Tripartite Collateral Access Agreements in Distressed Asset Based Lending
Tripartite collateral access agreements enforce landlord lien subordination and define per-diem entry rules to protect ABL borrowing base availability.
Distress Distraint
Meaning
Seizure of physical property permits a landlord to recover unpaid rent without prior court intervention. Landlords utilize distress distraint as a self-help measure to secure a lien on assets located within a leased facility. This action targets equipment and inventory to satisfy arrears.
Asset Attachment
Physical inventory functions as collateral once the seizure process begins at the production site. Executing distress distraint involves a detailed inventory of items that can be sold to recover the debt. Tools of trade often remain exempt to ensure the tenant might eventually resume work.
The list of seized items must be served to the tenant to finalize the hold.
Recovery Valuation
Appraisal of seized equipment determines the feasibility of a public auction. Low liquidity in used machinery markets often makes distress distraint a costly recovery method. A failed sale leaves the landlord with storage costs and no cash.
Market demand for specialized tooling varies widely.
Statutory Compliance
Strict adherence to notice periods prevents the landlord from facing claims of wrongful conversion. The validity of distress distraint rests on the accurate calculation of arrears and the proper identification of owned versus leased machinery. Mistakes in this audit result in legal penalties.
Because the process bypasses the court, the risk of litigation for procedural errors remains high throughout the seizure. Legal counsel usually verifies the ownership of every large machine before it is tagged for sale.