Mistakes in Documentation and Collection Practices

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This presentation provides information for creditors on documenting the account, workouts, collections, bankruptcy, and falling victim to frauds, scams, and other cons.

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Mistakes in Documentation and Collection Practices

  1. 1. CMKF <ul><li>CMA BUSINESS CREDIT SERVICES WEBINAR </li></ul><ul><li>*************************************** </li></ul><ul><li>PITFALLS FOR THE UNWARY CREDITOR </li></ul><ul><li>********************************** </li></ul><ul><li>PROBLEM ISSUES IN ACCOUNT DOCUMENTATION AND COLLECTION PRACTICES </li></ul><ul><li>*************************************** </li></ul><ul><li>Presented by William B. Creim </li></ul><ul><li>January 12, 2010 </li></ul>
  2. 2. CMKF <ul><li>WILLIAM B. CREIM </li></ul><ul><ul><li>Creim Macias Koenig & Frey, LLP </li></ul></ul><ul><ul><li>633 West Fifth Street, 51st Floor </li></ul></ul><ul><ul><li>Los Angeles, California 90071 </li></ul></ul><ul><ul><li>Tel: 213-614-1944 </li></ul></ul><ul><ul><li>Fax: 213-614-1961 </li></ul></ul><ul><ul><li>Email: [email_address] </li></ul></ul><ul><ul><li>Web: www.cmkllp.com </li></ul></ul>
  3. 3. CMKF <ul><li>INFORMATION ABOUT THE SPEAKER </li></ul><ul><ul><li>Bill Creim is a partner in the law firm of Creim Macias Koenig & Frey LLP. Bill and his firm work with credit managers throughout the country on the great variety of legal issues involving credit including collections, business, litigation, bankruptcy and antitrust. A frequent speaker to several credit industry groups , he has presented over 350 seminars emphasizing practical legal and business issues to trade groups and individual companies, and has had several articles published on UCC law, collections, preferences, and bankruptcy. Bill received his undergraduate degree summa cum laude with highest departmental honors from U.C.L.A. where he was elected to Phi Beta Kappa membership, and his legal degree from the University of Southern California where he served on the editorial board of the Law Review and received Order of the Coif honors. He was named one of the “50 Most Influential People in Credit” by Credit Today. </li></ul></ul>
  4. 4. CMKF <ul><li>PITFALLS FOR THE UNWARY CREDITOR </li></ul><ul><li>OVERVIEW OF TOPICS </li></ul><ul><li>DOCUMENTING THE ACCOUNT </li></ul><ul><li>WORKOUTS, COLLECTIONS & BANKRUPTCY </li></ul><ul><li>FALLING VICTIM TO FRAUDS, SCAMS AND OTHER CONS </li></ul>
  5. 5. CMKF <ul><li>DOCUMENTING THE ACCOUNT </li></ul>
  6. 6. CMKF <ul><li>Who is the Debtor? </li></ul><ul><li>Correct Legal Name </li></ul><ul><li>One Entity or Multiple Entities </li></ul><ul><li>Form of Business </li></ul>
  7. 7. CMKF <ul><li>Credit Documents </li></ul><ul><li>The Past – The Credit Application </li></ul><ul><li>The Present – The Credit Application and Agreement </li></ul>
  8. 8. CMKF <ul><li>A good credit application should include all of the following: </li></ul><ul><li>Information about the account sufficient for your credit department to begin an analysis of the prospective customer </li></ul><ul><li>Terms necessary to bind the prospective customer to your company’s business, credit and sales terms </li></ul><ul><li>Terms necessary to bind the prospective customer to the legal terms your company may wish to enforce in the event of a dispute or collection problem </li></ul><ul><li>Information about the account and its principals that will allow you and your collection team to take cost effective action to collect any balances owed </li></ul>
  9. 9. CMKF <ul><li>Guarantees </li></ul><ul><li>Personal </li></ul><ul><li>Cross-Corporate </li></ul>
  10. 10. CMKF <ul><li>Security Agreement </li></ul><ul><li>Your goods and proceeds </li></ul><ul><li>All of the debtor’s assets (blanket security interest) </li></ul>
  11. 11. CMKF <ul><li>Common Documentation Problems </li></ul>
  12. 12. CMKF <ul><li>Getting Documents Property Signed by Customer </li></ul><ul><li>Training all personnel about the purpose of your corporate forms to insure correct use </li></ul><ul><li>Actual Authority to Sign </li></ul><ul><li>Guarantees – in what capacity is the party signing? </li></ul><ul><li>Forgeries </li></ul>
  13. 13. CMKF <ul><li>Other Entities or the Wrong Name of the Debtor </li></ul><ul><li>Unknown parent, subsidiary, or related entities </li></ul><ul><li>Knowledge by sales personnel not conveyed to Credit Department </li></ul><ul><li>Information not inputted to Credit Department files and records </li></ul><ul><li>Common address of multiple entities </li></ul><ul><li>Debtor name changes or new entities </li></ul>
  14. 14. CMKF <ul><li>Maximizing Your Security Interest </li></ul><ul><li>Grant of Security Interest in Security Agreement or Credit Application </li></ul><ul><li>Perfection of the Security Interest </li></ul><ul><li>UCC Searches </li></ul><ul><li>Purchase Money Notification Letter </li></ul><ul><li>Competing with the Debtor’s Bank </li></ul><ul><ul><ul><li>Subordination or Inter Creditor Agreement </li></ul></ul></ul><ul><ul><ul><li>Bankruptcy Issues </li></ul></ul></ul>
  15. 15. CMKF <ul><li>WORKOUTS, COLLECTIONS & BANKRUPTCY </li></ul>
  16. 16. CMKF <ul><ul><li>Workouts </li></ul></ul><ul><ul><li>What are you trying to accomplish? </li></ul></ul><ul><ul><li>The Incremental Improvement Approach </li></ul></ul><ul><ul><ul><li>Correct errors </li></ul></ul></ul><ul><ul><ul><li>End disputes </li></ul></ul></ul><ul><ul><ul><li>Clarify debtor obligations </li></ul></ul></ul><ul><ul><ul><li>Add additional parties/collateral liable for the debt </li></ul></ul></ul>
  17. 17. CMKF <ul><li>Workouts – Common Errors </li></ul><ul><ul><ul><li>Preference issues </li></ul></ul></ul><ul><ul><ul><li>Release of other obligors </li></ul></ul></ul><ul><ul><ul><li>Failure to research the problems (real estate) and issues on collateral ownership and value </li></ul></ul></ul><ul><ul><ul><li>Failure to address potential cross complaints the debtor has against your company </li></ul></ul></ul>
  18. 18. CMKF <ul><li>Collections </li></ul><ul><li>“ It’s Not Personal, It’s Just Business” </li></ul>
  19. 19. CMKF <ul><li>Common Collection Mistakes </li></ul><ul><ul><li>Failure to assemble and analyze information about the debtor, the debt and any disputes between your company and the debtor </li></ul></ul><ul><ul><li>Failure to analyze cost-effectiveness </li></ul></ul><ul><ul><li>Poor asset search or analysis </li></ul></ul><ul><ul><li>Ignore counter-claim problems (particularly anti-trust issues) </li></ul></ul><ul><ul><li>Failure to do preference analysis </li></ul></ul>
  20. 20. CMKF <ul><li>Bankruptcy </li></ul><ul><li>Common Bankruptcy Mistakes </li></ul><ul><ul><ul><li>Post-petition financing </li></ul></ul></ul><ul><ul><ul><li>A typical Debtor in Possession post-petition financing package includes the following terms: </li></ul></ul></ul><ul><ul><ul><ul><ul><li>Payoff of the bank’s pre-petition debt </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>A court order preventing any challenge to the bank’s pre-petition security interest </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>A court order granting the bank a post-petition blanket security interest to secure the new financing. This typically includes granting the bank a lien on Avoidance Actions (Preferences and Fraudulent Transfers) </li></ul></ul></ul></ul></ul>
  21. 21. CMKF <ul><li>Have the Creditors do a liquidation analysis of the debtor’s business </li></ul><ul><li>If the debtor isn’t viable, a quick liquidation may provide a much higher payment to the unsecured creditors than a failed reorganization in which the bank takes all the assets. </li></ul>
  22. 22. CMKF <ul><li>Proof of Claim </li></ul><ul><ul><ul><li>File Proof of Claim Prior to Bar Date </li></ul></ul></ul><ul><ul><ul><li>If the Debtor’s filings list your company’s debt incorrectly you must file a proof of claim to dispute the incorrect balance </li></ul></ul></ul>
  23. 23. CMKF <ul><li>Reclamation </li></ul><ul><li>File Reclamation Claim for Recently Shipped Goods </li></ul><ul><li>45/20 Days Rule </li></ul>
  24. 24. CMKF <ul><li>Selling Post-Petition </li></ul><ul><ul><ul><li>DIP is a new and separate entity </li></ul></ul></ul><ul><ul><ul><li>No guaranty you get paid </li></ul></ul></ul><ul><ul><ul><li>Monitor the Debtor </li></ul></ul></ul><ul><ul><ul><ul><li>Cash Flow </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Cash Flow </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Cash Flow </li></ul></ul></ul></ul><ul><ul><ul><li>Consider getting security </li></ul></ul></ul>
  25. 25. CMKF <ul><li>Preferences </li></ul><ul><ul><ul><li>Keep Your Data to Fight Potential Preference and Fraudulent Transfer Claims </li></ul></ul></ul><ul><ul><ul><li>Do a Preference analysis </li></ul></ul></ul><ul><ul><ul><li>Consider your defenses </li></ul></ul></ul><ul><ul><ul><li>Don’t pay upon demand – try to negotiate </li></ul></ul></ul><ul><ul><ul><li>Don’t allow a default to be entered against your company </li></ul></ul></ul>
  26. 26. CMKF <ul><li>FALLING VICTIM TO FRAUDS, SCAMS AND AND OTHER CONS </li></ul><ul><ul><li>Financial Statements </li></ul></ul><ul><ul><ul><li>Reliability of different levels of financial statements and the role of the Accountant </li></ul></ul></ul><ul><ul><ul><ul><li>Prepared by the Debtor </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Compiled by an Accountant </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Reviewed by an Accountant </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Qualified Audited </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Unqualified Audited </li></ul></ul></ul></ul>
  27. 27. CMKF <ul><li>Asset valuation issues and Asset ownership issues. </li></ul><ul><li>Valuation of accounts receivable </li></ul><ul><li>Assets in trust </li></ul>
  28. 28. CMKF <ul><li>Bulk Sales </li></ul><ul><ul><li>Value of assets </li></ul></ul><ul><ul><li>True identity of buyer </li></ul></ul><ul><ul><li>Consulting and non-competition “sweetheart” deals for principals of debtor </li></ul></ul>
  29. 29. CMKF <ul><li>Article 9 Foreclosure </li></ul><ul><ul><li>Relationship of foreclosing creditor to debtor </li></ul></ul>
  30. 30. CMKF <ul><li>Letters of Credit </li></ul><ul><ul><li>Issuing bank </li></ul></ul><ul><ul><li>Conditions for drawing on the letter of credit </li></ul></ul><ul><ul><li>Expiration date issues </li></ul></ul>
  31. 31. CMKF <ul><li>International Transactions </li></ul><ul><ul><li>Availability of legal remedies </li></ul></ul><ul><ul><li>Location of Debtor’s assets </li></ul></ul>
  32. 32. CMKF <ul><li>WILLIAM B. CREIM </li></ul><ul><ul><li>Creim Macias Koenig & Frey, LLP </li></ul></ul><ul><ul><li>633 West Fifth Street, 51st Floor </li></ul></ul><ul><ul><li>Los Angeles, California 90071 </li></ul></ul><ul><ul><li>Tel: 213-614-1944 </li></ul></ul><ul><ul><li>Fax: 213-614-1961 </li></ul></ul><ul><ul><li>Email: [email_address] </li></ul></ul><ul><ul><li>Web: www.cmkllp.com </li></ul></ul>

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