TOOL 6.4
Can we exit by simply realising/liquidating/selling the assets we hold as security/collateral? What are the expected proceeds of sale?
| Documentation Issues | – Have our security documents been reviewed to ensure we have a right of sale that we can exercise now? – Have we identified any documentation deficiencies? Can these be resolved without the client’s assistance? – Is the security related to a specific debt/loan or does it cover all exposure? – Are we able to easily and correctly identify the assets we hold as security? – Has the security been perfected? – Were any special registration or perfection procedures required and have these been completed? – Are there any conditions precedent outstanding which may jeopardise our security interest? |
| Practical Issues | – Can we physically identify the assets? – Can we/do we need to take physical and legal possession of the assets in order to be able to sell? |
| Valuation | – Do we have a recent market valuation of the assets held as security? – If not what is the basis of our expected proceeds calculation? – Is there any possibility that holding the asset for a further period will enhance its market value? – Are there any factors which are likely to lead to a reduction of value over time? (See Cost Considerations below) |
| Relationship Considerations | – Is there a client relationship that is worth preserving but which may be damaged by selling our security? – Will realising security now jeopardise future workout negotiations/discussion? |
| Possible Litigation | – Is it likely that any attempt to realise security will be challenged by the client or by other parties? – Do we need legal advice before proceeding? |
| Other Liabilities | – Are there any additional liabilities attached to the security which may affect its value? (environmental/fiscal/other obligations) – Can the Bank incur any additional liabilities by realising the collateral? |
| Other Creditors | – If we sell our security what will be the reaction of other creditors? Will that damage our position in relation to any residual exposure? – Will our sale of security provoke a bankruptcy action? Could this disrupt our realisation of security? – Will our realising our security trigger cross default/cross acceleration clauses in other banks documentation? – Does any other party have an interest in the same security? Does their interest rank Pari Passu/ahead/behind the Bank? – Do we need to pay off any other creditors before we can realise our security? |
| Cost Considerations | – Do the assets have a carrying cost? (Maintenance/storage/rent/insurance/depreciation/administration costs etc.) – What are the costs of sale? (Advertising/brokerage/valuation fees/legal costs/transport etc.) – What is the realistic timescale in which a sale can be achieved? |
| Who should sell? | – Should the Bank realise the security or should the sale be conducted through an agent/broker? – Can the Borrower/Client maximise the sale price? – Are we willing to allow the client to handle the sale? Can we control the proceeds? |
| Reputation Risk | – Does the Bank incur any risk to its own reputation by realising its security in this situation? |
Having considered the above issues does it still make sense for the Bank to realise its security at this time?
