Promissory Notes in Lieu of Cash Distribution

Wondering if anyone has a sense for how common a practice it is to use promissory notes for purposes of making distributions from an ESOP.  Most of what I have found suggests that this was previously a common practice but is rarely used any more.  Appreciate any thoughts. 

Are you suggesting a promissory note from the ESOP to the participant or a promissory note from the Plan Sponsor to the ESOP to fund participant distributions?

sorry ...  promissory note from the ESOP to the Plan Sponsor.

Thanks justsayin - this would be a note from the Sponsor to the participant for repurchase of distributed shares.  

Does the plan document address this?

I haven't seen this done in decades. 

It is pretty difficult to do all legally correct is part of the problem. 

If the company is having cash flow problems regarding paying benefits and the repurchase obligation they need to find a firm that is good at repurchase obligation studies and work on a plan.  

ESOPs have more flexibility to change their distribution rules and policy than most types of plans in regards to protected benefits.  This is an area where a good TPA and ERISA attorney that knows ESOPs can really help with the planning.   It tends to be money worth spending.  

A big part of the difficulty is the note has to be secured.   What asset is the company willing to have a lien put on it to secure it?  Would a lien on an asset violate other loan covenants the company has?  

They can get a bank to agree to make the note good but if the company could do that they are most likely in good enough cash position to just pay the person cash. 

See my prior comment for ideas I would track down before spending too much time on this idea.  

I wholeheartedly agree with @ESOP Guy and will add that if the company gives the  participant a promissory note to repurchase the shares, the transaction almost certainly will be considered a prohibited transaction subject to all of the associated penalties.