December 2004/ January 2005

Letter from the Editor   Lender Liability: Is it Back?

Many turnaround practitioners got an early start in the business when secured lenders worried about lender liability. The essence of the issue was that secured lenders in distressed situations could use their influence and force a company to act in a manner that was advantageous to the lender’s position and detrimental to other creditors.

In order to distance themselves from direct influence and to better manage these situations, many lenders would insist on “third party advisors,” who could manage the situation more objectively. In time, a group of professionals developed to fill this need.

In 1990, a Fifth Circuit decision held that secured lenders actions’ should not be found to be improper, if their actions were lawful and permitted in the financing agreements. That has tended to be the general state of affairs since then, but recently courts seem to be shifting their focus back to secured lenders.

It should be interesting to see if this trend and heightened interest on corporate governance will merge to continue and result in earlier filings, while parties maneuver to avoid liability.

Sincerely,

Peter Stenger, CPA, CIRA
Editor

Peter Stenger is a Director in the Restructuring and Performance Improvement group at Stout Risius Ross, Inc., and is responsible for strategic, operational and financial consulting solutions for turnaround and underperforming clients. He has spoken on bankruptcy and strategic planning issues for the Turnaround Management Association, for the Association of Insolvency and Restructuring Advisors at the National Conference of Bankruptcy Judges, and for other international organization in North America and Europe. He earned his BB/A in Accounting from the University of Notre Dame,a nd is also a Certified Public Accountant, as well as a Certified Insolvency and Restructuring Advisor.

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