"As the state moved deeper into the recession, the volume of insolvencies actually started to decrease. The reasons are likely a strong commitment by lenders to work with borrowers, the quick failure of businesses that couldn’t survive and stronger companies being able to overcome financial stress."
Stephen F. Del Sesto , who has been a business and insolvency attorney for nearly 15 years, is a partner in the Providence office of the law firm Donoghue Barrett & Singal. He is a member of the Rhode Island and Massachusetts Bar Associations, a contributing author to a two-volume desk reference set “Strategic Alternatives for Distressed Businesses,” a member of the Debtors’ and Creditors’ Rights and Business Organizations Committees for the Rhode Island Bar Association, and a founding member of the recently re-established Rhode Island chapter of the Turnaround Management Association.
He is on the board of New Urban Arts in Providence.
Del Sesto has a bachelor’s degree in psychology from the University of Rhode Island and a Juris Doctorate from Roger Williams University School of Law.
PBN: You’ve spent nearly 15 years managing legal matters for Rhode Island companies in financial stress. What’s been the impact of the recession on the number and severity of these financial crises? Do you see the impact lessening or is it going to take a long time for these financially-stressed businesses to recover?
DEL SESTO: At the start of the recession, the volume of insolvency matters increased and a greater percentage of them involved larger, complex entities such as municipalities, hospitals and publicly traded companies. In Rhode Island, though, as the state moved deeper into the recession, the volume of insolvencies actually started to decrease. The reasons are likely a strong commitment by lenders to work with borrowers, the quick failure of businesses that couldn’t survive and stronger companies being able to overcome financial stress.
PBN: You are one of a group of court-appointed fiduciaries in Rhode Island assigned to solve business
disputes. In this area of law, what are the most important considerations for a favorable outcome?
DEL SESTO: Generally, the interest in and strength of the marketplace for a particular business is the primary factor that impacts the outcome. Also, in my view, often more essential is the cooperation among all the parties. Although motivations may differ, all parties are really on the same team and share common goals - obtain the highest value for the business and assets and, ideally, save Rhode Island businesses and local jobs.
PBN: Do businesses usually work with you at the appropriate time in the course of financial stress or do they sometimes wait too long and have to face bankruptcy, insolvency or receivership? What are the main differences among those three?
DEL SESTO: If I’m appointed by the court there is no prior relationship. When I am engaged privately, unfortunately it is often at the point when the business is electing or being forced into a court insolvency proceeding. If the business is insolvent, it can’t pay its bills and can seek – or be forced into – a bankruptcy or receivership proceeding. Bankruptcy is a federal proceeding controlled by the Bankruptcy Code that tends to be longer in duration. Receivership is a state court proceeding primarily guided by case law. Because it’s based on principals of equity, receivership has a tendency to be more flexible and practical and can often result in a quicker outcome.
PBN: What’s been the most complex matter you’ve managed so far in your career?
DEL SESTO: Landmark Medical Center. At the time, there had never been a hospital insolvency proceeding in Rhode Island. It took five-and-a-half years to secure an able buyer. In addition to my role as primary legal counsel to the Court’s Special Master, the hospital’s CEO and I provided detailed, day-to-day oversight of all hospital operations. The successful preservation and sale of the hospital saved more than 1,100 direct jobs, an essential economic asset for the city of Woonsocket, and, most critically, a quality healthcare institution for the northern part of our state.
PBN: In the case of receivership, what duties do you typically perform outside the scope of legal counsel?
DEL SESTO: In addition to legal work, the receiver steps in and immediately assumes the role of chief executive officer. To be successful, the receiver must quickly get familiar with all aspects of operations and assess how - if at all - to keep things going. The receiver is also usually confronted with labor, customer, supplier and vendor concerns related to the uncertainty of doing business with a company in an insolvency proceeding – any of which, if not handled properly, could guarantee an unfavorable outcome.