BCLP Global Restructuring & Insolvency Developments

Global Restructuring & Insolvency Developments

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Being Sued by the Client You Never Knew You Had

Attorneys with secured lenders for clients may one day find themselves in the following hypothetical scenario: An attorney represents a secured lender in the workout of a loan that is owed by a small distressed borrower. The borrower finds a buyer for its assets (either in a § 363 sale or out-of-court short sale), and the borrower and buyer agree upon the basic terms of the sale transaction. However, the borrower’s counsel does not have the experience, time or resources to draft the sale transaction documents, so the responsibility to “just get it done” falls on the secured lender’s attorney, whose client has the biggest economic stake because it will likely receive most of the sale proceeds.

After the deal closes, it turns out that the borrower is subject to tax claims that could have been avoided if the sale had been done another way, or the borrower is stuck

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