DETERMING THE BEST METHOD FOR LIQUIDATING COLLATERAL [ top ]
Although asset based lenders are known for structuring their transactions assuming a liquidation of their collateral, they do not relish the thought.  When forced to do so, care must be exercised in order to maximize the recovery. 

Field examiners play an important role by periodically valuing the collateral and advising how best to liquidate it in the event that becomes the chosen course of action.  Turnaround professionals can also play a role.  The employment of turnaround professionals to execute a liquidation is prudent given that management of a failing company is normally operating in denial.  Management, whose job is to grow a company, rarely possesses the mindset necessary to maximize liquidation proceeds.

A recent case showed that maximizing liquidation proceeds may require continuing the borrower's operations even once a decision to liquidate has been made.  In this example, the borrower supplied custom sub-assemblies to contract manufacturers serving the telecom and tech industries.  Sales in 2000 exceeded $20 million; in 2003 they had fallen to $5 million.  Projections given to the lender showed that cash would run out within a year.  As management's prognosis was becoming true, the lender worried how management would close the business.  Although claiming to understand what had to be done, the lender doubted management's ability to develop a comprehensive liquidation plan.  After all, individuals who start and build a company, only to see their dreams vanish, cannot easily switch gears to one of liquidation.

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