With the state of the economy, some of your customers may be turning into slow pays or, worse, no pays.
The Chapter 11 bankruptcy filing by Chrysler, LLC and its affiliates, as well as General Motors' struggle to reach an out-of-court reorganization with its creditors, is likely to create a ripple effect that could cause all tiers of the automotive supply chain as well as businesses connected to the supply chain to stretch payables or seek their own bankruptcy protection.
The recent equitable subordination cases of In re Kreisler and Erenberg, 546 F.3d 863 (7th Cir. 2008) and Credit Suisse v. Official Committee of Unsecured Creditors (In re Yellowstone Mountain Club, LLC), Bankr. D. Mont., No. 09-00014 show a possible deviation in the courts regarding the proper application of the doctrine of equitable subordination. Accordingly, secured lenders should stay abreast of these different interpretations and possibly consider adjusting their lending practices.
Receiverships have gained in popularity in foreclosure cases and in other types of litigation in recent years. Orders appointing receivers and setting forth the receiver’s duties frequently include a provision allowing the receiver to market and sell real estate. However, the question of whether a receiver legally has the ability to convey title to real estate, free and clear of liens and encumbrances, appears to have been answered in the negative, at least by one appellate district in Ohio.
It seems safe to assume that no lender would extend high-dollar credit without first having a deep knowledge of the party accepting the funds. Certainly, such deep knowledge would include the precise legal name of that borrower. Nevertheless, recent cases continue to demonstrate the prevalence of filing UCC-1 financing statements that may be deemed “seriously misleading” as to the name of the debtor and, therefore, ineffective to fix the secured creditor’s place in the chain of priority.
One of your customers owes you money but is in financial trouble. The customer promises to pay you next week or next month or after a big receivable comes in.