The drama in late 2008 surrounding the factory shutdown of Republic Window & Doors in Chicago, Illinois, highlighted for banks and other financial institutions the potential backlash when a debtor business fails. In that situation, the factory’s lender faced a public relations challenge when it declined (with good reason) to continue a line of credit for a failing company. The company said it could not continue because its lender was not willing to continue funding its operations, and its employees staged a sit in to protest the bank’s action. Illinois Governor (at that time) Rod Blagojevich even threatened to discontinue all state business with the bank.
In addition to public relations risks in such situations, banks and other financial institutions face significant risk if they take steps to intervene in debtors’ businesses. A recent article published by the Georgia Bankers Association highlighted this threat. As noted in the article, when a financial institution takes aggressive action by getting involved in the management of a debtor’s business, it may find itself in the shoes of the debtor for purposes of employment law.