Blackwell, Whitewater, and Greenberg are all part of a group of related companies. Whitewater owns 100% of Blackwell and Blackwell owns 100% of Greenberg. Last year Whitewater borrowed $100,000 from the Roymont Bank to finance Whitewater operations. The loan is still unpaid; however, Whitewater has paid the interest required. In the current year Whitewater advanced $50,000 to Blackwell and $40,000 to Greenberg.
As required by the bank loan agreement, Whitewater provided Roymont Bank with a copy of the audited consolidated financial statements within two months subsequent to the year end. This week Whitewater received notice from Roymont Bank that it is calling the loan to Whitewater. The bank maintains that Whitewater did not use the funds in the manner that was agreed to. Furthermore, the bank maintains that Whitewater falsified the financial statements by not reflecting the fact that the funds were given to Blackwell and Greenberg. Whitewater states that it consolidated in accordance with GAAP and eliminated intragroup loans and therefore did not do anything misleading.
Required
Assume the role of the advisor to Whitewater. Discuss both sides that could be raised should this case come to trial.