IDA Universal

I DA U N I V E R S A L M ay -J u n e 2 0 2 0 44 Robert W. McIntyre is now affi liated with Dinn Hochman and Potter, LLC, a law fi rm dedicated to representing and supporting businesses in successfully navigating advisement, litigation, and intellectual property matters worldwide. Bob can be contacted at rmcintyre@dhplaw. com or 01.440.466.1100 LEGAL LINE Continued from page 12 handout. Also, at some point, much of this largesse will have to be repaid, and from future profi ts. And, prices will have to be higher to make those extra profi ts to pay back loans that would not have otherwise been taken out or may even have been available through regular lending/leasing sources. e next dragon is the threat of widespread commercial and industrial bankruptcies or their local equivalents. Many icons are in perfect storms – aerospace, the steelmakers, and many lower tiers – not to mention all those companies with cheap credit and tax breaks that did not choose the "funda- mentals" path, but chose instead borrowing for massive stock buybacks, dividends, untenable acquisitions, and rewarding the few. is has hit hard in "hospitality," where many companies borrowed 2-3 times annual profi ts for such follies. As for the start-ups with no revenue models or real assets, economic Darwinism will be mercilessly at work with no cheap money or backers le . Closer to home are core problems with a customer or supplier going "chapter" or "administration." In the case of customers, a receiver or trustee can demand that you return all payments you received in the 90 days before an insolvency fi ling as a "preference"...and as many such court-appointed persons/ entities are partly compen- sated on successful recovery, enough said. Several careful steps can be followed to minimize this risk. e fi rst is to absolutely avoid applying payments to oldest invoices fi rst. Do exactly the opposite and keep careful records. Even if a customer "identifi es" the invoice for the payment, ignore it and pay the newest fi rst, and let the customer know in writing immediately. Also, there is the "contem- poraneous delivery" claim as a "reverse" claim. is means that if you ship something on account and are not paid, you have a period to "reclaim" –basically, repo – the most recent shipments during set periods a er an insolvency is fi led. While this may not be practical, it is a strategy that you need to deploy immedi- ately on learning of an insol- vency. If nothing else, it can be a set-off and/or defense to a preference claim. e worst day ever is to have a large accounts receivable balance and a claim to recover the last three months' payments received from you by an insol- vency "offi cial." In cases of your suppliers fi ling insolvency proceed- ings, it is somewhat diff erent. You may indeed have some epic disruptions short term, but these can be new and unexpected opportunities. ese situations can take the form of buying large quanti- ties of inventory at very distressed prices (although you may have to buy some "crap" to make a deal for a larger bloc), buying intel- lectual property to capture a product line and organizing a new supplier, partnering with another supplier to buy assets and take the supply in-house. And, never be afraid to take assets instead of cash to settle a claim. A fundamental principle runs through these scenarios: the trustee or administrator wants quick results and fast cash. Some countries (with lawyer shortages?) require a six-month sunset on an insolvency proceeding. Cash is mandatory, as are quick decisions. Also, don't be easily persuaded to be a "stalking horse;" that's not for the faint of heart. It can be played to advantage, but requires careful research, very tough legal advisers, and hard cash. is latter concept basically requires you to bid against yourself publicly to see if someone outbids you. Deciding to go in low and be a player later is one risk. Going in high to presumably scare off other possible bidders can leave you paying too much. ere are many ways to play this game. Knowing the possible competition, your threshold of pain and theirs, is essential. Lastly, if you have a strategic connec- tion to an insolvent entity as a key customer who would not deal with another buyer, and the insolvency involves a large debt to you – as a strategic buyer for the whole package, as controlling possible key IP – these factors can make such a deal less attractive to a bottom feeder and can play to your strengths. Any last words for this article? I hope to see a better day by the Convention, but until then, stay safe and healthy and proceed with both caution and speed. e late Jim Clemens told me that when times are tough, you should buy everything you can aff ord and pay cash. It made sense in 1979, and it still does today. And, especially in insol- vency situations, get counsel immediately. is is one thing you cannot do alone. ●

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