Amping Up Collectability in a Down Economy: Collateral, Liens, and Other Legal Maneuvers

1
Amping Up Collectability in a Down Economy
Collateral, Liens, and Other Legal Maneuvers

• Presented at the PEARL Conference April 2009
• Alan M. Mirman
• Mirman Bubman, LLP
• Woodland Hills, California

2
TOUGH ECONOMIC TIMES

• Bankruptcies and uncompleted projects
• Credit tight even if money is cheap
• Some percentage of write-offs is standard -
• Not as crucial in a good economy
• Several difference in collections impacts
  bottom line
• May need to spend more focus, if not more to
  improve -
• Plan ahead
• Improve documentation
• Allocate responsibilities including follow up.

3
Rx IN A DOWN ECONOMY

• How to stay healthy
• Avoid risk
• Follow PEARL standards
• Pay attention to details
• Stay awake during
• this presentation!

4
(No Transcript)
5
STEPS TO IMPROVED COLLECTIONS

• Evaluation
• Implementation
• Review

6
STEP 1 EVALUATION

• Increased write offs? Are problems external or
  internal?
• Due to sales to non-creditworthy customers?
• Due to offsets, quality control or other
  problem?
• Due to disputes or lack of enforceable
  paperwork?
• Whatever the answer, look at the causes
• lack of know-how
• inadequate staffing
• lack of management attention
• salespeople on commission.

7
STEP 1 EVALUATION NEEDS FOCUS

• If you havent undertaken this evaluation, ask
  yourself
• Do you have the tools to do so in house
  accounting, outside accountant, consultant
• If you choose not to examine, then choice is
  clear live with diminished returns
• Focus on collectability issues
• Break down top five collection problems
• Chart the causes
• Goals - fixing the current problems
• - avoiding future problems.
• Manage the situation with good information and
  game plan

8
STEP 2 IMPLEMENTATION

• UNDERSTAND YOUR RIGHTS AND HOW TO IMPROVE THEM

• Read the terms and conditions
• Require Guarantee/Letter of Credit/Bond
• Security interest in the goods
• Obtaining a security interest
• Perfecting a security interest
• Mechanics lien rights.

9
STEP 2 IMPLEMENTATION

• INTERNAL CONTROLS TO EFFECTUATE A PLAN

• System in place with chain of command for
  strengthening rights and reporting problems
• Has credit been checked?
• Were TC actually sent?
• Were conflicts between PO and invoice identified
  and resolved?
• Is documentation in order?
• Were liens filed and properly served?

10
STEP 3 REVIEW

• Follow up
• Quarterly review is this working?
• Attack existing problems
• Identify ongoing problems and evaluate potential
  fix
• Have lien periods expired?
• Has written demand been made?
• Has change order procedure been followed?
• How to deal with negative results and find
  solutions

11
Often Ignored Remedy for Sellers

• RECLAMATION

• Federal statute - 11 U.S.C. 546(c).
• If you sell goods and the buyer files bankruptcy
  you may be able to recover your goods if you act
  quickly. 
• Make written demand for the return of the goods
  within 45 days after the buyer receives them.
• If buyer files bankruptcy, you have 20 days after
  the bankruptcy was filed to make your demand.
• If buyer or bankruptcy trustee do not return the
  goods, file an action in bankruptcy court as soon
  as possible. If successful, the costs involved
  in the action are recoverable against the
  bankruptcy estate.
• This is a right to be exercised with speed, or
  not at all.

12
Get out of jail card 1DIDNT GET A CHANGE
ORDER?

• Courts generally enforce Change Order clauses,
  which normally require advance approval
• Exceptions normally rely on whether Owner had
  timely notice, and induced contractor to do the
  work
• Some exceptions
• Oral Waiver of clause requiring a writing
• Estoppel promise to pay reliance by
  contractor
• Unjust Enrichment if coercion, fraud, mistake
  or request
• Modification by performance oral change order
  is deemed executed.

13
Get out of jail card 2DELAYS JEOPARDIZE
PAYMENT?

• Did you give written notification to party that
  hired you?
• Steps to protect rights
• Check your subcontract to see if it incorporates
  claim procedure from prime contract
• Keep a separate claim file
• Document all extra costs
• Channel communications through one person
• Document and confirm relevant conversations.
• Avoid waiver
• Demand adequate assurance of payment.

14
Get out of jail card 3INCOMPLETE OR INCORRECT
PLANS?

• Implied warranty that plans and specs are
  accurate and sufficient (US Supreme Court case
  Spearin Doctrine)
• If the contractor is bound to build according
  to plans and specifications prepared by the
  owner, the contractor will not be responsible for
  the consequences of defects in the plans and
  specifications
• Exceptions
• If contractor doesnt follow the incorrect plans
  and specs
• Whether a reasonably competent contractor would
  have discovered the error
• Whether the contract provides that contractor
  assumes the risk of errors
• Failure to make required site visit that would
  have revealed error.
• Broad clause that owner is not responsible
  because actual conditions may be different than
  on plans is not as likely to be enforced.

15
(No Transcript)