Pub. 10 2020 Issue 3

18 www.azbankers.org generally. For example, has the entire industry been shut down by an ex- plicit gubernatorial order, precluding any revenue? 2. Additional Collateral. The financial institution might feel more comfortable making certain accommodations to the borrower in exchange for additional collateral. When available, a lender can obtain liens on unencumbered assets or second liens on encumbered assets. If the lender takes a lien on encumbered collat- eral, an intercreditor agreement with the other lienholder may be a useful step. 3. Pledge Agreement. If the borrower is a partnership or limited liability company, the lender should assess the desirability of requiring an equity interest pledge. Likewise, if the borrower is a corporation, the lender should consider requiring a stock pledge. In either situation, experienced counsel can help the lender perfect a se- curity interest in the pledged collateral. 4. Deposit Accounts. If the lender is not the bank with which the borrower’s deposit account is maintained, the lender can obtain control of the borrower’s deposit account through a deposit account control agreement. If a default occurs later, the lender will then be able to instruct the borrower’s bank to pay the balance of the borrower’s deposit account to the lender. Litigation of the Issues Despite the lender’s best efforts, it may become necessary to litigate by (1) seeking to appoint a receiver to protect and preserve the collateral, (2) pursuing a trustee’s sale, (3) conducting a fair market value hearing to address the amount of the deficiency due and owing to the lender, or (4) defeating any counterclaims asserted by the borrower or guarantors. This can and should be a professional and orderly process, yet frivolous (and occasionally well-founded) affirmative defenses and counterclaims can delay interim judicial decisions and the final resolution of the case. There is, of course, no reason to spend a great deal of time and money litigating the issues if the defendants will not be able to satisfy any judgment. Ask for an affidavit of financial condition, cross-check it with The financial institution might feel more comfortable making certain accommodations to the borrower in exchange for additional collateral.