Your Quick Silver Agreement: The Terms That Matter Once Suit Is Filed

If Quicksilver Capital filed suit, the terms of the advance that matter now are the choice of New York law and New York courts, the confession of judgment, the reconciliation clause, the lack of a fixed term, the recourse if the business goes bankrupt, the personal guarantee and the UCC lien. They decide whether you can fight or settle the case.

You see the court in Rockland County for reasons buried in the paragraphs of the advance agreement. The choice of law is New York. Out-of-state businesses are a big share of the cases. When both sides work out of state, the funder can pick any county in the state. If you were handed the papers in New York, twenty days from the day of service is the deadline for answering the complaint. Outside New York, the answer is due in thirty days. If the papers were tacked on your door and mailed to you, thirty days counts from the day the funder completes service. There is no time to waste because no answer means a default.

The case also names you as the owner and guarantor. If you let it default, the court will grant the judgment the lender asks for, and that likely means you personally owing what the business owed. Your personal exposure turns on the terms of the advance agreement and the guarantee. Remember the business borrowed the money, so the defenses that apply to the company can matter for the guarantor.

Whether an Agreement Is a Loan

In New York state courts, LG Funding v. United Senior Properties (2020) is the leading decision on whether an agreement is a loan. The court decides after looking at how it works. The appellate court in New York asks if the funder has an “unconditional right to repayment.” It considered three questions, the reconciliation clause, whether the term of the agreement was fixed, and what recourse the funder had if the business went bankrupt.

One type of deal gets called a “purchase of receivables,” and it actually is that. The funder buys a set amount of your receivables, and takes what comes in. If your sales fall, the payments fall. A true purchase of receivables means the funder carries the risk that sales slow or stop.

In LG Funding, the reconciliation clause said only the funder, in its sole discretion, could adjust the payments. If the business went bankrupt, all the remaining balance came due at once, and the guarantor’s full guarantee came into play. In the LG Funding deal, if the business or owner admitted in writing that it could not meet the payments, it was a default

The court in LG Funding did not decide whether the agreement was a loan. Fact questions, it said, were still open. The court could only treat criminal usury as a defense in the case before it.

Davis v. Richmond Capital (Manhattan 2021) is a case where usury claimswere allowed to go forward. The reconciliation was in the funder’s sole discretion. Davis also called out the refusal to recalculate, the daily payments that did not track the actual receipts, the defaults for any slight slip up, and the personal guaranties.

In June 2023, the Second Circuit upheld the decision of New York’s federal court that a contract was a loan. A reconciliation clause said the funder, not the borrower, could adjust the payments. The funder could go after the business owner personally if the business filed for bankruptcy.

Now it is your turn. Go back to your own advance agreement. Look for these things. First, do you have a reconciliation clause? Does it let the funder change the repayment terms? Does it let the funder do it alone? Did the funder do what it agreed to do? Did it go back and recalculate when it said it would? Second, how long does the term run? Can you pinpoint the date the term ends? Are you sure? Even if it appears to have a term, are there events that speed up how fast the funder gets paid, or how much it gets paid? What recourse does the funder have if the business goes bankrupt? Was the default a real default? Were the same fees counted twice?

If a loan to a corporation carries over 25% interest a year, it is a criminal loan. In Adar Bays, New York’s highest court (2021) held that such a loan is void. The funder can collect no interest, no principal, nothing. Adar Bays is not a ruling that covers any advance where the company pays back more than twenty five percent a year. The business still has to prove the facts that make the agreement a loan. New York’s highest court also has settled that a corporation sued on an advance that is a loan can raise criminal usury as a defense.

Confession of Judgment

A confession of judgment means you admit to everything the lender claims. But the funder cannot file the confession in any county court it wishes. Since 2019, Civil Practice Law and Rules section 3218 has limited where the court can be. It is where the business had a place of business at the time of signing, or where it has a place at the time of filing the confession. If there is a confession of judgment, three years from signing is the deadline for filing in the court where the confession is allowed. If your business has no place of business in New York, the confession cannot be filed there. The funder would have to sue you to collect, and that opens the door to challenging the agreement as a loan and usurious.

You can still challenge the judgment if it has been entered. You do that by filing a motion to vacate the judgment under Civil Practice Law and Rules section 5015. But timing matters. For the most part, one year is the deadline for attacking a default. No stated deadline is set for moving to vacate a default on grounds of lack of jurisdiction or fraud. If your business had no place in New York, the filing of a confession of judgment in a New York court is a ground to challenge the judgment.

According to lawyers familiar with Quicksilver Capital, it files a UCC lien against all your company’s receivables. If the company cannot make the payments, the funder can send a notice to customers and whoever processes your credit card charges, and ask them to pay the funder instead. No lawsuit or judgment is needed.

But if Quicksilver Capital wins in New York, it can register that judgment in your home state or wherever your assets are. That can then be collected with all the tools that state allows. Notices to your customers are not the last word, but timing matters.

Settle or Fight

If you do fight, what does that mean? First, you answer the complaint on time. Second, you raise usury as a defense. Third, you have to point out the reconciliation clause and what you did and did not do under it. If you did not do something the funder claims, explain why it was not a real default. If you asked for reconciliation and the funder said no, that fact will make a difference.

That does not mean everyone should fight and not settle, even those with a confession or clear loan terms. The facts you plead in the case raise leverage that can drive a settlement you would not get otherwise.

Many of the cases end in a negotiated settlement. Time also matters, and answering the complaint, and showing up at all court dates with defenses on record, will improve your leverage if a negotiation happens. You can settle or fight on for better terms, but doing nothing is a third option that you should avoid.

The worst outcome of any suit is not losing. It is agreeing to a settlement that solves nothing. If you agree to pay back more than your company can support, you can default all over again. Before you settle, figure out what your cash flow is, and whether you can pay back the agreed amount over time. Insist on a release of all claims, known and unknown.

If things get worse, a bankruptcy filing stops the funder’s daily or weekly withdrawals and its collection, including a lawsuit underway. That can be only the first step in a longer term strategy to deal with the money woes that have hit your business. You are not totally out of the woods. If the agreement makes the business’s bankruptcy a default, the funder can attack the owner using the confession of judgment and the guaranty.

A free contract review costs nothing and takes a day or two. Call (888) 837-7053, or send the agreements to Delancey Street for a straight read on your options.