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lender liability
1 headnote for lender liability
8.576 documents for lender liability
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Most lenders and advisors in the world of workouts and distressed companies believe that pursuing a reasonable and consistent course of conduct, protecting one's collateral position, and giving a borrower a continuing chance to survive are the foundation of a prudent approach to a workout. But in recent years, court decisions and commentators have described a new potential tort liability known as "deepening insolvency," causing officers, directors, advisors, attorneys and lenders to pause and question their traditional approach to workouts. A claim against a lender on the theory of deepening insolvency may take several forms. A more troubling concern is that deepening insolvency is a lower and vaguer standard for liability, and might arise in the absence of traditional elements of a len...
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...Subpart I: Lender Liability. 280.210 - Participation in management....
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In recent years, the federal courts in New York have imposed significant limits on the prevailing "lender liability" claims favored by bankruptcy trustees, receivers and creditors' committees of failed borrowers. New York is at the forefront of jurisdictions refusing to allow trustees to sue third parties for collaborating with a debtor's management in a scheme to defraud creditors. A second area in which federal courts in New York have distinguished themselves in recent years as lender-friendly is in their handling of "deepening insolvency" claims. A deepening insolvency claim is premised on the theory that the defendant wrongfully prolonged a corporation's life and allowed it to spiral deeper and deeper into debt, injuring the corporation and its creditors. Lenders should move quickly...
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There are explanations for the current state of the economy that, by now, people have heard so many times that they script their conversations and define their thinking. When a business fails, when its workers are laid off and when investors in that business lose their stakes, it is inevitable that the courts will become crowded with plaintiffs and their lawyers, who will blame management for not having said more about what was coming or for not navigating around the hidden reefs of this economy. The courts have considered the role that lenders play in their economy and, for the most part, have declined to force lenders into the role of a superregulatory agency tasked with reporting on or exercising control over the conduct of their borrowers. It is important to remember that the law ap...
