The recent surge in corporate bankruptcies poses new challenges for lawyers working in big corporations and law firms. It’s a scenario that needs careful navigation, especially when there are signs suggesting that a customer might be on the brink of bankruptcy. Knowing the right steps to take in such situations is critical.
In a recent article in Troutman Pepper’s Creditor’s Rights Toolkit series, some practical insights were provided on how creditors can confront these challenges.
When a once reliable customer begins to delay payments or short pays invoices, it can cause alarm. Receiving a flurry of excuses when inquiring about the situation often raises further suspicions. Despite the urge to continue the longstanding business relationship, it’s crucial to consider the potential pitfalls of non-payment.
According to the Troutman Pepper toolkit, there are several steps that can be taken to protect interests in such a situation:
- Attempt to negotiate a payment schedule on outstanding debts, ensuring that both parties can meet their obligations pragmatically.
- Consider asking for collateral or additional security as a mitigation measure against potential losses. This might involve a legally binding agreement confirming the assignment of specific assets to the creditor in a bankruptcy event.
- Consider halting delivery of goods or services until payment of outstanding invoices.
- Seek advice from legal counsel to better understand the potential legal solutions and the plausible outcomes of such a situation.
Embarking on these steps should never be taken lightly and should be coupled with constant communication and negotiation with the customer. Bankruptcies not only affect the businesses facing insolvency but also their creditors. Protecting interests ahead of time can mitigate possible damages, as much as the circumstances allow.
Having an experienced attorney on board who can navigate the complexity of bankruptcies and creditors’ rights is surely beneficial. Armed with this knowledge, legal professionals can now help corporations anticipate such challenges and better prepare for navigating these difficult situations.