Commercial Bankruptcies have increased a staggering 41% in the first nine months of 2023 compared to a year prior, and they show no signs of slowing.
If you are in the equipment lending or leasing business this has major implications for you.
Here’s what Bankruptcy Attorney Peter Tamposi had to say:
For years, lenders and lessors’ focus was to get as much money out the door as quickly as possible, streamlining the approval process, making it easy for even marginal companies to obtain credit. Looking at my clients’ cases, it’s very clear little thought was given to what would happen when the bubble burst. To be up front, this troubling downturn for lenders is good for my legal practice: bankruptcy law representing the debtor”.
Representing the debtor side, a big part of my responsibilities to clients is to help them manage and preserve their precious cash. We set payment priorities based on leverage position. What I can say without reservation is that those that have none or little leverage are pushed to the bottom of the payment priority pile, even while my clients continue their use of the leased equipment. Based on my experience, those unpaid invoices seldom are brought current, at best they’ll see pennies on the dollar after many months and legal costs.
The immediate fall back for many is to tighten lending criteria, which mitigates risk but at the expense of lost opportunities.
In Commercial Bankruptcies your lessee’s lawyer can effectively cut your asset value and with the court’s approval set in place an extended payment period that leaves you holding the bag. It’s called a “Cramdown”. A cramdown is the imposition of a plan of reorganization by a bankruptcy court over the objection of creditors that changes the terms of secured loans.
By way of example, if you’re a lender who’s owed $300,000 secured by equipment that is presently worth only $80,000, your new principal amount will be $80,000. Adding insult to injury this amount will be paid out over several years at low interest rates.
There is emerging technology that proves to be an ace up the lender’s sleeve all but eliminating risk by providing asset control and leverage.
This is the answer!
Blok Box TM disables any electrical equipment which the UCC authorizes under sections 9-609 and 2A-525, which provides that after default, a creditor or lessor may render equipment unusable” on the debtor’s premises without court order, provided that doing so can be done without a breach of the peace.
It gives them the ability to disable equipment instantly and remotely. Those that have employed it are always on the payment priority list, right up there with utilities. The same basic concepts have been around in the transportation industries for years.
If I represented the lender side of this equation, I would recommend they adopt this Blok Box technology on every single equipment lease from day one so that even in a cramdown your exposure would be minimal.
A CFO shared what he thinks of the IOT leverage Blok Box delivered:
“We had a customer 90 days past due owing thousands on business-critical equipment. They resisted our many attempts to work out a payment plan, leaving us with a typical collections dilemma; they had full use of our equipment, and we could only “ask” for payment or go the costly legal route.
Facing this, we decided to try the Blok Box service to disable the equipment until payment was received.
It worked like a charm.
The very next morning they became very cooperative and were able to get their account caught up to our satisfaction. With them now understanding that we control the use of the asset, we have become a payment priority and our relationship remains very positive.
Needless to say, we are now installing Blok Box on every piece of equipment as absolute leverage when needed.”