Advice You - Finance

The Ground Rules

The basic ground rules for any workout plan are "good faith and fair dealing." These rules apply to both the lender and the dealer. This concept of good faith and fair dealing has its origins in the common law of many states, has been reiterated in the Uniform Commercial Code, the Restatement (Second) of Contracts and case law.

Uniform Commercial Code, Section 1-203:"Every contract or duty within this Act imposes an

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

obligation of good faith in its performance or enforcement." Restatement (Second) of Contracts, Section 205, Comment d.

"A complete catalogue of the types of bad faith is impossible, but the following types are among those which have been recognized in judicial decisions: evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of power to specific terms, and interference with

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

or failure to cooperate in the other party's performance."

It appears, however, that parties who enter into a contract in Texas should search for a theory other than good faith when seeking remedial help from a court. In English v. Fischer, 660 S.W. 521 (Tex. 1983), at 552, the court, when reviewing the concept of implied covenants of good faith and fair dealing, held:

". . . (It) is contrary to our well reasoned and long-estab

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

lished adversary system which has served us ably in Texas for almost 150 years.... The novel concept advocated by the courts below would abolish our system of government according to settled rules of law and let each case be decided upon what might seem `fair and in good faith,' by each finder of fact. This we are unwilling to do."

In our opinion, the best definition of how the parties involved in a workout situation should govern their condu

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

t was handed down in a California appellate court decision, Rich & Whillock, Inc. v. Ashton Development, Inc., 157 Cal. App. 3d 1154 (1984), which involved a debtor taking advantage of a financially strapped creditor. In that case, the debtor, well aware of the creditor's financial problems and need for cash, gave the creditor the option to accept less money than it was legitimately owned and to sign a release for the balance, or

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

to get nothing. The creditor accepted the money, signed the release and sued the debtor. In setting aside the release and allowing the creditor's suit, the court held, at page 1159:

"The underlying concern of the economic duress doctrine is the enforcement in the market place of certain minimal standards of business ethics. Hard bargaining, `efficient' breaches and reasonable settlements of good faith disputes are all acceptable, even desirab

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

le, in our economic system. That system can be viewed as a game in which everybody wins, to one degree or another, so long as everyone plays by the common rules. Those rules are not limited to precepts of rationality and self interest. They include equitable notions of fairness and propriety that preclude the wrongful exploitation of business exigencies to obtain disproportionate exchanges of value. Such exchanges make a mockery of freedom of

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

ontract and undermine the proper functioning of our economic system. The economic duress doctrine serves as a last resort to correct these aberrations when conventional alternatives and remedies are unavailing."

The Negotiations

If the workout team appears before the loan becomes "classified” or "written-off", the first objective is to keep the interest payments current thereby preserving an asset on the lender books. From a timing st

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

andpoint, the lender has not taken a loss at this point and negotiations for "walk-aways" or settlements would be premature. Prior to writing-off the loan, the question is: How much of the lender's money can be preserved? After the loan is written-off, the lender has already taken the loss and the question, from an accounting standpoint becomes: How much of a profit can be made, from recovery?

The collateral protection and set-aside agreement

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

discussed above is equivalent to immediate first-aid. Now the patient is at the hospital and a diagnosis of the damage and cause must be made and a prognosis rendered, before a sensible solution can be rendered.

Is the dealership worth saving? Can it ever be profitable again? Can the problems that caused its financial problems be rectified? If so, can the present dealer rectify them? What is the risk-reward-probability ratio? In other words,

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

hat do the parties expect to make, or lose, if a particular course of action is followed and what are the probabilities of that action succeeding. Both the lender and the dealer must weigh those factors, discuss them and decide upon a course of action. If the dealership's management is good, or can become good by changing personnel, and the circumstances which caused the financial problem can be corrected, benefits to the lender in helping to

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

devise a workout plan which would give the dealership the opportunity to recover, would be immense. In addition to being repaid the outstanding debt, not only would the lender would continue to have a large, profitable customer, but money could not buy the recognition the lender would receive, in the industry, regarding how it participated in a successful workout.

Consequently, the first decision to be made is whether the dealership is worth

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

aving, or whether the parties should proceed with a plan for selling or liquidating the store.

Saving the Dealership

First, a reasonable plan has to be established with respect to the existing principal deficiencies, which is to say: the sold and unpaid units and any past due principal. Assuming the lender has placed a competent keeper in the store, the amount of the sold and unpaid units should not increase. If it does increase, eith

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

er the keeper is not competent, or the dealer is one with whom the bank does not want to do business. In the former case, the keeper should be replaced; in the latter case, an immediate plan for selling, or liquidating the dealership should be implemented.

Depending upon the degree of confidence the lender has in the dealer, it may be mutually beneficial to set-aside the delinquent amount and make no effort to reduce it, pending completion of

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

the workout. Such an action would enable the dealer to better operate the dealership by using gross profits to, at least minimally, meet operating expenses. The lender, of course, would receive proceeds from any infusion of new capital, or the sale of the dealership, or the sale of a portion of the dealer's interest in the dealership.

There is only so much a dealer and a lender can expect from a plan, even if they are sincerely committed to m

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

king it work. Too many times lenders and dealers enter into a workout situation, with the naive notion that everything will be back to normal in a short period of time. The workout plan is, in essence, a business plan for the dealership, which plan, if it works, will also benefit the lender. Each party must, therefore, step into the shoes of the other party, if a workable solution is to be reached. Chrysler Corporation's workout plan took five

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

years. Storage Technology took over three years. If the lender is not willing to make a commitment of at least a year, then the parties should proceed with a plan to sell the dealership. A simple infusion of capital to bring a debt current will not solve the problem and the parties who believe it will usually find themselves, at some later date, returning to the bargaining table with a bigger problem than they had the first time.

Each dealer

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

hip and each lender is different and the combination of types of dealerships that may be matched with types of lenders is even more infinite. In arriving at a workable plan, consideration must be given to the size of the lender, the size of the dealership, the size of the investment and the staying power of both parties. If the lender, for because of its own size, or for other reasons of its own, cannot participate in a workout plan for the re

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

quisite time necessary to successfully accomplish that plan, it makes no sense for the lender to agree to the workout proposal in the first place.

An obvious alternative, which has been omitted from this section because it is discussed at length in another article, is the choice of instituting a plan, which would allow the dealership to obtain alternate financing at another institution. There is much case law regarding a lender's duties with

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

espect to permitting its customer this election and the duties of the parties when pursuing this opportunity; because of the liability aspect, the topic is discussed under the lender liability section.

As always, you should always work closely with a qualified attorney when dealing with out of trust situations.

For additional information on this and other automobile dealership subject matters, go to: http://EzineArticles.com/?expert=John_Pic

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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