Protecting yourself against “deepening insolvency”
Abstract: Lenders will try to do what they can to help their clients succeed. But financial institutions could be held accountable by a customer’s creditors under the legal theory of “deepening insolvency” if the customer seeks bankruptcy protection. In deepening insolvency, a struggling company takes on additional debt or equity financing, thereby compounding its insolvency and significantly impairing its ability to repay creditors. This article looks at the history of deepening insolvency claims and what lenders can do to protect themselves.