A loan agreement assumes the borrower will either pay or be sued. Bankruptcy changes that assumption on the day of filing. Collection stops, contracts can be assumed or rejected, payments made in the prior 90 days can be clawed back, and a new lender can be granted priority over existing liens. We help companies facing distress, and creditors and licensees dealing with a distressed counterparty, understand how the Bankruptcy Code will treat their loan, lease, license, or claim. We use that analysis to negotiate before a filing whenever possible. For technology companies, the treatment of IP licenses is often the issue that decides the outcome.
When Bankruptcy Shapes A Financing
Bankruptcy matters long before anyone files. Lenders structure loans around it, which is why credit agreements include subsidiary guaranties, liens on substantially all assets, and special purpose entities structured to stay out of a parent company's bankruptcy. Borrowers face it when liquidity runs short, a covenant breach looms, or a major customer or supplier fails. Licensees face it when the company behind the software that runs their product files, and the license suddenly becomes part of someone else's estate. The work usually begins with a practical question: what each party could do in a Chapter 11 or Chapter 7 case, and what that means for the negotiation happening now.
The Code Provisions That Matter
A handful of Bankruptcy Code sections carry most of the weight. Section 362 imposes the automatic stay, halting collection, foreclosure, and setoff without court permission. Section 363 governs use of cash collateral and sales free and clear of liens. Section 364 permits debtor-in-possession financing, including superpriority claims and priming liens if existing lienholders are adequately protected. Section 365 lets the debtor assume or reject executory contracts, and Section 365(n) lets an IP licensee keep using licensed rights after rejection while continuing to pay royalties. Trademarks fall outside that definition, but in Mission Product Holdings v. Tempnology (2019) the Supreme Court held that rejection does not rescind a trademark license. Section 547 reaches preferential transfers.
Workouts, Forbearance, And DIP Terms
Most distress is resolved out of court, and the documents matter. We negotiate forbearance agreements that buy time without giving away more than necessary, watching for releases of lender liability claims, ratification of defaults, new fees, and milestones designed to force a sale. We advise on amendments that reset covenants, extend maturities, or convert debt to equity. When a filing is the better path, we help companies evaluate DIP proposals, including roll-ups of prepetition debt, case milestones, and challenge periods for existing liens. For licensees and trade creditors, we review contracts before a counterparty files, so that setoff rights, Section 365(n) protections, and source code escrow are in place.
Fighting It Out In Bankruptcy Court
When negotiations fail, the dispute moves to bankruptcy court. We handle motions for relief from the automatic stay, objections to cash collateral use and DIP financing, disputes over adequate protection, and objections to the assumption, assignment, or rejection of contracts. For technology companies, that often means defending a licensee's Section 365(n) rights or contesting whether a license can be assigned to a buyer over the licensor's objection. We also defend preference and fraudulent transfer claims brought by trustees and litigation trusts, using the ordinary course, new value, and contemporaneous exchange defenses in Section 547(c). And we prepare, and object to, proofs of claim.
Steps To Take Before A Filing
If you are a borrower, involve counsel when a covenant breach becomes foreseeable, not after the lender sends a reservation of rights letter, because your options narrow quickly once a default is declared. Avoid paying insiders or favored creditors ahead of others in the months before a possible filing; insider payments are exposed for a full year. If you depend on licensed technology, check whether your license is the kind Section 365(n) protects and whether source code and documentation are available through escrow. If a customer is in distress, document the ordinary course of your dealings, since that record supports a preference defense. And never sign a forbearance agreement without reading the release.
