Receivership as a Successful Tool
Our client found itself under a substantial amount of debt with its secured creditor. Over 30% of all operating costs were going to pay for interest expense and the debt load was crushing. The “Line Lender” transferred the loan to the bank’s workout department. We became an advocate with the workout officer and negotiated a substantial reduction of the balance by convincing him to consider an amount that was comparable to the liquidation value of the assets securing the note(s) including the cost of collection. In a situation comparable to that in Problem/Solution #7, the lender was convinced to “sell” the note for a mutually agreed upon value to a member of the management group but someone unrelated to the ownership structure. This individual then became the secured lender and the old company was thrown into a receivership. The assets were then sold to the highest bidder by the receiver through the process of a “credit bid”. Since the note was well in excess of any single obligation then remaining, the “secured lender” was able to acquire the assets at a substantial discount and in the process, eliminated all of the unsecured creditors. Even though the business had to then pay for goods and services on a COD basis after the transaction was concluded, an investment of less than 10% of the overall liabilities, enabled the business to regain its footing and become competitive in a challenging economy and competitive marketplace.