Manufacturers and Machine Shops: 5 Reviews for Resolving Equipment Collateral Conflicts Between Lenders and MCA Funders

The worth of a machine to a manufacturer can exceed the cash available from selling it, while several creditors still assert claims against the same asset. The business should examine the equipment documents and production requirements together before using a proposed sale to resolve advance debt.

The price a buyer offers answers one question. Whether the company can complete accepted orders after the machine leaves answers another, and the two answers rarely arrive in the same conversation.

Equipment Identification and Ownership

Match the serial number of the machine to the purchase, lease or financing records. Identify the entity that owns it and the party that holds the right to use it.

An equipment list prepared for insurance may not establish legal ownership. A machine on the production floor can belong to a lessor or a related entity, and the proposed settlement should not assume otherwise.

Six months after a press arrives, the file may still show the prior owner on the transfer papers. Keep modifications and replacement components identified where they affect the asset description, because counsel may need to determine whether the documents describe the machine now present or an earlier configuration.

Record the remaining obligation associated with each financed item. An original invoice does not establish the current payoff. Where the company acquired a machine from another business, preserve the transfer documents.

Opposing counsel in these cases tends to open the first conference call by asking for the serial schedule, not the settlement number. That is the order in which the file should be built.

Competing Grants and Priority

New York UCC Section 9-322 states general priority rules involving filing and perfection, with qualifications and other priority provisions. It does not establish that an equipment lender or an advance funding party wins every dispute by category.

Obtain the security agreements, filing history and any intercreditor arrangement. Counsel needs the actual collateral descriptions and governing law before assessing the order of claims, and the search result was, if we are being precise, the beginning of that assessment rather than its conclusion.

Purchase money, fixture or other asset specific questions may require separate analysis under the applicable rules.

Before presenting a clear title sale to a buyer, before promising that one payoff will resolve the entire position of the asset, identify every relevant claim. The proposed releases should correspond with those claims.

The filing asserts an interest. It does not prove the debt.

A financing statement can identify an asserted interest without proving its validity or the amount owed. Keep those questions separate rather than treating claims asserted against the company as proven by the search result.

Disposition Proposals and Continued Production

New York UCC Section 9-315 provides for continuation of security interests in collateral and identifiable proceeds after disposition, subject to authorization and exceptions. A sale should therefore address the rights attached to both the machine and the resulting funds.

The manufacturer also needs to identify what work the machine performs. A price that appears sufficient to fund settlement may leave the company unable to complete accepted orders.

Ask who holds authority to remove the equipment and what agreements govern access to the premises. The quoted purchase price should not conceal disconnection, transport and restoration expenses the seller must pay.

The owner should obtain advice before accepting what a creditor demand calls a surrender of the asset. The demand, the contractual right asserted and the practical method of removal require examination.

You sell the press and then you learn what the press was worth to the orders still open.

A manufacturer considering retention should identify the revenue the equipment supports and the costs of using it. Gross order value is not the amount available for debt payments.

Resist the urge to value equipment solely by what it originally cost. An extremely useful comparison includes the period in which production would be interrupted, since the business may incur expenses before a replacement becomes productive. The machine can be silent and still determine the cash flow of the next month.

Counsel can review and analyze the release language while the operating team establishes the production consequences. Neither assessment supplies the other.

Records and Account Documentation

Keep serial numbers, signed agreements and current payoff statements together. Record accepted amendments with the documents they change.

Simply forward new notices to the assigned professional, and consult and contact counsel when demands escalate. Most owners start this file later than they should.

A Release That Matches the Intended Result

Delancey Street offers a free confidential initial review of MCA concerns. A manufacturer can present the advances and explain whether the proposed settlement depends on operating cash, equipment proceeds or a transaction still under consideration.

The company provides debt settlement services and coordinates legal matters with independent counsel. It is not a law firm. Priority disputes, equipment enforcement and representation require the appropriate legal engagement.

Ask the adviser to ensure that installment capacity reflects production expenses and other financing commitments. Counsel should ensure that an asset based proposal identifies the consents and releases required, and steps taken, or not taken, in the first weeks after default shape the posture of the case against the company. Rarely does a single payoff resolve every interest at once, though the claimant drafted its demands in order to present it that way.

Ask what documentation will follow payment or sale. A release of a specified machine, termination of a financing statement and resolution of a remaining balance can require different language and action. Any discussion of the collateral with the funding party, even casually, can narrow options before the production review is complete.

An extremely attractive settlement can remain incomplete if the buyer cannot receive the rights expected or the company cannot continue production. In most of the equipment matters we have seen, though the sample is not scientific, the release language receives attention only after the price is agreed. The peculiar machine, idle through the dispute, still sets the schedule.

We review the terms, identify the deficiencies, and construct a response that addresses both the contractual claims and the practical realities of the shop floor. Consultation with Delancey Street is where this conversation begins, and the resulting plan should be measured against the work the business must still perform, a standard that outlasts any single dispute over collateral.