Bankruptcy
Sometimes Bankruptcy Helps a Lender To Focus
A locally-based business that distributes a highly recognizable brand name consumer product retained HASP to guide it through a workout with its bank lender. Unfortunately, the bank was unwilling to restructure its loans. The business’s operating company was suffering significant losses following efforts by its management and owner to expand the business by entering the retail market and augmenting the product line. The operating company’s parent holding company owed a commercial lender approximately $15 million in unsecured debt, and as the financial performance of the operating company continued to decline, the bank sought to enforce remedies against its borrower. The lender confessed judgment against the parent and effectuated a setoff of funds held by the lender in the parent’s bank account.
As its restructuring counsel, HASP advised the parent to file for bankruptcy under Chapter 11 of the Bankruptcy Code, subjecting the setoff of funds to avoidance actions. Not only did the filing cause the bank to realize the likelihood that an avoidance action would be successful, but it forced the bank to focus on how in the tenuousness of its position as an unsecured creditor the parent level without a direct claim against the operating company subsidiary. As a result, HASP was able to negotiate a very favorable settlement for its client in which the bank agreed to sell the $15 million loan to the company’s owner for $1 million. Now unburdened by its lender, the company has returned to its core business as a distributor and is both profitable and growing.
As its restructuring counsel, HASP advised the parent to file for bankruptcy under Chapter 11 of the Bankruptcy Code, subjecting the setoff of funds to avoidance actions. Not only did the filing cause the bank to realize the likelihood that an avoidance action would be successful, but it forced the bank to focus on how in the tenuousness of its position as an unsecured creditor the parent level without a direct claim against the operating company subsidiary. As a result, HASP was able to negotiate a very favorable settlement for its client in which the bank agreed to sell the $15 million loan to the company’s owner for $1 million. Now unburdened by its lender, the company has returned to its core business as a distributor and is both profitable and growing.