Quantifying Unwritten Side Deals In Corporate Distress Restructuring
Unwritten side deals in corporate restructurings create valuation deltas that siphon enterprise value from statutory recovery waterfalls into unrecorded claims.
bilateral promises
Meaning
Reciprocal commitments bind two parties so that each side’s obligation is contingent on the other’s performance. These bilateral promises function as the foundation of exchange in private agreements where the consideration is the promise itself. Such obligations are typically documented in an initial memorandum or a signed letter of intent (LOI) before formal legal structures are fully populated.
Formation Logic
Performance of one act triggers the requirement for the counterpart response. Founders rely on bilateral promises during the early stage of a buyout or transition where cash flows are not yet diverted. The record of these intents prevents one party from claiming a gift was intended when the exchange was actually commercial.
Evidentiary Weight
Contemporaneous notes or email threads capture the moment the mutual obligation was struck. If the record of bilateral promises is absent, a claimant might struggle to prove that an equity grant was tied to a specific non-compete period. Verbal agreements lack the durability of a written log.
Clear dating is required to show that the commitments were made before the irreversible transfer of assets. The record distinguishes a firm obligation from a mere expression of future hope.
Default Outcome
Failure to execute the agreed action creates a breach that allows the other party to withhold their own performance. The costs of unclear bilateral promises include the attention hours spent in mediation to determine which party failed first. Disputes center on whether a promise was conditional or absolute.