Steven Fleming, leader of PwC's US performance and restructuring practice, told CFO Dive that chief financial officers should manage early signs of corporate financial distress the way a wise patient handles personal health warning signs.

In health, it is widely known that ignoring symptoms of a problem can lead to worse outcomes—such as eventually calling emergency services and being taken to surgery for open-heart procedures rather than proactively managing heart issues.

Similarly, Fleming noted that when CFOs notice early warning signs such as declining revenue, narrowing margins, or newly emerging losses, they should take proactive action immediately. Fleming leads PwC's US performance and restructuring practice.

Bankruptcy data and industry trends

According to a February report from PwC, bankruptcy filings reached a decade high last year, rising to 552 from 541 in 2024, and have been climbing since 293 in 2021. Companies in real estate, consumer goods, energy, and industrial sectors accounted for about 80% of total bankruptcies. The report predicts that traditional bankruptcy cases could increase further this year amid pressure from rising input costs, inflation, and "uneven" consumer spending.

Meanwhile, lower-cost out-of-court restructurings are drawing widespread attention. Fleming said this approach, known as Liability Management Exercises (LMEs), is becoming an increasingly popular alternative to bypass bankruptcy courts. "Anecdotally, it's all anyone is talking about," Fleming said. "LME, LME, LME."

Over the past 12 to 15 months, the industry's attitude toward the LME trend has been warming up. Fleming described it as a "fancier" term for essentially convening a group of creditors to amend a credit agreement.

"The idea is to move quickly outside the jurisdiction of the bankruptcy court to minimize associated transaction costs and fees, while also executing faster because there is no court-led process." — Steven Fleming

Advantages and controversies of LMEs

Another benefit of LMEs is avoiding the headline risk that bankruptcy can bring—news that could alarm investors, customers, and suppliers—while also reducing potential disruptions that bankruptcy might cause. "A lot of restructuring activity may not be known to the public because LMEs are done behind closed doors," Fleming said.

However, the LME process is somewhat controversial. Fleming said some critics view it as a new way to "kick the can down the road" rather than truly addressing the underlying issues causing distress. He declined to name companies that have undergone LMEs.

Among companies that have walked both paths, Texas-based At Home Group is one example. In 2023, the home goods retailer conducted an LME, ultimately raising funds through a "double dip transaction" to address its liquidity crisis. But according to a report from Ion Analytics, the company still struggled amid a sluggish housing market. The company ultimately filed for bankruptcy last June, citing tariffs and consumer uncertainty, and emerged from Chapter 11 in October, as reported by Retail Dive, a sister publication of Industry Dive.

Early action recommendations for CFOs

Fleming offered CFOs several suggestions on how to begin considering LMEs before "forced mechanisms" arise—once triggered, CFOs lose control over strategy. These mechanisms may include approaching or triggering covenant agreements with lenders, or nearing or exhausting cash reserves.

For example, CFOs can identify these warning signs and consider taking action with or without professionals to bring in a degree of objectivity. Companies can then challenge business plans, developing action items to cut costs, drive revenue, or undertake operational restructuring.

The core idea is to restructure from a position of strength. "When you call emergency services and bring in a third party, you lose control," Fleming said. He compared an emergency call during financial distress to formal, serious restructuring negotiations with key parties such as landlords, lenders, or critical suppliers. "For a company's directors and officers, control is everything."

A finance leader who faces reality can play a key role in avoiding more severe crises. If lenders—often the most important stakeholders in distressed situations—believe the CFO lacks a firm grasp on the business, they may force the company to bring in a chief restructuring officer or require the company to hire turnaround advisors.

A low-key conversation might look like this: the company tells its lenders that, based on its model projections, it expects some issues in about six months and would like to propose a plan to relax testing requirements for one or two quarters. In exchange, the company would pay a fee and provide an updated business plan every six months.

"It may be counterintuitive because many people don't want to show weakness by saying 'I have a problem,' but in my experience, it often proves to be an advantage," Fleming said. "By doing so and controlling the narrative on your own terms, you are more likely to reach a deal outside of court."