Home Management Inside the Mind of a Client in Trouble
Inside the Mind of a Client in Trouble

Inside the Mind of a Client in Trouble


Author’s note: following is an excerpt from Clay Westbrook’s new book, Debt & Circuses: Protecting Business Owners From Their Enemies, Their Allies, and Themselves, released April, 2016. 


If you read no further or learn nothing else, the point of this book is as follows: the outcome of a dispute, or the solution to a financial problem, doesn’t have to be the way the creditors explain it, nor does it have to be the way your lawyer, accountant, financial advisor, or anyone else explains it. The way disputes work in reality isn’t written in textbooks or newspaper articles, or taught in seminars or executive MBA classes, or explained from a comfortable leather chair in a law office.

Forget about “doing the right thing,” forget about the legal merits, and forget about logic. This principle also applies to most other lawsuits and almost all partnership divorces (business or personal). Solutions come from psychology and math, human nature, and realizing neither side understands (nor cares) what the other side is saying.

August, 2010. Randolph Everett had lost everything, but hadn’t yet realized it. He was one of Atlanta’s top developers and a household name in the Atlanta real estate community. Tom Wolfe’s “Charlie Croker” character in his novel A Man in Full may have been partially drawn from the man. The man wasn’t used to hearing bad news, and he certainly didn’t expect anyone disagreeing with him.

All of his properties were collateral for various loans. As a builder and land man, he was used to running the same game in every recession and real estate downturn the Atlanta market threw at him—borrow huge sums from small community banks, which would need him more than he needed them. If the real estate market went south, the bank would work out a modification because if he failed, the bank could also fail.

When explaining how the rules have changed in presentations, we often tell his story of last time I paid. “Last time I paid,” Randolph explained. You could tell he had given this speech on many prior occasions. “When the real estate market declined in the early 2000s, I paid. When the big real estate bust of the late 80s-early 90s wiped out many developers, I paid back every loan. The early 80s recession, the stagflation of the late 70s, the early 70s recession, despite all of these downturns, I paid back every dime I ever borrowed. And you tell me to quit paying these loans and not pay them back?”

Well tell us, Mr. Everett, in all of the downturns you describe, what did your lenders do?

“We’d argue, maybe scream and holler at each other, but in the end, they did what made sense. They cut the interest rates, extended terms, advanced working capital to complete projects, or suspend principal payments. When the market rebounded, I’d get caught up on everything.”

And now, this time, what are your lenders doing?

“Well, now that you mention it, they’re raising my interest rates. The bank will only give short-term extensions, and they want huge principal payments for that. They’ve halted all construction advances, so I’ve had to lay off my people, and the half-finished houses are rotting on the lots. They aren’t making any sense.”

So what happens if you keep paying?

“I’ll run out of cash in a few months.”

Then, Mr. Everett, what will your lenders do?


Inside the Mind of a Borrower in Trouble

Since the Financial Crisis and Great Recession, most businesses are walking a tightrope in this economy, and one unexpected gust of wind from an unexpected direction can put a person’s job, career, or business in jeopardy.

Emotionally charged, contentious disputes with large bureaucratic institutions and/or business partners are different from normal business disputes or transactions. Sure, both sides are angry at one another and suspect the motivations and truth of the statements of the other side. But debtor/creditor disputes and partnership breakups are closer to divorce cases than business negotiations.

Emotions run high. The emotional investment in these deals is amazing. After a hundred or so cases, we learned that most screaming and accusing was an act, an intimidation tactic. Still, they don’t have to put on much of an act—they are furious, envious at times, and have zero trust in anything we say or our clients say. That’s a smart move on their part in these situations, and we have to break through that mindset.

Divorce lawyers share the same experiences—they say that in divorce cases, both sides accuse the other of lying, cheating and stealing, and usually both are correct. Divorce lawyers generally mistrust their own clients. Workouts and restructuring aren’t much different. We expect the client to give us only the parts of the story they think will help, and choose to conceal facts and circumstances they think will hurt.

Every engagement begins with a difficult process of convincing a client that they have to tell us the truth, and that we are going to tell their lenders the truth (presented carefully), and their lenders aren’t going to believe us for a long, long time—if ever. The client’s assumptions are often wrong about whether a given piece of information is harmful or helpful. That which the creditor might perceive as helpful to their case, or an accessible source of repayment, is probably not helpful in reality.

After all, our clients are in default of obligations to the creditor, usually because of failing to pay but not always, or they are about to default. If the borrower had a valid source of repayment, he wouldn’t be there, and if the borrower could pay but wants to try to run a game to get a special deal, we wouldn’t take the case. Being a party to a potential fraud isn’t appealing for some reason.

Furthermore, it won’t work. If the borrower is legally obligated to pay, and has funds that are a secured and valid source of repayment, the borrower should pay, and the borrower will pay eventually. The only way around that is to commit fraud.

That being said, gray areas exist, as well as perfectly legal ways to protect assets, and we will, and should, use all of them where possible. Use the many clever ways to hide assets in plain sight, take advantage of the other side’s lack of attention to detail, or demonstrate to the creditors that if they go after certain assets, it won’t be worth the cost, and we will fight tooth and nail every step of the way. These types of situations are difficult to describe in the abstract, so we will go through several real cases showing how it can happen.

Unlike business transactions where either party can break off negotiations when the parties cannot agree, there is no walking away in these cases. Moreover, the other side has virtually unlimited resources, and the deck is stacked in their favor.

The most difficult aspect of these cases is managing the borrower’s emotions and expectations. There is always a huge financial stake in the outcome. Keeping clients optimistic is difficult. We go through a process of educating the clients about their unknown strengths, the adversary’s unknown weaknesses, and how threats can be opportunities. What may appear to be bad news at first blush will be good news in reality.

Part of our job is to help clients understand that strategies and the ultimate goals will change with the passage of time and as new information comes to light. We must convince and continue to reinforce with them that, yes, this will be over one day, and you will move on; however, you have to fight to avoid personal bankruptcy and protect your business and your family. You have to fight. You have no other choice.

We can’t always convince clients of this basic truth. More than a few decided to surrender for no other reason than they didn’t have stomach for the fight, justifying the surrender on moral grounds about doing the honorable thing. We vehemently disagree that such a course is honorable. This is discussed later.

Sometimes a settlement may look bad by itself, but makes sense and fits in with the borrower’s big picture and goals. In other cases, such as the retail company above, clients got the most ridiculous and amazing results imaginable, while the lender walked away thinking they had cleaned our clock.

When working with troubled businesses and debtor/creditor conflict, the result will not be one where either the borrower “won” or the lender “won.” It is a process. The facts of each situation determine borrower strategy and the outcome. The “process” is educating the lender—because the lender can’t do anything to put money in the borrower’s pocket to pay. If you don’t know your rights and have the right strategy, the creditor will do their job: take your cash until you don’t have any, then take your property and your business anyway. This happens every day.

We expect the same course of action in each case when we examine how a business, or a businessman, gets into financial trouble. The size, industry, or type of debts doesn’t make much difference. Numbers are numbers, money is money, value is value, and we can all objectively determine this information. However, a person’s “objectivity” depends on many facets of the person’s temperament, personality, and—most importantly—motivations.

Never forget that when circumstances put people in these terrible situations, they will lose perspective, lose confidence, and eventually lose hope if they feel isolated and alone. Don’t let it happen. The earlier in the process you provide emotional support, the better, even if that simply means telling them to ask for help if they need it—and they will.

This excerpt is reprinted from Debt & Circuses: Protecting Business Owners From Their Enemies, Their Allies, and Themselves.  Copyright 2016 by SG Ascent, LLC.

Clay Westbrook on EmailClay Westbrook on LinkedinClay Westbrook on Twitter
Clay Westbrook
Clay Westbrook
Clay is a business restructuring and litigation consultant, former attorney, and author of Debt & Circuses: Protecting Business Owners from their Enemies, their Allies, and Themselves, which teaches how negotiation works in the new economy, shows how to manage the stress of financial problems, and chronicles many restructuring adventures. His consulting firm, Ascent, helps attorneys, CPAs and other professionals protect and defend clients in financial distress, contentious litigation, and complex negotiation.


Your email address will not be published.

Time limit is exhausted. Please reload CAPTCHA.