Creditor Settlement – Case Studies

Creditor Settlement Before the Fact

A client had made the decision to sell his business since he had determined that the amount of capital to continue was prohibitive.  He approached his secured lender and asked that an agreement be put in place whereby he would undertake an orderly “wind down” of the affairs of the business, making a ratable distribution of the proceeds between the secured lender and the unsecured creditors.  The unsecured creditors were informed by us that while payment could continue for a defined period, the debt of the secured creditor would require the majority of payment through its priority lien.  An offer was made to the secured creditors of a settlement at substantially less than face value, but much higher than could be achieved through a bankruptcy petition.  This included several leasing companies who agreed to settle for far less than their balances.  The result of this initiative was the satisfaction in full of the debt of the secured lender, the settlement of all of the creditor debt at a substantial discount and the ability of our client to sell the name and customer base of his company for a stream of royalties that netted him well in excess of $1 million.  This would not have happened if settlement had not been achieved before the fact.