If you’ve been following headlines, you’ve probably heard about the court filings involving Uncle Nearest, the whiskey company celebrated for honoring the legacy of Nathan “Nearest” Green, the formerly enslaved distiller who taught Jack Daniel. But beneath the headlines about culture, brand equity, and leadership, there is a much more technical and sobering lesson for founders: how the very credit agreements that fuel growth can also put your company’s fate in the hands of lenders. Here's this week's edition of The Dime💰.
This case is a real-world example of what happens when debt meets default, and why every founder should think twice before signing a loan agreement they do not fully understand. The past few days I've been reading both the complaint by the lender (Farm Credit Mid-America, PCA) and the response by Fawn Weaver. I have attached them below for download so please feel free to dig in and share with friends if you so choose.
How Lenders Get the Power
The filings in the Uncle Nearest case (see Petition, p. 2, Sec. I) show that the company entered into secured credit facilities with its lenders. In plain English, that means Uncle Nearest borrowed money under agreements that gave the lenders rights over the company’s assets as collateral. Just like when you take out a mortgage on a house, the bank gets a lien on the property. If you fail to pay, the bank can foreclose. Here, the “house” was not just whiskey inventory or trademarks, it was the entire business. These types of facilities are common in consumer brands because they allow rapid scaling, funding production, distribution, and marketing, but they also come with heavy strings attached.
What Events of Default Really Mean
According to the filings (Petition, p. 3, Sec. II), the lenders had “Events of Default” clauses that were triggered when Uncle Nearest allegedly failed to meet certain payment obligations. Think of Events of Default as the tripwires built into a contract. They can be obvious, like missing an interest payment, or technical, like breaching a financial covenant that requires you to keep a certain ratio of assets to debt. Once tripped, the lenders often gain extraordinary rights, including accelerating the loan (demanding immediate repayment of the entire balance) and seeking the appointment of a receiver. That is exactly what happened here. The lenders petitioned the court to appoint a receiver, essentially a third-party manager, to step in and run Uncle Nearest. This is a drastic remedy, but one the lenders had bargained for in advance.
The Mechanics of Collateral and Priority Liens
The mechanics of why lenders had this power comes down to security agreements and intercreditor arrangements. In the filings (Petition, Exhibit A, Loan Agreement, Sec. 7.1), the lenders were given first-priority liens on Uncle Nearest’s assets. First priority means that in the pecking order of creditors, they get paid before anyone else if assets are liquidated. To enforce this, courts will grant remedies like foreclosure or receivership. Importantly, the lenders were not equity holders—they were not shareholders in the traditional sense, but because of the way the agreements were drafted, they had more immediate power than equity investors. Equity gets you upside when things go well, but debt gets you control when things go poorly.
Understanding the Credit Facilities: Revolvers and Term Loans
The types of credit agreements involved are worth unpacking. From the filings (Petition, Exhibit B, Credit Facility, Sec. 2.1), we see a revolving credit facility paired with term loans. A revolving facility works like a corporate credit card, you can borrow, repay, and borrow again, up to a limit. A term loan is more like a mortgage, borrow once and pay down over time. Startups often like this mix because it provides flexibility for seasonal cash flow while also locking in longer-term capital. But the catch is that both are usually secured by all assets of the borrower. In startup slang, that means the lenders have a “blanket lien.” If you default, they can come after everything.
Why Receivership is the Nuclear Option
The lenders in Uncle Nearest asked the court for a receiver, which is essentially a court-appointed manager who takes over the company’s operations, assets, and decision-making. This is considered a “nuclear option” because it strips control from management without requiring a full bankruptcy proceeding. Section references in the filing make clear that the lenders wanted to protect their collateral and ensure repayment, not necessarily to shut the company down. For startups, this shows that lenders have powerful remedies that go beyond simply demanding payment.
Fawn Weaver’s Response and the Nature of Disputes
Fawn Weaver’s response filing (Response, p. 4, Sec. III) highlights that she disputed the lender’s interpretation of events, arguing that the company was not in material default. This underscores another key point for founders: defaults are not always clear-cut. Lenders may claim you are in breach, but you may have defenses. The problem is, fighting those claims takes time and money, and while the dispute plays out, your business operations hang in the balance. Courts tend to give lenders wide latitude if the agreements are clear, which is why negotiating those definitions on the front end is so critical.
Takeaways
For startups reading this, the cautionary takeaway is simple. Debt is not evil, it can be a lifeline, but it is also a leash. Unlike equity investors, lenders are not betting on your growth, they are protecting against your failure. That means the documents will be filled with covenants, collateral pledges, and remedies that tilt the balance of power toward them. If you miss a covenant, even one that feels technical, the lenders can pull the trigger. This is why legal diligence matters. Too many founders think of a loan agreement as boilerplate. It is not. It is a set of shackles you willingly step into, and you need to know how tight they are.
Courts have consistently upheld lender remedies when contracts are explicit. The Uncle Nearest case fits squarely within this tradition: the lenders bargained for control mechanisms, the company accepted them, and once defaults were alleged, the lenders exercised their rights.
To analogize, imagine you give someone your car keys as part of a loan deal, with the promise that they will only use them if you stop making payments. If you miss a payment, they not only have the right to take the car, they may have the right to sell it, lease it, or give it to someone else to drive. That is essentially what happens when you give lenders broad collateral rights. They hold the keys to your company, and whether they turn them depends not just on whether you miss payments, but on how they interpret the fine print.
In Short
For founders in consumer brands, tech, or any capital-intensive sector, this case is a reminder to think strategically about financing. Equity dilutes you, but it keeps you in control. Debt preserves your cap table, but it can put you at the mercy of creditors. There is no "one size fits all" answer, but if you go the debt route, you need to lawyer up and negotiate the covenants, cure periods, and remedies with as much care as you negotiate valuation in a term sheet. Do not just look at the interest rate, look at the triggers and the consequences.
The Uncle Nearest filings show how quickly power can shift from founders to financiers. What starts as growth capital can end as a fight for survival. For startups, the lesson is not to avoid debt altogether, but to enter those relationships with eyes wide open. Understand the documents, push back where you can, and always remember: the money that fuels you today can control you tomorrow.
Shoutouts
A few years ago I was a rookie in this field of law but over time I've been able to ramp up my learnings in navigating credit agreements and understanding covenants by reading several books. The main books are the LSTA's Complete Credit Agreement Guide and Mezzanine Financing. I have also received a ton of help over the years by following Julian Bulaon, who's an Attorney and also a Senior Covenant Analyst at Octus. You can follow him on X (formerly Twitter) and Instagram.
That's it for this week's edition of The Dime💰. Don't be stingy with the 🏀. Pass this to a friend.
See y'all next week.
CJB