When a key business relationship shows signs of financial distress, your next move could protect you—or cost you.
Key Takeaways
- Early Action Is Everything: Whether you're owed money or need a supplier to survive, proactive conversations with legal and financial advisors dramatically expand your options before problems become crises.
- Know Your Toolkit: From security interests and guarantees to debtor-in-possession financing and critical vendor programs, knowing which tools apply and when depends entirely on whether a distressed party is pre-bankruptcy or already in a proceeding.
- Legal Strategy Can Only Take You So Far: Deciding whether to keep doing business, renegotiate terms, extend credit, or walk away entirely comes down to business judgment and open communication with your counterparty—no legal strategy can replace either.
In this episode of Speaking of Litigation, Epstein Becker Green attorneys Ryan Cochran, Wendy Marcari, and Bob Mendes discuss strategies healthy companies can implement when they find themselves doing business with a financially distressed or insolvent partner—whether that's a slow-paying customer, a critical supplier, or a struggling tenant.
Transcript
[00:00:04] Ryan Cochran: Today on Speaking of Litigation, we're discussing strategies for healthy companies to implement when they find themselves doing business with a financially distressed or insolvent business. Hello, everyone. I'm your host today, Ryan Cochran. I'm an attorney in Epstein Becker and Green's Health Care and Life Sciences practice group, and I focus on advising clients who are dealing with financially distressed parties or projects.
[00:00:38] Ryan Cochran: Today's topic is important because every business will eventually be confronted with a customer or supplier who is financially distressed or insolvent. The customer’s or supplier’s financial problems can result in bad debt or supply chain disruptions that can impact your cash flow and profitability.
[00:00:59] Ryan Cochran: Every business needs strategies to minimize the impacts of a customer or supplier's financial problems. Today we are speaking with two attorneys who help clients navigate these issues. Joining our discussion today is Wendy Marcari, an attorney in Epstein Becker and Green's Health Care and Life Sciences practice group, that focuses on advising clients who find themselves doing business with distressed or insolvent companies. Wendy, welcome to Speaking of Litigation.
[00:01:33] Wendy Marcari: Thanks, Ryan. Great to speak with you and Bob today.
[00:01:36] Ryan Cochran: Also joining us today is Bob Mendes, an attorney in Epstein Becker and Green's Health Care and Life Sciences practice group, who also focuses on advising clients who discover they are doing business with a distressed or insolvent company. Bob, welcome to Speaking of Litigation.
[00:01:55] Bob Mendes: Thanks, Ryan. Appreciate it. Glad to get together with the two of you guys to talk about this.
[00:01:59] Ryan Cochran: So I've used the term distressed or insolvent a few times already in our introduction. Wendy, could you tell us what it means for a business to be insolvent as opposed to being bankrupt?
[00:02:14] Wendy Marcari: Generally speaking, insolvency is defined as where an entity's debts exceed the value of their assets or their property at fair value. In reality and in different contexts, the issue gets litigated because there's more than one way to define insolvency, and there's many ways to value assets, but generally speaking, debts more than assets.
[00:02:47] Wendy Marcari: Bankrupt means they are in or were in bankruptcy. Contrary to popular belief, it is not required that a company be insolvent in order to file for bankruptcy protection. It needs to be filed in good faith and there usually is an insolvency, but it's not a requirement under the law.
[00:03:10] Ryan Cochran: Bob, Wendy mentioned different ways people determine whether or not a company's insolvent. Have you seen other ways that insolvency is tested?
[00:03:21] Bob Mendes: I mean, Wendy got it right. But we all know that the technical definitions are, you know, nice for accountants and lawyers, but what business people usually see is either a slow down in bills being paid or chatter from mid-level management that they're having trouble with the customer one way or the other.
[00:03:46] Bob Mendes: Usually it's kind of hard to, for a company to hide that it's having a problem keeping up. And usually, in my experience, they've hit the technical definition of insolvency about debts more than their assets somewhat before their trading partners see the evidence of it.
[00:04:06] Ryan Cochran: Bob, can you discuss the difference between advising a client who is facing another party who is insolvent versus being in a bankruptcy proceeding?
[00:04:19] Bob Mendes: The basic difference is there's a different toolkit available when a company is having problems and they're insolvent but not in bankruptcy, and then once you get in bankruptcy court, the tools available are usually dictated by the federal bankruptcy code. In both instances, when we represent clients, the goal is to get paid. Get paid as soon as possible, as much as possible, and there's just a different toolkit available depending on whether it's a pre-bankruptcy, out of court situation or whether you're actually in bankruptcy court.
[00:04:55] Ryan Cochran: Wendy, when you're advising a client who has found out that somebody they provide services to has actually filed a bankruptcy proceeding, what's the first thing you tell them about their relationship with that now bankrupt counterparty?
[00:05:16] Wendy Marcari: So the most important thing, and this relates to the toolkit that Bob was referring to, is that the remedies that the client has are more limited now, once they're in bankruptcy. There's something called an automatic stay, which as the name suggests, is automatic upon the bankruptcy filing, and that prevents any collection activity. And that also prevents a counterparty that's not in bankruptcy, that has a contract with the debtor in bankruptcy, from terminating that contract, absent getting relief from the stay. And so in a way, the creditors' hands are somewhat tied because the bankruptcy policy that's being effectuated through the stay is to protect the debtor that's in bankruptcy, to give them a breathing spell, and to prevent creditors’ race to get their assets.
[00:06:18] Wendy Marcari: So it's really more focused on similarly situated creditors being treated the same. So it says, okay, none of you creditors can take your piece right now. We're going to let the bankruptcy play out and you'll get a recovery that's proportionate pursuant to the bankruptcy proceeding. So they can't take collection action. They can't send dunning letters, they can't terminate contracts if they have one with a creditor. They really have to really sit tight, file a claim, monitor, see if there may be a critical vendor program that they might be able to benefit from and participate under. But other than that, they need to kind of change the mindset and be aware of what the procedures are in bankruptcy.
[00:07:03] Ryan Cochran: I would like to start with some hypotheticals. I'm curious how each of you would approach a situation where your client's business has raised concerns about the financial health of a key supplier or vendor that's necessary for your client to continue operating. So Bob, why don't you start by talking about what you would want to find out from the client about this vendor or supplier.
[00:07:34] Bob Mendes: I'll go through the best case scenario of information. But we have to know and acknowledge that a lot of times asking for the best case scenario of information is uncomfortable for business reasons, or it may be offputting or chase the customer away, which may or may not be a good idea.
[00:07:54] Bob Mendes: But if we, if we start from, what's the totality of what you'd like to know, you'd really like to know why they aren't paying the bill. Just ask them point blank. You know, you used to pay in X number of days and now you're 2x the number of days after invoice, why aren't you paying? What's the problem?
[00:08:17] Bob Mendes: If they don't give completely satisfactory information about that, you'd like to see some of their financials so you can see for yourself what's happening with accounts payable across the line. Ideally, especially in smaller jurisdictions, you know what bank they're paying you from.
[00:08:40] Bob Mendes: That's a little tricky to do because usually the bank won't tell you. You want to talk to your folks about what the terms of your contract are to find out whether it's up for renewal sometime soon, and whether there's extensions coming. You really want to get a 360 degree view of what the relationship is and the financial position of the company. You can ask them for, if they've made recent loan applications, to get a copy of the materials they submitted to the bank. Anything that would give you an idea of their financial information is what you'd like to get. And like I started with,this can immediately seem intrusive into a relationship and sour it. And so usually people want to start with subsets of the information to see whether they can get enough to get a sense of what's really going on.
[00:09:27] Wendy Marcari: Ryan, I'd like to interject there because that's great advice. But we may also advise clients on what to do either before they get to this situation or to potentially try to avoid this situation, which really relates to good diligence in making the credit decisions.
[00:09:48] Wendy Marcari: And so making sure that you're not going beyond the amount of credit that's appropriate, that they are paying, that when they start paying a little bit late, you might adjust the amount of credit or the terms that you're extending.
[00:10:19] Wendy Marcari: You might also, when they're completing a credit application, ask for a guarantee, either from the principal, if it's a small business, from an affiliate, if there's a larger parent entity, asking for other protections that make you better positioned if there is a problem with that customer. So those are kind of pre-steps.
[00:10:45] Wendy Marcari: And then once you find yourself in the situation as Bob described, asking for all of that information, and perhaps if it's a customer who really needs what you are providing, whether it's goods or services, you can negotiate those things on the back end. You've become late, and we're not going to extend more credit unless we get a guarantee or unless perhaps they can extend a security interest, a lien, on certain of their assets to make you a secured creditor who has collateral that you could recover against, either in bankruptcy or even outside of bankruptcy.
[00:11:27] Ryan Cochran: So, if I hear you right, Wendy, you're saying some options are to seek a security interest, get some collateral, change the payment terms. Can you give us a few other strategies to use if you want to continue doing business with the client?
[00:11:46] Wendy Marcari: Yeah, and that's where the rub is because a supplier makes margin. That's how they create revenue. So you don't want to cut someone off if you have the ability to continue doing business. And in the hypothetical that you posed originally, Ryan, it was a major customer, and so, you know, you may be able to enter into a payment plan that sort of restructures the past due debt.
[00:12:14] Wendy Marcari: We sometimes call that the old and cold, and make that somehow contingent upon future business. But there's really limited recourse if you don't have these protections set up in advance. You can stop doing business, right? It's going to mean that you're not generating revenue from that account anymore, or you could stop doing business until they get the amount of the outstanding debt down below some internally determined amount.
[00:12:47] Wendy Marcari: It's a business decision really more than a legal decision. You could sue them. And if they're distressed, you know, you might want to be the first creditor to get there in a litigation because you are the squeaky wheel, you may be more likely to get the cash that they have when they have it. You could also file an involuntary bankruptcy, although that's not often a great alternative. And there's a cost associated with that. But those are some of the things that you can do as an unsecured creditor.
[00:13:20] Ryan Cochran: Bob, let's assume that you have stopped doing business with somebody who is behind on their payments. What strategies do you look at and how do you talk to a client about whether or not it's a good idea to bring a lawsuit when they've stopped doing business with somebody who's not paying timely?
[00:13:43] Bob Mendes: Let's see. I mean, one important factor is whether there's any basis for there to be a counterclaim against you for the lawsuit. That can happen with some frequency. It's very fact specific. Often people decide that a good defense is a strong offense, and then when you sue them, they might start complaining about the quality of the goods or services that you are providing them.
[00:14:07] Bob Mendes: So different circumstances. Be aware whether a counterclaim is likely. Two, there's some amount of deciding whether it's valuable to send a message to the marketplace that you can't stiff your business and there's consequences. Other times people don't want the bad vibes in the marketplace of having sued a customer.
[00:14:30] Bob Mendes: It's so highly facts-specific. I guess a couple other factors might be just whether there's collection costs under your terms or contract, you can recover attorney's fees. And that goes back to Wendy's point about being diligent and hygienic about your terms at the front end might give you better options when you decide to sue or not sue. And then a lot of times, you know, if you decide the company is just not worth it, and they're just not going to pay even if you get a judgment, there can be limited value to going through the exercise and cost of getting a judgment.
[00:15:09] Bob Mendes: It really, a lot of times it's just going to come down to what the goals are for the business. If it's strictly collecting money and then it's just a simple cost benefit analysis, or whether there's other benefits in the marketplace from chasing them down for a judgment.
[00:15:29] Ryan Cochran: We've spent a little time talking about a client who has a customer who is paying late or not paying, but let's switch now and say that a client has come to you and says that there's somebody that they do business with, who they need their services or they need their product in order to continue their own operations, and they've heard that this supplier or this service provider is financially struggling and they're worried about the impacts this other businesses’ financial problems are going to have on their own operations.
[00:16:17] Ryan Cochran: How do you navigate that type of situation with a client?
[00:16:21] Bob Mendes: Usually business owners and management would want to take a sort of a multi-vector approach on that. First of all, if you're so invested with a particular customer that it's going to hurt your business if they go under, most people are looking pretty hard to diversify their revenue sources, but of course that takes time.
[00:16:45] Bob Mendes: So it's never going to be a complete answer to look at that, but it's always going to be on folks' minds. And then on the other side, you want to run through the full menu of what the possible options are. We've listed a bunch of them, changing terms, guarantees, security, et cetera. And usually you want to try to find at least one of the things that'll help at least a little bit.
[00:17:08] Bob Mendes: And typically I would want to send a senior level business person to talk to a senior level business person with the customer and suggest that they have a, hey, you need us and we need you. We need to have a share-the-pain plan where you can get in a better position, but you need to get me in a better position while you're doing it.
[00:17:32] Bob Mendes: What can we do here? That's the first things that come to mind in a situation where you just inherently don't have as much leverage because everybody knows you need the customer really badly.
[00:17:46] Ryan Cochran: Wendy, what if a client comes to you and says, I do have a supplier and a vendor who's struggling financially, and they've asked me to loan them some money to stay in business. How do you help the client navigate that kind of issue?
[00:18:05] Wendy Marcari: I mean, that is one of the options when you're really dependent upon them for whatever it is they're supplying to you. And so a loan may be appropriate. We want to do diligence and determine what other secure debt exists. What liens would have priority over the client?
[00:18:28] Wendy Marcari: Is the client willing and do they have the financial wherewithal to provide financing to this customer? And if so, you know, what are the terms? And knowing, if they’re cash flow negative, what's my recovery going to look like? And so am I likely to recover? How long do I expect that I'm going to be without the cash that I'm providing to this supplier?
[00:18:57] Wendy Marcari: And maybe you end up, and depending on how creative and how the finances work out, buying that supplier, and maybe that secured loan eventually becomes a credit bid, whether outside of bankruptcy or inside of bankruptcy in a way, in connection with a transaction to buy that supplier and to own it if it is in fact insolvent.
[00:19:26] Bob Mendes: Yeah, and Ryan, of course, in that situation, you know, you really, even if you really want to make that loan to help the customer, you really have to get in a direct conversation with their senior lender because there's a relatively high chance that their senior lender has a lean on everything or most everything.
[00:19:52] Bob Mendes: And everybody would want to understand who's in first place in going after certain collateral. And it's not to say you don't do it, but at least you should have your eyes open about exactly where you stand with this, whatever the collateral is that's being offered.
[00:20:08] Wendy Marcari: Another option that, and we did this for a client not too long ago, is to provide the financing in the context of a bankruptcy.
[00:20:20] Wendy Marcari: So we call that debtor in possession or DIP financing. And so we had a client that's a retailer. They're not in the lending business, but there was technology that they needed and there were other retailers that also relied on this technology. And so they got together and collectively provided a DIP loan so that the debtor could go through bankruptcy and either restructure or sell that business as a going concern with the hope that there would be a new owner who would continue to operate this business and this technology and make it available to these retailers.
[00:21:05] Ryan Cochran: What was the advantage to your client in making the loan through a DIP financing and a bankruptcy proceeding as opposed to just making them a loan while they were insolvent?
[00:21:20] Wendy Marcari: Well, the most significant advantage is that the DIP loan will have priority and will prime existing secured lenders. So Bob was referring to really meeting with the existing lender and understanding who's standing first in line. Well, in a bankruptcy DIP loan, the DIP lender can prime and then stand first in line.
[00:21:48] Wendy Marcari: And so that's the biggest advantage. And other advantages for more traditional lenders is that they intend to earn fees from lending because a DIP loan becomes expensive.
[00:22:00] Bob Mendes: The other big difference that's baked in there is in a pre-bankruptcy setting, you've got the big bad bank and whoever wants to make the loan in a one-on-one conversation.
[00:22:14] Bob Mendes: And if it's in a bankruptcy case, you've got a judge that's got objective criteria that can force the priming over the objection of the secured lender if you hit the criteria required by the bankruptcy code. So if you're trying to do one outside of bankruptcy and the lead senior lender doesn't agree and is just, if people think are not being reasonable, pushing it into bankruptcy, could be in a position where the judge could force the priming on the secured lender.
[00:22:50] Ryan Cochran: Let me give you another hypothetical. Let's assume that a client calls you and says, I buy widgets from Company X and Company X has called and said they're struggling financially and they want me to go ahead and prepay for my next six months supply of these widgets. What kind of risk would you tell the client they're assuming if they were willing to prepay for these goods?
[00:23:26] Wendy Marcari: The risk is that you're not going to get your widgets. And if you don't get your widgets and then they file for bankruptcy, all you have is a general unsecured claim in that bankruptcy. You are not entitled to those widgets after the bankruptcy has been filed. All you have is a claim for it, and that claim is likely to get cents on the dollar. So prepaying provides no security for them, and it provides cash for a debtor that's short on cash, that has lots of creditors knocking on their door. So that's a very risky move.
[00:24:06] Ryan Cochran: So Bob, let's assume that a client comes to you and their widget maker is financially distressed and they're presented with this option to prepay for some widgets. Is there anything you would suggest the client do to try to ensure that they either get the widgets that they're prepaying for, or if they can't get those widgets, they could at least get their money back?
[00:24:38] Bob Mendes: That implicates some pretty technical bankruptcy code things, and I would not want somebody faced with that situation to just automatically say, there's no way I could do that. I think the way Wendy put it is right, that it's, there's a lot of risk with it. There are some relatively complicated mechanisms that maybe you could build into some agreements that would provide some cover if a bankruptcy case were filed.
[00:25:07] Bob Mendes: But it definitely gets into the edge of a comfort level, and I would think a company would really, really be trying to help badly to want to take that risk. But there probably are some things. I think if anybody's faced with that they really need to get a hold of a bankruptcy lawyer who is going to dig in the weeds on those technical nuances.
[00:25:32] Ryan Cochran: So we've talked about a customer who's slow paying or not paying, and we've talked about a supplier or vendor that our client needs for their own business. Let's now shift gears and talk about what a landlord might do if their tenant is not paying. Wendy, I'll just start with you. Let's assume your client is the landlord and they call and they have a tenant who's not timely making rent payments. What are some of the issues that you would identify for the client?
[00:26:16] Wendy Marcari: A landlord/tenant situation is very tricky and there are particular rules that apply if the tenant ends up in a bankruptcy proceeding, and so they would want to proceed carefully. To the extent that they have a security deposit, that will provide some cover. To the extent that they can commence an action to evict them, if that is their goal for a tenant who's not paying and not able to pay, then they can go through that process. Depending on the jurisdiction, it could take a matter of months, if not longer, to get that tenant out with them not paying rent.
[00:27:09] Wendy Marcari: They also need to know that if that tenant files for bankruptcy, it is the tenant's prerogative exclusively to terminate that lease, in which case the landlord has a general unsecured claim in the bankruptcy, and that claim is capped and there's a formula. But roughly assume a year's rent, even if there's much more remaining term on that lease. And so a landlord's outcome if there is a bankruptcy, unless the lease is below market, that's a different circumstance we can talk about.
[00:27:48] Wendy Marcari: But the landlord's options are somewhat limited and would really entail litigation absent of bankruptcy because the tenant is in their premises, or potentially being subject to a lease being terminated, it's called rejected, in bankruptcy, and asserting a claim for that rejection.
[00:28:11] Ryan Cochran: Wendy's talked about how she might advise a landlord. How would you advise a tenant who is struggling to pay their rent payment in their discussions or negotiations with the landlord?
[00:28:27] Bob Mendes: Wendy has pointed out the major difference, that if a bankruptcy commences while the lease is still in effect, the tenant then has a lot of rights that could strongly limit the amount of rent liability that's out there.
[00:28:46] Bob Mendes: And so for a tenant, one line in the sand that you don't want to cross if bankruptcy or the potential for bankruptcy is on the horizon, is termination of the lease. And sometimes you'll see tenants really stringing out, trying to get away with the minimum amount of payments that they can make in order to push off termination, to pay just enough to induce the landlord to not terminate the lease.
[00:29:15] Bob Mendes: There just is a big difference after bankruptcy if the lease is still in effect. So thing number one, if you're on the tenant side, is to negotiate pretty much whatever you can to postpone termination of the lease. A lot of times landlords will be, you know, they're hip to the game on that and will demand guarantees or will have a quick trigger finger on a formal termination of lease, but from the tenant side, you know, you do the same thing you do with a lot of other creditors. You're trying to bob and weave and, you know, pay what you can pay to survive long enough to try to turn it around.
[00:29:57] Ryan Cochran: Wendy, are there any strategies you've seen tenants implement to try to negotiate with a landlord, either an early termination of the lease or a reduction in rent?
[00:30:12] Wendy Marcari: Yeah. In fact, I just did this recently with a tenant who, because of macro economic conditions, had a dramatic change and a decrease in revenue, and they didn't need the premises that they were renting despite the many years that were left under the lease. So, you know, one option is to discuss occupying less space, renegotiating the lease. Or I'll give you a note and I won't pay rent for a certain amount of time.
[00:30:47] Wendy Marcari: I mean, there's no limit to the creativity on the business solutions. But also, if a bankruptcy may be necessary, it's really about the landlord appreciating what will happen if there's a bankruptcy and that lease is rejected, and what their claim will be, because it will not be the full amount of rent that's remaining under that lease.
[00:31:15] Wendy Marcari: It's going to be a capped amount, which is going to be a fraction of what they would otherwise recover if the lease stayed in effect and the tenant was paying. And so I think then it's incumbent upon the landlord to make a prudent business decision on what's in its best interest. Can they relet the premises, in which case they can negotiate a termination or a modification and relet the premises that they take back. But it's not a great strategy for a landlord just to say, well, you must pay the full rent, if they really see that the tenant is heading for a bankruptcy.
[00:31:56] Bob Mendes: And they say about real estate, it's location, location, location. All these principles hold true across the nation. But who's got the exact leverage for a particular parcel of real estate could depend a lot on market conditions, and even in a market, just on the location of the building and the relative desirability of the building. You know, the hotter the market the more aggressive a landlord can be, the weaker a market, the opposite is true.
[00:32:29] Ryan Cochran: Bob, if you were advising a tenant and they wanted to stay in their leased premises, they didn't want to leave the location, and they were contemplating filing bankruptcy, what are some of the initial things you would tell them about their ability to stay in the premises after they filed bankruptcy?
[00:32:54] Bob Mendes: Yeah. So this is a topic we haven't touched on yet. You know, we've spent a lot of time talking about what happens with debts that are due on the day of the bankruptcy filing, and Wendy mentioned the automatic stay. You can't do anything to work on collecting old debt. The bankruptcy code's going to take care of that. But after the filing, a company is obligated to stay current with its obligations.
[00:33:16] Bob Mendes: So if a client comes to me and they say they're tenants in a space and it's mission critical that they keep the space, we have to have two different conversations. We can have a conversation along the lines that we've been having about the amount due on the date of the filing. But the going forward part has to be kept up to, you know, current on a go forward basis, and you have to actually cure defaults. Maybe not immediately, but you have to cure defaults eventually. And so, if space is absolutely mission critical and it's leased space, paying the rent gets borderline as critical as paying things like payroll taxes.
[00:34:06] Bob Mendes: If you can't have a business model that stays current on taxes and lease space that you need, you're going to have a hard time getting out of bankruptcy successfully.
[00:34:18] Ryan Cochran: Wendy, we've been talking about dealing with insolvent and distressed businesses. Is there anything happening today in the business climate that you think might increase the number of distressed or financially insolvent businesses out there?
[00:34:42] Wendy Marcari: Ryan, that's a good question. And it varies by industry, but I think it's safe to say across the board that the uncertainty in this economic climate that we find ourselves in is creating a lot of financial distress. It's leading companies, especially tariffs, to have this additional pressure on their businesses.
[00:35:07] Wendy Marcari: Maybe they're not hiring like they might have hired because they're not certain of what the future will bring, of what the market will require, what interest rates will be, what the cost to borrow money will be, the cost of labor. And so there are all of these factors that create uncertainty and additional economic pressure.
[00:35:29] Wendy Marcari: And so if a company is not really secure, it's likely to become worse in my experience.
[00:35:38] Ryan Cochran: Bob, we want to end on a positive note. You mentioned a toolbox at the beginning of this podcast. If you could give somebody your three best tools for dealing with an insolvent or financially distressed customer, what would those three best tools be?
[00:36:01] Bob Mendes: The economy changes over time and for better or worse, you know, I've been through the ‘01 tech bubble, the ‘08 downturn, COVID, et cetera, and financial problems, financial stresses on the economy change over time. But the one consistent thread is that if you start planning for the problem, either on the borrower side, or if you're dealing with insolvent customers, waiting until the problem is really ripe and bad things are happening severely limits the feel, the maneuvering room. And there's so much benefit to be had from having proactive conversations, whether it's your financial advisors or your legal advisors, or even internally with your management team, to be proactive about identifying who's in trouble or what the trouble is.
[00:36:59] Bob Mendes: Keeping that maneuvering room is the single best tool, and so having early conversations with whoever you trust for these conversations is the biggest thing. And then beyond that I would say that whether you're on the, you're owed money or you owe money, there's a mantra that I tell people, you know, facts are our friends.
[00:37:22] Bob Mendes: If you're trying to work your way out of financial distress or help somebody through it, if people aren't being honest with themselves about the causes and the pain points, it's hard to negotiate out a solution. And so even though it's hard to own up to the scope of the problems to people you deal with or to get them to open up about it, getting at what's really going on is critically important to solving the problem. So that, that's two. Talk early and talk openly.
[00:37:54] Ryan Cochran: Wendy, Bob used the word trust. He said you want to build some trust. How do you establish trust with an insolvent business?
[00:38:07] Wendy Marcari: It really comes back to talking openly and talking often. You really have to be somewhat transparent about what your needs are and what your prospects are.
[00:38:19] Wendy Marcari: And, you know, a lot of times we've been talking about this really conceptually, but in reality there are relationships that are built over years and decades between suppliers of goods or services and their customers. And so there may be a customer who's just going through a rough patch for one reason or another, but they have relationships, and that may be a storm that you may be prepared to weather.
[00:38:50] Wendy Marcari: And so speaking openly about what the trouble is and when the end is in sight and what you may be able to do and how you may be able to pay, or what additional protections you can offer to that supplier to get them more comfortable and to show that you're worthy of that trust. And so it really comes down to having a strong business relationship and good communication.
[00:39:19] Ryan Cochran: Wendy and Bob, thank you for joining me on Speaking of Litigation, and for those listeners, we ask you to subscribe wherever you get your podcasts.
[00:39:30] Bob Mendes: Thanks Ryan.
[00:39:31] Wendy Marcari: Thanks.
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