The current downturn in the economy is causing an age-old-but in recent years uncommon-problem for corporate law departments around the country. How should a large corporation respond when a critical vendor or business partner in financial trouble requests assistance? How can inside counsel help satisfy the business’ desire to preserve a key relationship while also protecting the corporation’s interest in recovering any assistance provided to the vendor or partner?
If a troubled supplier or partner asks for money, counsel should think in terms of debt, not equity. If the supplier were a good equity investment, it wouldn’t be asking the corporation for assistance. Therefore, it is best to think of financial assistance in terms of a loan rather than an investment.
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