent of cases to nearly 50 percent in 2002, according to UCLA Law School professor Lynn M. LoPucki.

While the lack of input from creditors raises the problem of sweetheart deals between managers and buyers (see "What's Wrong with this Picture?" January), some say the asset sales make better economic sense than reorganizations. "A buyer brings fresh financing, fresh ideas, and new energy," says bankruptcy attorney Richard Tilton. "For a lot of companies, that may be the best way to preserve asset values — and jobs."

Sidebar: Coming Attractions

WorldCom
WorldCom (now MCI) — filed July 2002, hoping to emerge by September 2003.

The Plan: The telecom giant expects to retain most core assets, cut liabilities from $42.5 billion to $12 billion, and grow profits by more than 300 percent over the next two years while boosting revenues by about 12 percent, to $27.8 billion by 2005. Estimated enterprise value: $12 billion.

The Prognosis: Skeptics note that revenues are generally declining within the industry, and that low capex spending during bankruptcy may hurt it. But few believe the company will fail again. "WorldCom is setting itself up to be a great growth company," says Vik Grover, vice president at Kaufman Brothers. It is the "best-positioned M&A candidate" in the industry, with Verizon a likely buyer within the next two years.

Enron
Enron filed December 2001, has until June 30 to file a reorganization plan.

The Plan: After trying to sell off major assets as a single entity, Enron switched gears and announced plans to form both an international energy company and a domestic pipeline operating company. It will continue to shop around unrelated properties. With its fourth deadline extension, a more-detailed plan is due to the court by the end of this month.

The Prognosis: The intangibles that drove Enron's onetime $80 billion market value will be hard to re-create. And deriving value from current assets may be no easier, if its initial asset sale is any indicator: UBS Warburg took Enron's trading operations (which accounted for 90 percent of revenue) in January 2002 for nothing but the promise of future profit-sharing. "We're not expecting much to come of Enron — they're pretty much done," confides one turnaround expert.

Conseco
Conseco filed December 2002, on track to emerge in June 2003.

The Plan: Last year Conseco sold off its finance unit (which filed separately for Chapter 11) and is seeking to emerge as an insurance-only company. Its plan, approved in March, calls for slimming down debt from $6 billion to $1.4 billion and growing revenue slowly, from $4.38 billion to $4.43 billion in 2005, while turning a profit. Estimated market value: $3.8 billion.

The Prognosis: A $7.8 billion loss in 2002 and a court battle with Donald Trump over ownership rights to the jointly held General Motors building in New York haven't helped. However, Standard & Poor's director Jon Reichert is "pleasantly surprised" at bankruptcy's impact on insurance sales, down only about 2 percent last year. His main concern? Steep interest payments.

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