Drafting and Enforcing Default Loan Terms: Notice and Cure, Acceleration, Interest, Late Fees, "Make-Whole"Premiums
Hot Button Issues for Lenders on Enforceability in Bankruptcy and Lessons From Recent Case Law
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
Intermediate
- work Practice Area
Banking and Finance
- event Date
Thursday, November 7, 2024
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
This CLE course will examine loan provisions that can become critically important in an event of default, including notice and cure, acceleration, default interest, late fees, and prepayment or "make-whole" premiums. The panel will also discuss pitfalls to avoid in the enforcement of these provisions and their treatment in bankruptcy as informed by recent case law.
Mr. Gold concentrates his practice on all aspects of general commercial litigation, financial restructuring, bankruptcy and distressed real estate. He represents debtors, creditors and trustees and has significant experience in the hotel and hospitality industries. In the hospitality sector, Mr. Gold has represented secured lenders, major hotel brands, creditors and debtors in all aspects of Chapter 11 restructurings, assignments for the benefit of creditors, out of court transactions and general litigation. He also regularly provides counsel on secured transactions under the UCC, lien and judgment enforcement and asset protection.
Mr. Pereira concentrates his practice on bankruptcy, insolvency and related matters. advises clients on a wide array of issues, including both transactional and litigation matters. Although Mr. Pereira primarily focuses his practice on representing creditors, he also has experience representing debtors and other interested parties, particularly foreign debtors, in cross-border insolvency and restructuring proceedings. Among other clients, Mr. Pereira has represented banks and other lending institutions, trade vendors, service providers, commercial landlords and tort claimants. He has appeared in numerous state and federal courts, pursuing, among other things, loan enforcement actions, receiverships and commercial foreclosures, defending and prosecuting preference and fraudulent transfer claims, and handling various other commercial litigation matters in addition to handling numerous out-of-court workouts.
Default and acceleration typically trigger various remedies and financial penalties under commercial and real estate loans. Counsel must ensure that the loan documents thoroughly spell out what constitutes a default (and what is a "continuing default") when a notice of default is required, what events of default can and cannot be cured, and the cure period concerning both monetary and non-monetary defaults.
When a loan is deemed accelerated, the lender will likely charge default interest, a make-whole or prepayment premium, and perhaps a late fee on the outstanding balance. The documents must set forth the payment obligations to which these charges apply, and the lender must follow the letter of the documents (including a separate notice of acceleration if required) or the borrower may have a legal basis to avoid these charges.
When a lender is seeking pre-petition default interest in a bankruptcy context, courts typically look to whether the amount constitutes permissible liquidated damages or an unenforceable penalty under applicable state law. The enforceability of "make-whole" premiums in bankruptcy has generally been dependent on state law contract interpretation and courts' legal determinations of whether such premiums should be characterized as liquidated damages, or more recently, as "unmatured interest" under Section 502(b)(2) of the Code. Case law continues to develop and can be very fact specific.
Listen as our authoritative panel analyzes default and acceleration provisions and default interest, prepayment, and other charges typically assessed in commercial loans. The group will also review recent bankruptcy and other case law relating to the collection of default interest, late fees, and make-whole premiums.
- Default provisions
- Notice and cure, grace periods, acceleration
- The distinction between a "default" and an "event of default"
- Monetary vs. non-monetary defaults
- Default interest and late fees
- Prepayment or make-whole premiums
- Treatment in bankruptcy
- Recent case law
The panel will review these and other critical issues:
- How do notice and cure provisions vary for monetary and non-monetary defaults?
- From the lender's standpoint, what should the documents say about prepayment premiums in the event of an acceleration of the loan?
- What are some pitfalls to avoid in exercising remedies after default? After acceleration?
- How have the courts looked at default interest, late fees, and prepayment premiums in bankruptcy?
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