Ways to Protect Your Investment When a Party You Do Business with is in Financial Distress

There are ways to maximize possibility of payment by:

• Providing methods of credit enhancement like third party credit support, collateralizing past due and future obligations, improving and tightening credit terms
• Leveraging forbearance- improving your position while negotiating “forbearance” and “standstill” agreements
• Minimizing preference, fraudulent transfer and other “claw-back” risk- so payments do not have to be returned

If you have contracts with parties who are financially troubled

• Maximizing beneficial results- understanding bankruptcy assumption/rejection strategies
• Protecting the ability to use licensed intellectual property when licensor is in financial trouble
• Knowing whether you have Bankruptcy Code “safe-harbor” contracts

Have you received notice of a bankruptcy proceeding? 

• Maximizing recovery on a proof of claim by ensuring the claim is filed correctly and by applicable deadline
• Evaluating the pros and cons of participating on the creditors' committee

Do you have debt or equity investments in troubled companies? 

• Avoiding re-characterization of debt to equity and risk of claims being subordinated to other creditors
• Analyzing relative strength in the your borrower’s capital structure
• Conducting collateral audits for secured creditors

Are you thinking about acquiring assets from financially troubled entities?

• Buying assets “free and clear” at discount prices through:

• A Bankruptcy Code section 363 sale
• Receiver sales from Federal or State receiverships
• Uniform Commercial Code or real property foreclosures
• Buying from assignment for benefit of creditors (“ABCs”)
• Exploring loan-to-own and credit-bidding opportunities