The business is then required to obtain and unsecured loan. At first glance, it sounds paradoxical since the business is likely insolvent and lenders require collateral. Banks might not step up to the plate and the business will initially look to individuals or angel investors.
In reality, assuming that the business still has customers, the only tangible security it can offer are its new sales, evidenced by the invoices (which are technically, commercial paper).
For the purposes of Bankruptcy, factoring is not regarded as being in the ordinary course of business and the business must obtain the Court’s permission to factor its receivables. The Court will hear the factoring proposal and any objections from the creditors.
If the Order is made, the business will be allowed to factor the receivables which came into existence on or after the date of the filing of the Bankruptcy Petition. The factoring may be for a specific period of time (which can be extended by further order) and may require the factor to pay a portion of the advance into a designated account in favour of the creditors.
It is important to note that the Court’s Order is as good as a UCC filing.
Note: this posting is in general terms only and is not to be taken as containing specific or implied legal advice. A business must consult its lawyers and accountants where Chapter 11 is contemplated.
© 2007 Sanjeev Aaron Williams & Cashwerks All Rights Reserved
In reality, assuming that the business still has customers, the only tangible security it can offer are its new sales, evidenced by the invoices (which are technically, commercial paper).
For the purposes of Bankruptcy, factoring is not regarded as being in the ordinary course of business and the business must obtain the Court’s permission to factor its receivables. The Court will hear the factoring proposal and any objections from the creditors.
If the Order is made, the business will be allowed to factor the receivables which came into existence on or after the date of the filing of the Bankruptcy Petition. The factoring may be for a specific period of time (which can be extended by further order) and may require the factor to pay a portion of the advance into a designated account in favour of the creditors.
It is important to note that the Court’s Order is as good as a UCC filing.
Note: this posting is in general terms only and is not to be taken as containing specific or implied legal advice. A business must consult its lawyers and accountants where Chapter 11 is contemplated.
© 2007 Sanjeev Aaron Williams & Cashwerks All Rights Reserved
No comments:
Post a Comment