Times have changed. In the past, troubled companies often had some limited unencumbered assets to pay unsecured creditors. “Unencumbered assets” means cash, litigation claims, tangible and intangible assets that did not have liens on them.
Times have changed. In the past, secured lenders were often traditional bank lenders. National, regional or local; large or small; all regulated and chartered banks who did things a certain way, and always looking to “what the regulators want.” They used form-type bank paperwork and took liens on various asset classes to secure the bank loan.
As a vendor, you provide goods or services to your customers. They pay your invoices. This includes all the rest of us who are not in the business of lending money: lawyers, accountants, sellers of goods, sellers of services. Landlords, utilities, employees, and the list goes on. EVERYONE except the entities that specifically lent money under loan documents.
In the past, more vendors would let their customers go past due, and build up balances owed, while continuing to provide goods and services. More vendors would work with their customers to come up with payment plans and other options.
This is no longer workable, and is rarely a good idea. There is never anything left for unsecured claims, unless it’s a penny or two on the dollar, but now we see plenty of goose eggs too.
Repeat after Me (someone who also has her fair share of being burned): I’m a Vendor not a Lender.
As a vendor, remind yourself that your business is to sell a good or a service. If you are not being paid, then question whether and for how long you will continue to sell your good or your service without being paid. If you are supposed to get progress payments as a large project moves along, then insist on getting them or stop working.
As a vendor, remind yourself that if you are not getting paid as you go, then there is a very large and known risk that your balance will not be paid later. While I do feel badly about seeing unsecured creditors continue to receive nothing in all the troubled financial situations, all of us need to know about this risk, and then make our own risk assessments. If one customer is too large for you to take a total write off with some peace of mind, then stop working.
Whenever this next cycle comes, the settings will be total losses for everyone except the secured lenders, who will insist on every available penny going towards their debt, since that is what the rules of law on creditor priority provide. Sad but true. Get ready now.
About DelCotto Law Group
DelCotto Law Group is Kentucky’s asset protection law firm known for its commitment to the lifetime success of its clients. With offices located in Lexington, Louisville and Danville, DLG serves Kentuckians with complicated financial matters, especially in the areas of bankruptcy and complex litigation. For more information please call (859) 231-5800, email [email protected] or reach us on our contact page.