ANUPAM GUPTA was shocked a few years ago when a large telecom client that contracted his company to handle its marketing databases decided to relocate its marketing department from New York City to Dallas.

Gupta, founder of Avenues International, a Parsippany, New Jersey, data warehousing firm, called his contacts at the company. He even offered to relocate a few employees to Texas to keep projects on track. His contact said they'd look into it. But a week later, Gupta, 41, received a letter in the mail. "They closed our contract immediately," he says. "And we had worked [together] for six years." It meant a 20 percent revenue loss for Avenues International in 2003.

Today, a growing number of entrepreneurs are being blindsided by large customers' restructuring decisions. ConAgra, Diebold, Sprint, US Airways and Winn-Dixie are just a handful of companies that have undertaken major restructurings. Even IBM recently announced it will restructure and eliminate up to 13,000 jobs. In 2004, 90 companies with over $48 billion in total assets declared bankruptcy, according to New Generation Research, a Boston research firm that tracks bankruptcy data.

Corporate restructurings have declined over the past 18 months, but experts predict a flurry of filings before the new bankruptcy code takes effect October 17. Among other things, the new code will make it harder for restructuring companies to reject leases and craft key-employee retention plans. "The new code, on its face, isn't pro-company," says Sheila Smith, who leads the Reorganization Services Group at Deloitte Financial Advisory Services in Boston. "You might see a little more [restructuring] activity in late summer and early fall than one would typically see."

The Next Chapter

There are different types of corporate restructuring. In a "cosmetic" restructuring, a company is in decent financial shape but wants to merge with another company or shed underperforming assets. Under Chapter 11, a bankruptcy judge makes decisions for a financially troubled company while senior management stays in charge of day-to-day operations. Sometimes a cosmetic restructuring leads to a Chapter 11 filing down the line. Either way, restructuring is scary for small outside vendors looking in on layoffs, management reshufflings and other changes. "It's very difficult to know what's happening," Gupta says.