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Top tips for financiers: dealing with a defaulting borrower

The Dentons restructuring, insolvency and bankruptcy group considers the legal, commercial and practical issues. These include the borrower breaching or being about to breach its financial covenants or overdraft limits or suddenly requesting new facilities or an extended repayment timetable. The borrower may be under increased creditor pressure (including statutory demands or other debt collection or winding-up procedures) or subject to litigation, insurance claims or rent reviews, diverting management time away from the business. Management may be unresponsive to your questions or reluctant to share information with you.

Other warning signs include the borrower: losing a key customer or supplier; suddenly losing or changing its management team, in particular the finance director; having a sudden change of auditors or trouble signing off its accounts; delivering information late; asking its bankers to send cheques for round amounts or to postpone/push forward certain payments (in particular BACS wage runs); or deferring any planned or regular capital expenditure.

Also, in the current banking climate, if a borrower with a previously good working relationship and without warning makes a spurious or unmeritorious complaint about an interest rate hedging product, it could be an attempt to draw attention away from more fundamental problems with its financial position…

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