Best Practices in Troubled Times
Kegler Brown Creditors' Rights + Bankruptcy Alert November 17, 2008
Most of us have read plenty about the stock market's uncertainties. What do these fluctuations in market capitalization mean for Main Street? Are we on the verge of a prolonged recession? In times like these the Firm is frequently asked to help clients deal with their lenders and their commercial loans. Kegler Brown Hill + Ritter has developed considerable experience in virtually all aspects of bankruptcy, loan workouts, and creditors' rights matters. This experience comes from extensive litigation, bankruptcy, commercial law, and real estate and banking expertise. The Firm has represented clients in loan workouts or business restructurings which properly assess the litigation costs and probable results compared to the borrower's ability to restructure debt, utilizing bankruptcy reorganization among other alternatives. Topics for restructuring typically include interest rate adjustments, maturity extensions, replacement lenders, capital infusions, management commitments, and analysis of lines of business and profitability. Often the worst move a borrower can make is to do nothing, hoping that the problem will magically get resolved on its own. The myth of a "white knight" galloping up to save the day is just that, a myth.
A business' relationship with its lender is complicated and dynamic. You should be sure to keep in close touch with your lender, and be prepared to provide updated financials to explain the challenges facing your business. While some see risk in disclosing problems to your banker, usually the best course of action is to be candid--the bank will learn about cash flow problems--better to hear about them from you first. Because cash flow is so critical when times are tough, you will also need to keep in touch with your critical vendors. Do not be tempted to use funds entrusted to you, such as deductions from employee wages for employee income taxes, the employee portion of health insurance premiums, or sales tax collections, to meet other current operating expenses. Management will be held personally liable for these funds if the business fails. Any accumulation of unpaid payroll taxes is a sign of a critical situation.
Attorneys at Kegler Brown Hill + Ritter with significant business restructuring experience include Larry McClatchey, John P. Brody + Allen Handlan.