Cash may not be used by the debtor without the consent of the creditor or by court order. In practice, a creditor may be ready for the debtor who uses cash to continue operations to alleviate his emergency financial situation. However, if, for example, a new device is purchased with cash, the device replaces cash as a guarantee. This type of substitution is governed by Section 361 of the Bankruptcy Act, which requires “adequate protection” for a secured creditor to “cope with the loss in value of its assets”. A debtor may be ordered by the court to provide a replacement pledge, as shown in the figure above, or to make periodic cash payments when the value of the entire cash account begins to decline. Cash guarantees are means of payment and equivalents recovered and held for the benefit of creditors in the course of the insolvency proceedings referred to in Chapter 11. Means of payment and cash equivalents include negotiable instruments, ownership documents, securities and deposit accounts. Unless a court orders otherwise, cash collateral is separated from other assets to pay creditors. If a bank or other lender provides a commercial loan, the entity may need to mortgage its inventory and receivables as collateral to insure the loan. Unlike a house, receivables and stock change every day: inventory is used, sold and replaced, receivable fluctuates when products are sold, or new accounts are opened when inventory is sold on credit. ==11 U.S. These types of contracts are used when the borrower has poor creditworthiness and a repayment history. The company`s financial profile will be reviewed before the loan is sanctioned.
Accountants, corporate treasurers, financial managers, and investment analysts help an organization take financing initiatives, especially with respect to secured debt arrangements such as cash guarantees and financial guarantees. . . .