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From Cradle to Grave: Using Bankruptcy Skills to Advise Clients on New Deals

By Shelly Rothschild
December 30, 2004

This article is the last installment of a series published in November and December addressing the practice of having bankruptcy counsel get involved in lease deals from the outset.

TENTH RULE: IF YOUR CLIENT IS A VENDOR OR SERVICE PROVIDER, IT IS EXTENDING CREDIT. TREAT THE TRANSACTION THAT WAY. Financial institutions extend credit and protect themselves in ways that should be instituted for clients that also extend credit, such as vendors or service providers.

Bankruptcy lawyers see how lenders protect themselves from the potential risks of bankruptcy and default. At the initiation of a transaction, lenders get a credit application from the debtor, including a financial statement. They find out about its assets and liabilities, its principal and affiliates. They get periodic financial reports. Others who extend credit, such as vendors and service providers, should think about adopting similar devices. In this regard, I drafted a system of credit applications for an industry that had never used them before, to provide an early warning that those to whom they extended credit might later default.

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