When businesses pay for goods and services, they generally like to receive them. Unfortunately, as any bankruptcy lawyer will tell you, this consistent desire is not matched by uniform experience.

Most recently, the bankruptcy of KSL Media again illustrated the risks and concerns when an advertiser entrusts significant funds to an entity that is too thinly capitalized or, as some allege, guilty of diverting funds that were to be passed through and in breach of a fiduciary duty to its clients. KSL’s bankruptcy, of course, was also noteworthy not because KSL was a start-up, but because it was not. We might expect capitalization risks with start-ups. But KSL was an established media company that failed. So the question remains: how can advertisers protect funds entrusted to suppliers, particularly those that are earmarked for payments to third parties?
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