Last month, a large bankruptcy law firm in Michigan filed chapter 11, citing the fallout from the dissolution of another law firm. The irony of a bankruptcy law firm filing bankruptcy aside, its struggles show that any firm is susceptible to financial stress. In many instances, law firm stress leads to or follows a loan workout.

As was reviewed in Part One-Preliminary Steps and Part Two-Devising a Strategy, the unique nature of law firms and law firm loans requires careful study. But all the review and study in the world will not maximize the result if the implementation plan is any less methodical than how Part One and Part Two were approached. While every workout is different and no execution strategy will be like another, certain basic steps, outlined below, hold true when implementing the selected strategy.

Contact the Borrower. Having assessed the situation and consulted with your outside advisors, the next step is starting the dialogue with the law firm. If appropriate, contact can be relatively low key with the bank relationship manager contacting the law firm managing partner to request a meeting. When the situation has moved beyond the low key stage, contact may need to be initiated by your professional to the law firm management unless it is already represented by counsel, then the contact goes from professional to professional. In this communication, whether low key or of the more intense variety, it is appropriate to make any request for additional reporting or other deliverables. Anything other than the low key approach justifies asking the law firm to execute a pre-negotiation letter in which all parties agree that the discussions are confidential and not admissible if legal proceedings follow. This letter also typically protects the bank from later claims about oral agreements to extend the loan or provide additional financing.

Meeting with the Borrower. The meeting with the borrower is vitally important. It is almost always better to seek a consensual resolution of any issues and the tone of the meeting and the conduct of the bank can have a profound impact on whether this can be achieved. That means conducting yourself professionally, listening to your borrower’s position and striving to understand what it is telling you. Be respectful of your borrower-remember it was not that long ago that you were delighted that it was a bank customer.

Reacting to the Borrower. Once you understand the borrower’s position, deliver the bank’s position to the borrower clearly, firmly and without emotion. Listen to its response if there is one, and assess any reaction that can be gleaned from the borrower’s words, conduct and body language. Based on what you hear and observe, try to assess whether the borrower’s current management is up to the task. If you think not, consider whether you want to recommend that the borrower seek outside assistance. But do not recommend whom they should select. Finally, before the meeting ends, establish the bank’s expectations and deadlines.

Post Meeting Follow Up. Convene with your advisors after the meeting and decide on next steps. Your next steps should be selected after reviewing the bank’s original objective and plan. While there is nothing to prevent the bank from changing its objective or modifying its plan (especially if something said at the meeting suggests the plan is flawed), most often the original objective is sound so any tweaking will be to the plan. If so, evaluate any modification of the plan, settle on the final plan to be executed and then, implement the plan.

Taking the steps discussed in Parts One, Two and Three of The Bank Workout of the Troubled Law Firm Loan will prepare you for a law firm loan workout and position you as the give and take of the workout unfolds. Remember, your law firm borrower’s recurring assets (attorneys) depart the office every day. Whether they return the next day may depend on how successful you are in striking the right balance with your borrower.

What steps have you found helpful in implementing your workout strategy?