Pub. 11 2020 Issue 1

Spring 2020 21 West Virginia Banker Travis Knobbe is a member attorney with Spilman Thomas & Battle. His primary areas of practice are general commercial litigation, creditors’ rights and bankruptcy litigation, and appellate litigation. He has taken numerous multiday bench trials to verdict in bankruptcy, commercial, and creditors’ rights litigation. He can be reached at 412.325.3311 or tknobbe@spilmanlaw.com. information as possible and by mandating periodic updates to that information. In commercial cases, lenders can use this routine information to get real-time snapshots of a commercial borrow- er's trends, and a lender can jump on negative trends before they become larger problems. If those problems are unavoidable, however, a lender often can declare financial covenant defaults relatively early and start working on forbearance agreements that give lenders added control. For example, we often include language in our for- bearance agreements concerning commercial borrowers that prohibit transfers and payments outside of the ordinary course of business without approval and that specifically allow the lender to appoint a receiver in the event of a default of the forbearance provisions. West Virginia courts have grown to more reliably ap- point receivers and manage receiverships, particularly since the creation of the business courts. Using this remedy early and ef- fectively can save precious dollars and assets from disappearing during the end stages of a commercial borrower's facing distress. Even more, the appointment of a receiver generally removes con- trol over bankruptcy filing decisions from a borrower and places them firmly in the hands of a receiver. Thus, if a lender gets into a forbearance agreement early enough, and, through that, identifies insider transfers or unauthorized creditor transfers early enough, counsel for that lender can employ receivership pro- ceedings that ultimately allow the creditor and receiver to govern the logistics of any avoidance actions, whether in a bankruptcy or outside of one. This mechanism also gives critical control to the receiver and lender over potential commercial tort actions or breach of contract actions that may be available to borrowers. In larger commercial debts, these cases typically have more merit than general threatened litigation that one might hear individ- ual borrowers mention. The sooner a lender's lawyer can identify and grapple with those issues, the more realistic some recovery above the norm might be. And, make no mistake, we have dealt with several cases where commer- cial tort or contract actions ultimately provide a source of substantial recovery that otherwise would have been lost. Both of these critical but underutilized tools in the kit require diligence on the lender's part at both the un- derwriting and monitoring stages. While we recognize fully that no lender, especially on the front end of a loan, wants to consider very seriously what might happen if a borrower does not perform, it is worthwhile to take the extra time through the process to ensure the lender gathers — and continues to gather — sufficient financial information from which critical decisions can be made. Without it, a debt might truly be dead in the water by the time it reaches recovery counsel. With it, however, counsel with experience in these matters might uncover these — or other — creative ways to maximize recovery well beyond the average.  Thus, if a lender gets into a forbearance agreement early enough, and, through that, identifies insider transfers or unauthorized creditor transfers early enough, counsel for that lender can employ receivership proceedings that ultimately allow the creditor and receiver to govern the logistics of any avoidance actions, whether in a bankruptcy or outside of one.