Business Negotiation Works Better Than Litigation

When a potential client called me recently, he was desperate for some logical help. After just having discovered my website and blog and reading about my experience with SBA workouts, he called me in desperation and explained his sorry plight.

The bank’s lawyers had filed a motion for the court to appoint a receiver. If and when done, this will be the end of the client’s hotel business as receivership is a liquidation effort that would yield very few dollars. After a few days the doors would be closed and all that would remain to be done is a final auction of the empty, non-operating building for pennies on the dollar. What a disaster for everyone, the borrower and the bank. He had hired a bankruptcy lawyer who was now fighting with the bank’s lawyers, each positioning themselves for the likely battle to come and bickering about every reasonable request each side had. The client’s bankruptcy lawyer was refusing to produce documents and provide information that would be required if either filed suit and pursued legal action. With both sides getting ready for the showdown there was no cooperation which only served to propel them faster and faster into the courts. The bank’s lawyers were ready to pounce, expecting the receivership motion would be granted. The bankruptcy lawyer was waiting for a sizable retainer and would file preventing the receivership from occurring for the time being. The client knew any legal action at this point would result in disaster but what choice did he have? Or so he thought until he called me.

No one was talking to the lender, as once it goes to counsel it is lawyer-to-lawyer and the banker does not get involved anymore. How silly. There is no basis for resolution, no meaningful discussion, just lawyers doing what they do best, spending their clients’ money and squaring off for a fight. That’s what they get paid to do, fight, not settle. Since I am not counsel, I have every right to call the banker and talk, which I did. On my first call we had agreed to pull back the lawyers, put the legal action on hold and work this problem out along the lines I proposed without squandering excessive cash on a meaningless legal battle while destroying the business potential of the asset, reducing the potential return to the bank. I agreed to send over all the pertinent financial information they had requested that my client’s lawyer refused to deliver. Everything was working very well.

In the end, we agreed on my plan and it will work out very well for my client. I anticipate reducing the loan from $1.7 million to $600,000 and keeping the business operational. I will then submit an Offer in Settlement for the remainder of the personally guaranteed debt and walk my client out of harm’s way for a few thousand dollars. That’s a happy ending to a story that was on the brink of disaster.

Lawyers do what they are supposed to do, they litigate. Business men should do what they are supposed to do – negotiate, settle and work things out. They should compromise and conclude safely and sanely in everyone’s best interest. The moral of this story is obvious. Call me if you’re in trouble.