tag:blogger.com,1999:blog-55277119539121199372024-03-14T05:42:57.086-07:00California Bankruptcy BlogIain A. Macdonaldhttp://www.blogger.com/profile/17330238198521148356noreply@blogger.comBlogger139125tag:blogger.com,1999:blog-5527711953912119937.post-54980887676817464632020-06-19T10:29:00.001-07:002020-06-19T10:29:13.855-07:00Right to Repossess Under Fair Debt Collection Practices Act Determined by State Law, 7th Circuit Says<p class="MsoNormal" style="margin-bottom: 9.75pt;"><span style="color: black; mso-fareast-font-family: Calibri;">The United States Court of Appeals for the Seventh Circuit
has ruled that the question of whether a repossession company has a right to
possess the property at the time of seizure must be determined by state law under
the Federal Fair Debt Collection Practices Act (the "FRCPA").<span style="mso-spacerun: yes;"> </span><a href="http://media.ca7.uscourts.gov/cgi-bin/rssExec.pl?Submit=Display&Path=Y2020/D03-25/C:19-1184:J:Sykes:aut:T:fnOp:N:2492594:S:0&inf_contact_key=1c612cfe6554d5fbae000dca4dc9b728d18a532c4142cb79caf2b269de1401fa" target="_blank"><i>Richards v. PAR, Inc.</i>, 954 F.3d 965 (7<sup>th</sup>
Cir. 2020)</a>.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 9.75pt; margin-left: 0in; margin-right: 0in; margin-top: 9.75pt;"><span style="color: black; mso-fareast-font-family: Calibri;">In this case, the appellant, namely Nicole Richards, defaulted on
her automobile loan.<span style="mso-spacerun: yes;"> </span>Appellee PAR, Inc.
was hired to repossess the car but subcontracted to a towing company, which
attempted to repossess the car. <span style="mso-spacerun: yes;"> </span>Richards
protested and demanded that they leave her property. The towing company called
the police, who handcuffed Richards until the car was towed. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 9.75pt; margin-left: 0in; margin-right: 0in; margin-top: 9.75pt;"><span style="color: black; mso-fareast-font-family: Calibri;">While admitting that there was a valid lien and default, Richards
sued PAR and the towing company in district court for trespass and replevin
under Indiana state law and for violations of the FDCPA. <span style="mso-spacerun: yes;"> </span>The court granted summary judgment in favor of
PAR and the towing company and held that any alleged improper conduct is independently
a matter of state law such that the FDCPA is not an appropriate enforcement
mechanism.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 9.75pt; margin-left: 0in; margin-right: 0in; margin-top: 9.75pt;"><span style="color: black; mso-fareast-font-family: Calibri;">But Richards appealed, and the Court of Appeals reversed, finding that
her complaint alleged a plausible claim under the FDCPA. <span style="mso-spacerun: yes;"> </span>The FDCPA broadly governs debt collection
practices and sets forth certain prohibited acts, including prohibiting debt
collectors from taking or threatening to take any nonjudicial action to effect
dispossession or disablement of property if there is no present right to
possession of the property claimed as collateral through an enforceable
security interest.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 9.75pt; margin-left: 0in; margin-right: 0in; margin-top: 9.75pt;"><span style="color: black; mso-fareast-font-family: Calibri;">The FDCPA des not define “present right to possession.” <span style="mso-spacerun: yes;"> </span>The district court found that the repossessors
had a present right to possession because there was a valid security interest
(a lien against the automobile). <span style="mso-spacerun: yes;"> </span>But the
Seventh Circuit found this to be in error because state law determines whether there
is a present right to possess property.<span style="mso-spacerun: yes;">
</span>Moreover, Indiana law permits nonjudicial repossession only if the
process does not breach the peace. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 9.75pt; margin-left: 0in; margin-right: 0in; margin-top: 9.75pt;"><span style="color: black; mso-fareast-font-family: Calibri;">Here, a breach of peace could have occurred once Richards
protested and demanded that the repossessors leave her property.<span style="mso-spacerun: yes;"> </span>Accordingly, Richards’ allegations were
sufficient to state a claim under the FDCPA and to survive summary judgment.<span style="mso-spacerun: yes;"> </span>Likewise, it is important to note that California
law permits a secured creditor to repossess collateral only if it can be done
without breach of the peace.<span style="mso-spacerun: yes;"> </span>Cal. Com.
Code § 9609.<o:p></o:p></span></p><br />Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-77614657378024319852020-03-27T14:25:00.000-07:002020-04-07T15:25:38.960-07:00New Bankruptcy Provisions Offer Relief to Small Businesses<br />
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No one could have appreciated the timeliness of the
enactment of Subchapter V of chapter 11 of the Bankruptcy Code, effective
February 19, 2020 and known as the Small Business Reorganization Act of 2019
(SBRA), as modified by CARES (<span style="background: white; color: #525252; font-family: "helvetica" , sans-serif; font-size: 10.5pt;">Coronavirus Aid, Relief, and Economic
Security Act)</span> to increase the
debt ceiling for eligibility to $7,500,000 (for one year only). For many
businesses it will prove to be a lifeline to survival.</div>
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<o:p></o:p></div>
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Chapter 13 has always been admired by small businesses
and their lawyers because it offers individuals a way to restructure debt (1) without
the necessity of obtaining creditor approval (i.e. no balloting or voting) and
(2) by paying unsecured creditors no more than three years’ projected
disposable income. <i><span style="mso-spacerun: yes;"> </span></i>A limitation
on the use of Chapter 13 is that it is limited to <i>individuals</i> with
unsecured debt of not more than $394,725 (plus secured debt of not more than $1,184,200).<o:p></o:p></div>
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The new law allows the small business, whether individual,
corporate or otherwise, to restructure debt of up to $7,500,000 (secured and
unsecured taken together) by pledging to pay to creditors projected disposable
income (defined as income received by the debtor that is not reasonably
necessary for (a) support of the debtor and dependents, and (b) necessary
business expenses) over a three-year period. <o:p></o:p></div>
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Two revolutionary features: the first is that creditor
approval of the plan is not necessary, therefore eliminating the need for
costly and time-consuming disclosure statement and solicitation of creditor
votes—the hallmark of the traditional Chapter 11 case; secondly, The Absolute Priority
Rule, which prohibits the company from retaining its business operations
without paying creditors in full (unless creditors agree), is inapplicable in
the Subchapter V case. The debtor can confirm its plan without the votes of
creditors and without the support of an impaired class. (<span style="mso-bidi-font-style: italic;">As with Chapter 11, creditors must receive
an amount equal to liquidation value of debtor’s assets.) </span><span style="mso-spacerun: yes;"> </span>Competing plans are not allowed; nor is there
a disclosure statement requirement—limited disclosures are made in the plan<o:p></o:p></div>
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Significant provisions:<o:p></o:p></div>
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<i>Opt-in election</i>: there have been small business
provisions in place in chapter 11 for several years. Those provisions continue,
but do not contain the revolutionary features of SBRA, which requires an opt-in
at the time of filing the chapter 11 petition; failure to elect Subchapter five
treatment defaults the Small Business Chapter 11 case into one under the existing
small business debtor rules. One therefore needs to distinguish whether a
“small business case“ is the new Subchapter 5 created by SBRA or the former,
Because both types of cases will run in tangent through the courts. A small
business case under the former law is referred to as a “small business case,”
whereas cases for which the new procedure is elected will be called “cases
under Subchapter V of chapter 11.”<o:p></o:p></div>
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<i>Considerations: </i>Why would a business choose not to
elect given the attractive features of subchapter V? There are two main
reasons: <span style="mso-spacerun: yes;"> </span>firstly, the business is not
ready for a fast-track procedure and needs the much longer 300 day time period
of the non-elective small business case to file its plan. Examples of such a
situation are where the debtor is forced to file Chapter 11 either because of
an imminent foreclosure or and unforeseen catastrophe like a sudden business
reversal or a large judgment in a case it was not expecting to lose, and other
situations where it needs bankruptcy relief but simply does not have an exit
strategy.<span style="mso-spacerun: yes;"> </span><o:p></o:p></div>
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<i>Subchapter V trustee: </i>The second reason to avoid Subchapter
V is that the business either does not care for, nor can it support, a trustee,
albeit one with limited powers. The Subchapter V trustee is appointed in every Subchapter
V case with the limited powers of advising regarding operations, assisting with
disbursements, and assisting in negotiation of a consensual plan of reorganization.
The Subchapter V Trustee does not have the broad powers of a Chapter 11 Trustee
because he or she does not take possession of property of the estate and
responsibility for the operations although, as in chapter 11, a traditional
trustee may be appointed if the grounds exist under section 1104, such as fraud
or gross mismanagement. The Subchapter V trustee is not the same as a chapter
13 trustee because he is not standing trustee and does not have the power to
object to confirmation of the plan, etc. <span style="mso-spacerun: yes;"> </span>The Office of the United States Trustee has
created a pool of trustee candidates to be appointed on an ad hoc basis,
depending on the type of business and needs of the case.<o:p></o:p></div>
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<i>Time deadlines</i>: The differences between the two
cases are striking.<span style="mso-spacerun: yes;"> </span>A small business
debtor is allowed 300 days to file a plan and 45 days to confirm it; Subchapter
V operates on a fast track, requiring the filing of a plan within 90 days. When
considering the opt-in to Subchapter V the debtor and its lawyers must have
their ducks lined up because it is not anticipated that Courts will be willing
to grant an extension to a debtor who pleads it’s not prepared to file his
plan. The debtor who does not file its plan on time risks conversion, dismissal
or appointment of a trustee.<o:p></o:p></div>
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<i>Best Interests of Creditors: </i><span style="mso-bidi-font-style: italic;">As with Chapter 11, creditors must receive
an amount equal to liquidation value of debtor’s assets.<o:p></o:p></span></div>
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<i>Modification of trust deeds on residences now
permitted: </i><span style="mso-bidi-font-style: italic;">The SBRA changes the
current prohibition against modifying the rights of holders of secured claims
against the principal residence of the debtor. The debtor may now modify the
rights of the holder of such a claim provided that the new value received was
not used primarily to acquire the real property and the real property is used
primarily in connection with the small business of the debtor.</span><o:p></o:p></div>
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<i>Conclusion:</i> the debtor can keep its business by
paying its creditors the minimum necessary to comply with the projected
disposable income requirement, subject to complying with the best interests of
creditors test, without the necessity of obtaining creditor consent.<span style="mso-spacerun: yes;"> </span>The benefits are significant, and it is to be
expected that Subchapter V will be used extensively throughout the coming year
and beyond.<o:p></o:p></div>
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<i>- Iain A. Macdonald</i></div>
<br />Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-2774961185098365782015-08-12T15:48:00.000-07:002015-08-12T15:49:36.187-07:00Success Story: $20 Million Hotel and All Jobs Saved From CollapseIn the summary below, we tell the story of how we recently saved a $20 million hotel from collapse, keeping the doors open without interruption and saving all jobs.<br />
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<b><span style="font-family: "Times New Roman","serif"; font-size: 12pt;">The
Company</span></b><span style="font-family: "Times New Roman","serif"; font-size: 12pt;">:
A hotel in Riverside, California.</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt;"></span><b><span style="border-image: none; border: 1pt windowtext; mso-border-alt: none windowtext 0in; padding: 0in;">The Problem</span></b><span style="border-image: none; border: 1pt windowtext; mso-border-alt: none windowtext 0in; padding: 0in;">: The hotel defaulted on certain terms of an approximately $20
million loan agreement with a lender. The lender subsequently initiated
state court litigation to foreclose. </span><b><span style="border-image: none; border: 1pt windowtext; mso-border-alt: none windowtext 0in; padding: 0in;"></span></b></div>
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<b><span style="border-image: none; border: 1pt windowtext; mso-border-alt: none windowtext 0in; padding: 0in;">The Solution</span></b><span style="border-image: none; border: 1pt windowtext; mso-border-alt: none windowtext 0in; padding: 0in;">: We filed a chapter 11 bankruptcy case for the hotel, halting
the state court litigation and allowing the hotel to continue to operate
without interruption. Thereafter, we handled issues touching upon municipal bond financing, assumption of the franchise agreement, disputed easements and purchase options. Recently, we obtained bankruptcy court confirmation of the hotel's chapter 11 plan of reorganization, which modifies the terms of the loan agreement and completely resolves all issues.</span></div>
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<b><span style="border-image: none; border: 1pt windowtext; mso-border-alt: none windowtext 0in; padding: 0in;">The Impact</span></b><span style="border-image: none; border: 1pt windowtext; mso-border-alt: none windowtext 0in; padding: 0in;">: Through a confirmed chapter 11 plan, we saved the hotel from
foreclosure. The hotel’s bankruptcy case is now
closed and the hotel is operating profitably. </span></div>
<div style="line-height: 18pt; margin: 0in 0in 0.2in; vertical-align: baseline;">
<span style="border-image: none; border: 1pt windowtext; mso-border-alt: none windowtext 0in; padding: 0in;"><br /></span></div>
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<span style="border-image: none; border: 1pt windowtext; mso-border-alt: none windowtext 0in; padding: 0in;">- <em>By <a href="http://macfern.com/attorneys/roxanne-bahadurji/" target="_blank">Roxanne Bahadurji</a></em></span></div>
Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-77257279281598766552015-08-04T17:22:00.001-07:002015-08-04T17:25:11.732-07:00Mortgage Modification Procedures Established in Bankruptcy Courts forNorthern District of CaliforniaEffective August 1, 2015, most bankruptcy courts adopted sweeping new mortgage modification procedures, which can be viewed <a href="http://www.canb.uscourts.gov/sites/default/files/announcements/mmmprocedures.pdf" target="_blank">here</a>.<br />
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<div>
This impressive set of new procedures was tested in Florida and certain other jurisdictions but is entirely new to the Northern District. Specifically, the procedures provide for monitoring and mediation of mortgage modifications based upon lender consent. Most major lenders regularly consent and have pre-registered with the electronic documentation system, which is key to the functioning of the program.</div>
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The program applies to all open and new chapter 13 bankruptcy cases in participating courts. It may also be applied in individual chapter 11 bankruptcy cases by special request.</div>
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<div>
The new procedures streamline the processes under HAMP, HARP, Fannie Mae, Freddie Mac, FHA, VA, private bank programs and other mortgage modification procedures. It also eliminates several common roadblocks to mortgage modification approval and dealing with mortgage modification denials, including document completion, income and expense analysis, forbearance and balloon payments, reamortization, cure of arrears and due diligence and title problems.</div>
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<div>
A key advantage is the combination of mortgage modification with bankruptcy relief, adding opportunities for discharge of unsecured debts, reorganization of priority debts and resolution of title and lien-priority issues. This combination is likely to provide relief for thousands of debtors who were poorly served by either process standing on its own.</div>
Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-77130164928207630222015-06-15T09:38:00.001-07:002015-06-15T09:38:50.761-07:00Chapter 7 Trustee Must Notify Creditors and Obtain Court Approval
Before Paying TaxesIn <i>In re Cloobeck,</i> 14 C.D.O.S. 5982, No. <a href="tel:23-15432" x-apple-data-detectors="true" x-apple-data-detectors-type="telephone" x-apple-data-detectors-result="0">23-15432</a> (9th Cir. June 12, 2015), the United States Court of Appeals for the Ninth Circuit ruled that a chapter 7 bankruptcy trustee must notify creditors, set a hearing or opportunity for a hearing and obtain bankruptcy court approval as a condition of paying taxes incurred by the bankruptcy estate. Specifically, a trustee must obtain court approval both as to the appropriate amount of taxes and authority to pay the taxes.<div><br></div><div>Bankruptcy Code Section 503(b)(1)(B) affords administrative priority to tax claims against the estate. A creditor objected to the trustee's payment of estate taxes more than two years after apparently learning of the payment, arguing that Section 503(b) requires "notice and a hearing" before payment of administrative expenses. </div><div><br></div><div>The trustee argued that this would be inconsistent with Internal Revenue Code (26 U.S.C.) Section 6012(b)(4), which provides that: "Returns of an estate, a trust, or an estate of an individual under chapter 7 or 11 of [the Bankruptcy Code] shall be made by the fiduciary thereof." Moreover, the trustee must ordinarily pay federal taxes on time. 28 U.S.C. § 960. Also, Section 503(b)(1)(D) excuses the government from filing a request for payment of an administrative expense, unlike other creditors.</div><div><br></div><div>The bankruptcy court rule in favor of the trustee. On appeal, the district court affirmed and determined that the creditor's objection was untimely. The creditor appealed to the Ninth Circuit.</div><div><br></div><div>The Ninth Circuit reversed and remanded for further proceedings. Specifically, the court ruled that the trustee must notify creditors and set a hearing, or provide an opportunity for a hearing, and <span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">must also obtain court approval both as to the appropriate amount of taxes and authority to pay the taxes. The court explained that a trustee must pay taxes in time, even if the IRS does not file a request, and must also provide notice and an opportunity for hearing. Judge Wallace concurred in the result but write separately to voice concerns over the timeliness of the creditor's objection.</span></div><div><br></div>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-51150824433540288772015-04-13T09:07:00.001-07:002015-04-13T09:07:29.102-07:00Reno Fernandez Recognized by Bar Association of San Francisco for National Volunteer WeekToday the <a href="https://www.facebook.com/sfbar/photos/a.117827567979.98064.11845672979/10153186334117980/?type=1&theater" target="_blank">Bar Association of San Francisco</a> recognized <a href="http://macfern.com/attorneys/renofernandez/" target="_blank">Reno Fernandez</a> in honor of <a href="https://www.facebook.com/sfbar/photos/a.117827567979.98064.11845672979/10153186334117980/?type=1&theater" target="_blank">National Volunteer Week</a> for his work as chair of the <a href="http://www.sfbar.org/cle/sections_commercial.aspx" target="_blank">Commercial Law and Bankruptcy Section</a>, an arm of the bar association dedicated to continuing legal education of the bankruptcy bar. <a href="https://www.facebook.com/sfbar/photos/a.117827567979.98064.11845672979/10153186334117980/?type=1&theater" target="_blank">Read more here</a>.Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-46955719076440259072015-03-27T16:37:00.000-07:002015-03-27T16:37:21.612-07:00Starting Up & Winding Down: Both Sides of the Business CycleJoin <a href="http://macfern.com/attorneys/matthew-olson/" target="_blank">Matt Olson</a> for lunch as he and <a href="http://www.emergentlegal.com/attorneys/" target="_blank">Greg Demirchyan</a> present "Starting Up & Winding Down: Both Sides of the Business Cycle" for the Business Law Section of the Bar Association of San Francisco on Tuesday, May 26, 2015. <a href="http://macfern.com/attorneys/renofernandez/" target="_blank">Reno Fernandez</a> is a member of the section's executive committee.<br />
<br /><br />
<h3>
<a href="http://www.sfbar.org/calendar/eventdetail.aspx?id=G150101/G150101" target="_blank">Starting Up and Winding Down: Both Sides of the Business Cycle</a></h3>
<br /><br />
<strong>Fail again.<br /> Fail better.<br /> - Samuel Becket</strong><br />
<br /><br />
This is the entrepreneur's motto. In this program, learn to properly form and advise a startup and also wind it down so entrepreneurs can smoothly transition to the next project.<br />
<br /><br />
<strong>Speakers</strong><br />
<strong><br /></strong><br />
<a href="http://www.emergentlegal.com/attorneys/" target="_blank">Greg Demirchyan</a><br /> Emergent Legal<br /><br /><a href="http://macfern.com/attorneys/matthew-olson/" target="_blank"> Matthew J. Olson</a><br /> Macdonald Fernandez LLP<br /><br />
<strong>Topics</strong><br />
<strong></strong><br />• Forming corporations and limited liability companies<br />• Advising startups, tips and best practices<br />• Winding up and dissolving a company out of court<br />
<br /><br />
<strong>Date, Time & Location</strong><br />
<strong><br /></strong><br />
Tuesday, May 26, 2015<br />
Noon to 1:30 pm<br />
301 Battery Street, Third Floor<br />
San Francisco, California<br />
<br /><br />
<a href="http://www.sfbar.org/calendar/eventdetail.aspx?id=G150101/G150101" target="_blank">RSVP HERE</a>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-80358094359124158222015-02-19T20:26:00.000-08:002015-02-25T09:14:10.362-08:00The Intersection of Tax and BankruptcyThis Monday, February 23, 2015, at the City Club of San Francisco, the Bay Area Bankruptcy Forum in cooperation with the Taxation Section and the Commercial Law & Bankruptcy Section of the Bar Association of San Francisco will present "The Intersection of Tax and Bankruptcy." <a href="http://macfern.com/attorneys/renofernandez/" target="_blank">Reno Fernandez</a> is a member of the Forum's board of directors.<br />
<a href="http://www.babf.com/Programs.html" target="_blank"><b><br /></b></a>
<a href="http://www.babf.com/Programs.html" target="_blank"><b>The Intersection of Tax and Bankruptcy</b></a><br />
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Dennis Bean, CPA</div>
<div class="MsoNormal">
Bean Hunt Harris & Company</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Heinz Binder </div>
<div class="MsoNormal">
Binder & Malter, LLP </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Richard Pierotti, CPA</div>
<div class="MsoNormal">
Kokjer, Pierotti, Maiocco & Duck
LLP</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
A. Lavar Taylor </div>
<div class="MsoNormal">
The Law Offices of A. Lavar Taylor</div>
<br />
February 23, 2015<br />
5:00 to 7:00 pm<br />
<br />
The City Club <br />
155 Sansome Street<br />
San Francisco, California<br />
<br />
<a href="http://www.babf.com/Programs.html" target="_blank">More information here</a>.Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-53377944423027196942015-02-16T09:32:00.001-08:002015-02-16T09:44:19.485-08:00Chapter 11 Reorganization Solutions to Port Strikes and Shipping Delays<div>
<div class="MsoNormal">
A strategic chapter 11 bankruptcy case can provide
crucial help to businesses facing delayed shipments of supplies and
inventory resulting from the port strikes and shutdowns, including:</div>
</div>
<div>
<div class="MsoNormal">
<br /></div>
</div>
<div>
<div class="MsoNormal">
• <u>The Automatic Stay</u>. A worldwide injunction goes
into effect immediately, preventing creditors from suing, collecting
collateral and even calling and harassing the business. This provides a
critical breathing spell.</div>
</div>
<div>
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<br /></div>
</div>
<div>
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• <u>Adjust Payments to Creditors and Vendors</u>. Repay
creditors in full or in part over time on a schedule that works in
light of delayed shipments and delayed sales.</div>
</div>
<div>
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<br /></div>
</div>
<div>
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• <u>Preserve and Assert Claims</u>. If the business
holds claims against third parties on account of delayed shipments,
these are preserved and can be asserted during or after the chapter 11
case. These can be difficult or impossible to assert
if the business is allowed to collapse.</div>
</div>
<div>
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<br /></div>
</div>
<div>
<div class="MsoNormal">
• <u>Obtain Operating Cash</u>. Lenders are reluctant to
loan to a distressed company. However, lenders - including the
principals of the company - can make loans on a preferred and protected
basis through court-approved DIP financing in chapter
11.</div>
</div>
<div>
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<br /></div>
</div>
<div>
To summarize, a central purpose of chapter 11 is to solve short-term cash flow problems, and it provides good tools to do so.<br />
<br />
<i>By <a href="http://macfern.com/attorneys/renofernandez/" target="_blank">Reno Fernandez</a>, a partner with <a href="http://macfern.com/" target="_blank">Macdonald Fernandez LLP</a>, a law firm focusing on business bankruptcy, reorganization and commercial litigation. <a href="http://macfern.com/" target="_blank">Macdonald Fernandez LLP</a> helps businesses and individuals file for relief under the
Bankruptcy Code throughout California, including Los Angeles, San Diego, the San Francisco Bay Area and the Central Valley, </i><i><i>and the firm is a debt relief agency as defined
under the Bankruptcy Code. </i>Advertisement. <a href="http://macfern.com/attorneys/renofernandez/" target="_blank">Reno</a> can be reached at (415) 362-0449 x 204 or</i><i>
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<span style="font-family: Cambria; font-size: 12.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: "MS 明朝"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast; mso-hansi-theme-font: minor-latin;"><a href="mailto:reno@macfern.com">reno@macfern.com</a></span>.
</i></div>
Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-36144002818342952402015-02-12T12:05:00.000-08:002015-02-12T12:05:00.366-08:00Business Bankruptcy BasicsLearn about <a href="http://www.lexvid.com/cle/business-bankruptcy-basics-cle" target="_blank">business bankruptcy basics</a> and earn CLE credit valid in ten states with this video, available <a href="http://www.lexvid.com/cle/business-bankruptcy-basics-cle" target="_blank">here</a>. The provider, namely <a href="http://www.lexvid.com/cle/business-bankruptcy-basics-cle" target="_blank">LexVid</a>, should give you one video for free. Here is the course description:<br />
<br />
There are a number of complex issues to consider when representing a
business client in a bankruptcy. Join <a href="http://macfern.com/attorneys/renofernandez/" target="_blank">Reno Fernandez</a>, San Francisco
commercial bankruptcy attorney, as he covers all the basics of a
<a href="http://www.lexvid.com/cle/business-bankruptcy-basics-cle" target="_blank">business bankruptcy</a> case. The program will focus mostly on corporate
Chapter 11 cases, which allows the business to continue to operate with
the goal or reorganizing and paying creditors. Mr. Fernandez will also
cover business Chapter 7 cases, which are an effective way to dissolve
and wind up if the business does not require a reorganization. Other
topics include discharge, the automatic stay, trustees, and many more.Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-90960877421489946562015-02-12T08:47:00.001-08:002015-02-12T09:04:36.363-08:00Chapter 11 Plan Cannot Treat Undersecured Claim as Fully Secured Absent Section 1111(b) Election<div class="field field-type-text field-field-cco-summary-citation" style="margin: 10px 0px; padding: 0px;">
<div class="field-items" style="margin: 0px; padding: 0px;">
<div class="field-item odd" style="margin: 0px; padding: 0px;">
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">In <i>In re Marlow Manor Downtown, LLC</i>, No. AK-14-1122-JuKiKu (9th Cir. B.A.P. Feb. 6, 2015), the Bankruptcy Appellate Panel of the United States Court of Appeals for the Ninth Circuit (the "BAP") ruled that a </span><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0); font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;">chapter 11 plan of reorganization cannot classify an undersecured claim as fully secured unless the creditor itself elects to be treated as fully secured under Bankruptcy Code Section 1111(b)(2).</span></div>
</div>
</div>
<div class="field field-type-text field-field-cco-summary-proc-context" style="margin: 10px 0px; padding: 0px; text-align: justify;">
<div class="field-label" style="font-weight: bold; margin: 0px; padding: 0px; text-align: start;">
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0); font-weight: normal;">In </span><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0); font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif; font-weight: normal;"><i>Marlow Manor</i>, the debtor proposed a chapter 11 plan treating a partially-secured lienholder, namely AHFC, as fully secured. This allowed the debtor to classify the deficiency claim separately from general unsecured claims in order to avoid the impact of an unfavorable vote against the plan by AHFC. The creditor moved for a determination that the classification was improper. </span></div>
<div class="field-label" style="font-weight: bold; margin: 0px; padding: 0px; text-align: start;">
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0); font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif; font-weight: normal;"><br /></span></div>
<div class="field-label" style="font-weight: bold; margin: 0px; padding: 0px; text-align: start;">
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0); font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif; font-weight: normal;">The bankruptcy court granted the creditor's motion. The debtor appealed, and the BAP affirmed.</span></div>
</div>
<div class="field field-type-text field-field-cco-summary-facts" style="margin: 10px 0px; padding: 0px; text-align: justify;">
<div class="field-items" style="margin: 0px; padding: 0px;">
<div class="field-item odd" style="margin: 0px; padding: 0px; text-align: start;">
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">The BAP found that the plan sought to treat AHFC’s unsecured claims as though it had made the Section 1111(b) election although it had not. The Section 1111(b) election required the debtor to treat a partially-secured claim as fully secured and pay the full amount of the claim under a plan.</span></div>
<div class="field-item odd" style="margin: 0px; padding: 0px; text-align: start;">
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br /></span></div>
<div class="field-item odd" style="margin: 0px; padding: 0px; text-align: start;">
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">The BAP held that, under Bankruptcy Code Section 1122(a), separate classification of AHFC’s deficiency claims was improper because there was nothing to distinguish them from other general unsecured claims. Specifically, although the existence of a guarantee may justify separate classification, in this case the guarantor was insolvent and not a source of recovery.</span></div>
<div class="field-item odd" style="margin: 0px; padding: 0px; text-align: start;">
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br /></span></div>
<div class="field-item odd" style="margin: 0px; padding: 0px; text-align: start;">
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">This opinion highlights the importance of determining the value of collateral in bankruptcy. If the value is not estimates, and the debtor and creditor cannot agree on a value, debtors may not be able to neutralize the creditor's objections by simply paying the creditor in full.</span></div>
</div>
</div>
Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-80007390422942520362015-02-06T08:16:00.001-08:002015-02-06T10:23:24.922-08:00Radio Shack Bankruptcy Update: Emergency First-Day Motions to be HeardTodayAt 11:00 am today in Delaware, Radio Shack will request emergency relief pursuant to several "first-day" motions, including approval of debtor-in- possession financing and authority to use cash collateral and pay pre-petition wages. <a href="http://bniembarcadero.com/wp-content/uploads/View-the-hearing-agenda-here..pdf" target="_blank">View the hearing agenda here</a><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">. We represent California landlords in the Radio Shack bankruptcy cases. </span>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-90440518183204565202015-02-05T15:18:00.001-08:002015-02-05T15:18:56.121-08:00Radio Shack Files for Chapter 11 BankruptcyRadioShack Corporation and Atlantic Retail Ventures, Inc. filed voluntary chapter 11 bankruptcy petitions today in the United States Bankruptcy Court for the District of Delaware. Both companies declared assets and liabilities of more than $1 billion. View the RadioShack Corporation<a href="https://drive.google.com/file/d/0B95b50g5SApbLTltT0VqdkdJVjA/view?usp=sharing" target="_blank"> petition here</a> and the Atlantic Retail Ventures, Inc. <a href="https://drive.google.com/file/d/0B95b50g5SApbX2FBWGdibjlXWXc/view?usp=sharing" target="_blank">petition here</a>.Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-32236106838906873392015-01-29T15:23:00.000-08:002015-01-29T15:23:16.113-08:00Cramming Down Secured Debt and the Section 1111(b) Counter-MeasureOn Tuesday, February 10, 2015, the Commercial Law & Bankruptcy Section of the Bar Association of San Francisco will present a lunch program entitled "Cramming Down Secured Debt and the Section 1111(b) Counter-Measure," explaining the most significant moves a debtor can make to modify mortgages and other liens and the countermoves the credit might take. Reno Fernandez is the Section's Immediate Past Chair.<br />
<br /><br />
<strong><a href="http://www.sfbar.org/calendar/eventdetail.aspx?id=G151902/G151902" target="_blank">Cramming Down Secured Debt and the Section 1111(b) Counter-Measure</a></strong><br />
<br /><br />
<br />
<div style="margin: 0in 0in 0pt;">
<strong>Speakers</strong></div>
<br />
<div style="margin: 0in 0in 0pt;">
<br /></div>
<div style="margin: 0in 0in 0pt;">
Robert G. Harris</div>
<br />
<div style="margin: 0in 0in 0pt;">
Binder & Malter</div>
<br />
<div style="margin: 0in 0in 0pt;">
</div>
<br />
<div style="margin: 0in 0in 0pt;">
Michael St. James</div>
<br />
<div style="margin: 0in 0in 0pt;">
St. James Law</div>
<br />
<div style="margin: 0in 0in 0pt;">
</div>
<br />
<div style="margin: 0in 0in 0pt;">
<strong>Topics</strong></div>
<br />
<div style="margin: 0in 0in 0pt;">
<br /></div>
<div style="margin: 0in 0in 0pt;">
• The Nuts and Bolts of Cramming Down a Secured Creditor</div>
<br />
<div style="margin: 0in 0in 0pt;">
• The (Under) Secured Creditor’s Leading Counter-Measures</div>
<br />
<div style="margin: 0in 0in 0pt;">
• Future Value, Credit Bidding, and How it all Plays Out in
Practice</div>
<br /><br />
<strong>Time and Place</strong><br />
<br /><br />
February 10, 2015<br />
Noon to 1:30 pm<br />
<br /><br />
The City Club<br />
155 Sansome Street<br />
San Francisco, California<br />
<br /><br />
<a href="http://www.sfbar.org/calendar/eventdetail.aspx?id=G151902/G151902" target="_blank"><strong>RSVP HERE</strong></a><br />
<br /><br />
<br /><br />
<br />Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-86964232894386392172015-01-27T20:22:00.001-08:002015-01-27T21:06:34.729-08:00Second Circuit Rules Bankruptcy Code Section Section 546(e) Protects Fraudulent Transfers in Bernard Madoff Ponzi Scheme Case<div class="MsoNormal">
<b><u><span lang="EN" style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">SUMMARY</span></u></b></div>
<div class="MsoNormal">
<b><u><span lang="EN" style="font-family: "Arial","sans-serif"; font-size: 12.0pt;"><span style="text-decoration: none;"><br /></span></span></u></b></div>
<div class="MsoNormal">
<span lang="EN" style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">In
<i>In re Bernard L. Madoff Investment Securities LLC</i>, ___ F.3d ___,
2014 WL 6863608 (2d Cir. 2014), the U.S. Court of Appeals for the Second
Circuit considered whether the “safe harbor” provision of Bankruptcy
Code section 546(e) provides a defense against
a trustee’s claims to avoid Ponzi scheme payments </span><span lang="EN" style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">under
state fraudulent transfer law made applicable by section 544(b), and
under Bankruptcy Code provisions allowing the avoidance
of “constructive” fraudulent transfers. The court ruled that section
546(e) did apply, and affirmed the dismissal of such claims against the
recipients of the transfers.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span lang="EN" style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">For a copy of the Second Circuit’s decision, <a href="http://www.ca2.uscourts.gov/decisions/isysquery/6f30532d-5f9d-4049-94f5-073743275a9e/1/doc/11-5044_11-5051_11-5175_11-5207_opn.pdf#xml=http://www.ca2.uscourts.gov/decisions/isysquery/6f30532d-5f9d-4049-94f5-073743275a9e/1/hilite/" target="_blank">please click here</a>.
</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u><span lang="EN" style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">FACTUAL BACKGROUND</span></u></b></div>
<div class="MsoNormal">
<b><u><span lang="EN" style="font-family: "Arial","sans-serif"; font-size: 12.0pt;"><span style="text-decoration: none;"><br /></span></span></u></b></div>
<div class="MsoNormal">
<span lang="EN" style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">For
some time, the bankruptcy trustee of a Ponzi scheme perpetrator has
been able to recover from investors the "fictitious profits" paid to
them in excess of their
investments. In <i>Madoff</i>, the trustee appointed to oversee the
SIPA liquidation of Madoff Securities’ investment advisory unit
(“BLMIS”) sought to avoid payments of fictitious profits to investors as
“actual” and “constructive” fraudulent transfers under
bankruptcy and state law. Certain customers defended on the ground that
the transfers were protected by the safe harbor provision of section
546(e), prohibiting the trustee from clawing back their distributions
because the payments were made by a stockbroker
“in connection with a securities contract” or, alternatively, because
they were “settlement payments” made by a stockbroker.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span lang="EN" style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">After
withdrawing the reference in multiple adversary proceedings, the U.S.
District Court for the Southern District of New York (the “District
Court”) dismissed
the trustee’s “constructive” fraudulent transfer claims under section
548(a)(1)(B) and his state law fraudulent transfer claims (asserted
pursuant to section 544) due to the applicability of section 546(e)’s
safe harbor.
<i>SIPC v. BLMIC</i>, 476 B.R. 715, 722 (S.D.N.Y. 2012). The District
Court also ruled that section 546(e) did not bar the trustee from
avoiding “actual” fraudulent transfer claims asserted under section
548(a)(1)(A).
<i>Id. </i>The trustee appealed as to the first ruling, and the Second Circuit affirmed.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u><span lang="EN" style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">REASONING</span></u></b></div>
<div class="MsoNormal">
<b><u><span lang="EN" style="font-family: "Arial","sans-serif"; font-size: 12.0pt;"><span style="text-decoration: none;"><br /></span></span></u></b></div>
<div class="MsoNormal">
<span lang="EN" style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">Section
546(e) provides, in part, that notwithstanding sections 544 and
548(a)(1)(B) of the Bankruptcy Code, a trustee may not avoid a
prepetition transfer that is
a “settlement payment” made by or to (or for the benefit of) a
stockbroker, or that is a transfer made by or to (or for the benefit of)
a stockbroker “in connection with a securities contract.” This safe
harbor has been steadily expanded to embrace more transactions.
The Second Circuit and other courts interpreting section 546(e) have
acknowledged the breadth of the coverage of this safe harbor and have
largely applied the plain language of the provision to broadly
immunize enumerated transactions from avoidance even where
the transactions at issue arguably did not impact the financial
markets.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span lang="EN" style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">In
<i>Madoff</i>, the Second Circuit imposed a broad and literal
interpretation of section 546(e) in examining whether the agreements
between BLMIS and its customers constituted “securities contracts” as
defined in section 741(7) of the Bankruptcy Code, and whether
the payments were made “in connection with” a securities contract. The
trustee argued, among other things, that section 546(e) did not apply
because BLMIS never actually initiated, executed, completed or settled
any securities transactions. But the Second
Circuit found that section 546(e) does not require an actual purchase
or sale of a security. Rather, the transfer need only be broadly related
to a securities contract and not an actual securities transaction. The
Second Circuit also concluded that the interpretation
of section 546(e) espoused by the trustee would in that case risk the
very sort of market disruption Congress was concerned with when it
enacted the provision. Noting that BLMIS’ clients had every reason to
believe that BLMIS was engaged in actual securities
transactions, the Second Circuit ruled that they had every right to
avail themselves of the protections afforded by section 546(e) because
their agreements were “securities contracts” and because the payments
made to them were “settlement payments,” as defined
in section 741(8). The Second Circuit also rejected SIPC’s argument
that Ponzi scheme payments are, by definition, not made “in connection
with” a securities contract.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u><span lang="EN" style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">AUTHOR’S COMMENTARY</span></u></b></div>
<div class="MsoNormal">
<u><span lang="EN" style="font-family: "Arial","sans-serif"; font-size: 12.0pt;"><span style="text-decoration: none;"><br /></span></span></u></div>
<div class="MsoNormal">
<span lang="EN" style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">This
is the latest in a string of decisions from the Second Circuit
that broadly construe the section 546(e) safe harbor in accordance with
the statute’s plain language.
There is a certain irony in the court’s holding, given that the profits
of the Ponzi scheme were fictitious because the investment account was
itself fictitious. This decision should provide comfort to recipients
of transfers made in connection with both actual
or purported securities transactions. </span></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: "Arial","sans-serif"; font-size: 12pt;">These
materials were written by Iain A. Macdonald, the senior partner of
MACDONALD | FERNANDEZ LLP in San Francisco, California. Editorial
contributions were provided by John N. Tedford, IV, of Danning, Gill,
Diamond & Kollitz, LLP, in Los Angeles, California.</span>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-90758933435265705462015-01-26T16:16:00.000-08:002015-01-26T16:22:30.721-08:00Cities in Distress: Is Chapter 9 the Best Vehicle for Saving Cities and Providing Needed Governmental Services?On Thursday, January 29, 2015, the Bay Area Bankruptcy Forum in cooperation with the Commercial Law & Bankruptcy Section of the Bar Association of San Francisco will present "Cities in Distress: Is Chapter 9 the Best Vehicle for Saving Cities and Providing Needed Governmental Services?" This program was a big hit at last year's Northern District Judicial Conference. Come and help us further the discussion on this interesting topic!<br />
<br />
<br />
<a href="http://babf.com/Programs.html" target="_blank">CITIES IN DISTRESS</a><br />
<a href="http://babf.com/Programs.html" target="_blank">Is Chapter 9 the Best Vehicle for Saving Cities and Providing Needed Governmental Services?</a><br />
<br />
<br />
<br />
<div style="margin: 0in 0in 0pt;">
<strong><br /></strong><strong>Moderated by:</strong></div>
<br />
<div style="margin: 0in 0in 0pt;">
</div>
<br />
<div style="margin: 0in 0in 0pt;">
Honorable Hannah L. Blumenstiel</div>
<div style="margin: 0in 0in 0pt;">
United States
Bankruptcy Judge</div>
<br />
<div style="margin: 0in 0in 0pt;">
</div>
<br />
<div style="margin: 0in 0in 0pt;">
<strong>Panelists include:</strong></div>
<br />
<div style="margin: 0in 0in 0pt;">
</div>
<br />
<div style="margin: 0in 0in 0pt;">
Professor Michelle Wilde Anderson</div>
<div style="margin: 0in 0in 0pt;">
Professor of Law,
Stanford Law School</div>
<br />
<div style="margin: 0in 0in 0pt;">
</div>
<br />
<div style="margin: 0in 0in 0pt;">
William A. Brandt, Jr.</div>
<div style="margin: 0in 0in 0pt;">
President and CEO, Development
Specialists, Inc.<span style="mso-spacerun: yes;"> </span>and </div>
<div style="margin: 0in 0in 0pt;">
Chair, Illinois
Finance Authority</div>
<br />
<div style="margin: 0in 0in 0pt;">
</div>
<br />
<div style="margin: 0in 0in 0pt;">
James E. Spiotto</div>
<div style="margin: 0in 0in 0pt;">
Managing Director, Chapman Strategic
Advisors LLC</div>
<br />
<br />
<strong>Time and Place:</strong><br />
<br />
<br />
January 29, 2015<br />
5:00 to 7:00 pm<br />
<br />
<br />
The City Club<br />
155 Sansome Street<br />
San Francisco, California<br />
<br />
<br />
<a href="http://babf.com/Programs.html" target="_blank">Bay Area Bankruptcy Forum members, RSVP here</a>.<br />
<br />
<br />
<a href="http://www.sfbar.org/calendar/eventdetail.aspx?id=X150006/X150006" target="_blank">Bar Association of San Francisco members, RSVP here</a>.<br />
<br />
<br />
Reno Fernandez is a member of the board of directors of the Bay Area Bankruptcy Forum and immediate past chair of the Commercial Law & Bankruptcy SectionUnknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-36736596926342532292015-01-20T17:05:00.000-08:002015-01-20T17:05:00.068-08:00Insolvency 101: Evaluating an Insolvent Entity and Rehabilitation StrategiesWe are pleased to announce that <a href="http://macfern.com/attorneys/roxanne-bahadurji/" target="_blank">Roxanne Bahadurji</a> is organizing a program entitled "<a href="https://www.calbf.org/2015confbrochure.pdf" target="_blank">Insolvency 101: Evaluating an Insolvent Entity and Rehabilitation Strategies</a>" for the California Bankruptcy Forum's annual Insolvency Conference, set for Saturday, May 16, 2015, at 1:45 pm. The program description is as follows:<br />
<br />
<div style="margin: 0in 0in 0pt;">
The rehabilitation of a corporation is a delicate process
often involving a variety of complex issues. In the context of a hypothetical
reorganization, the panelists will identify some of the usual suspects that
lead corporations into dire financial straits, how to address these issues from
a practical standpoint, and how to evaluate the available reorganization
mechanisms. In so doing, the panelists will discuss various insolvency tools,
including receiverships, assignments for the benefit of creditors, distressed
work-outs, and, of course, bankruptcy, and the pros and cons of each for
debtors and creditors.<br />
<br /><br />
This is sure to be an excellent program. <a href="https://www.calbf.org/2015confbrochure.pdf" target="_blank">Read more here</a>, and <a href="https://www.calbf.org/2015registration.htm" target="_blank">register here</a>.</div>
Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-2417635473091609092015-01-17T11:45:00.000-08:002015-01-17T11:45:57.480-08:00UCC Lien Priorities Altered When One Creditor Breaches Fiduciary Duties to Another Creditor<div class="MsoNormal" style="margin: 12pt 0in 0.0001pt;">
<span style="background-color: rgba(255, 255, 255, 0);">I</span><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0); font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;">n</span><b style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0); font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;"> </b><i style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0); font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;">Feresi v. Livery,</i><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0); font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;"> 2014 LEXIS 1138 (Cal.App. 2d Dist. Dec. 15, 2014), a California court held that e</span><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">quitable principles control over the Uniform Commercial Code's priority scheme when a creditor breaches its fiduciary duty owed to another creditor.</span></div>
<div class="MsoNormal" style="margin: 12pt 0in 0.0001pt;">
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Mesa and Faresi were husband and wife, respectively. Feresi obtained a stake in a limited liability company -- half of the 25% she owned with Mesa -- pursuant to a judgment dissolving the marriage</span><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0); font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;">. The husband granted the wife a lien against his 12.5% interest to secure other obligations related to the divorce. However, he did not perfect the lien by filing a UCC Financing Statement. The wife promptly notified the company's manager of her own 12.5% ownership stake and her lien against her former husband's 12.5% interest.</span></div>
<div class="MsoNormal" style="margin: 12pt 0in 0.0001pt;">
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Thereafter, the manager made a loan to the husband and took a security interest in his 12.5% interest. The husband defaulted on his obligations to his former wife, who attempted to foreclose her lien. When the manager learned of the foreclosure attempt, he filed a UCC Financing Statement to perfect his lien. </span></div>
<div class="MsoNormal" style="margin: 12pt 0in 0.0001pt;">
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">The wife's foreclosure was successful. The husband later defaulted on his indebtedness to the manager. The manager claimed a senior lien and attempted to foreclose his lien against the portion of the company now owned by the wife. Specifically, the manager argued that the wife's lien was unperfected.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin: 12pt 0in 0.0001pt;">
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Although the court acknowledged that the manager's lien was senior to earlier unperfected liens, the UCC provides that that the code is supplemented by principles of law and equity. Moreover, the court found that the manager owed fiduciary duties to the company's members (including the wife), and perfecting his lien ahead of the wife without her knowledge breach his fiduciary duties. Accordingly, the court ruled that the wife holds her membership interest free and clear of the manager's lien.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin: 12pt 0in 0.0001pt;">
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">This result cuts against the strict, predictable order of priorities under the UCC, and it is sure to cause commercial lawyers significant heartburn. It is important to note that pursuant to Bankruptcy Code Section 544, an unperfected lien is avoidable regardless of the debtor's actual knowledge of other liens. </span></div>
Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-19656240124224257202015-01-16T20:33:00.000-08:002015-01-16T20:41:30.742-08:00Top Ten California State Bar Insolvency Law Committee eBulletins Now Available Online!The Insolvency Law Committee of the State Bar of California's Business Law Section has posted its top ten <a href="http://businesslaw.calbar.ca.gov/StandingCommittees/TopTenof2014InsolvencyLawCommittee.aspx" target="_blank">eBulletins</a> for 2014! <a href="http://businesslaw.calbar.ca.gov/StandingCommittees/TopTenof2014InsolvencyLawCommittee.aspx" target="_blank">Read more here</a>.Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-27075753289858744582015-01-13T14:47:00.000-08:002015-01-13T14:47:10.687-08:00Reno Fernandez Recognized as Outgoing Chair of BASF Commercial Law & Bankruptcy SectionReno Fernandez ended his three-year term as chairperson of the Bar Association of San Francisco's Commercial Law & Bankruptcy Section, and the section thanked him for his service at a luncheon today by presenting him with a commemorative gavel. Reno feels honored to have had the privilege of supporting the bankruptcy bar.<br />
<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh6t_r6mLeefHDreB9sX3PFhrNjuwjSppTS-ZMoLp8CVUG72FK7LdYWoRK193RltPKIa1nOAUXsmh-QPEHSs_LXncteO2AoiP6dZY23Jaxr1w_pqxJ2T1a9SoogWK-8rCE8YGubrPP5R4lx/s1600/Gavel.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh6t_r6mLeefHDreB9sX3PFhrNjuwjSppTS-ZMoLp8CVUG72FK7LdYWoRK193RltPKIa1nOAUXsmh-QPEHSs_LXncteO2AoiP6dZY23Jaxr1w_pqxJ2T1a9SoogWK-8rCE8YGubrPP5R4lx/s1600/Gavel.jpg" height="240" width="320" /></a></div>
<span id="goog_1193330282"></span><span id="goog_1193330283"><br /></span>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-68204642927360832602015-01-13T11:11:00.001-08:002015-01-13T17:34:21.224-08:00Medical Debt Collectors and the Telephone Consumer Protection Act<div>A court has ruled that a medical debt collector may make automated collection calls to a patient's cell phone notwithstanding the fact that the patient's wife provided the number to the hospital, not the collector. Specifically, the <span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">United States Court of Appeals for the Eleventh Circuit reversed a district court's grant of summary judgment in a </span><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Telephone Consumer Protection Act (“TCPA”) action against a medical debt collector under the so-called “prior express consent” exception. </span></div><div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br></span></div><div><span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">I</span><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;">n </span><i style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;">Mais v. Gulf Coast Collection Bureau</i><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;">, </span><i style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;">Inc</i><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;">., Case No. </span><a href="tel:13-14008" x-apple-data-detectors="true" x-apple-data-detectors-type="telephone" x-apple-data-detectors-result="0" style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;">13-14008</a><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;"> (11th Cir. 2014), the Eleventh Circuit focused upon a 2008 ruling of the Federal Communications Commission (“FCC”), which held that calls to wireless telephone numbers provided in connection with a pre-existing debt are permissible as calls made with the prior express consent of the called party. 23 FCC Rcd. 559, 564.</span></div><div> </div><div>After receiving radiology treatment, the patient's wife signed hospital admission forms on behalf of the patient and provided the patient's mobile telephone number. She also acknowledged receipt of the hospital privacy notice, which permitted it to use and disclose health information to bill and collect payment. The number was eventually provided to <span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;">Gulf Coast Collection Bureau, which is a debt collector that uses an automatic dialer to call telephone numbers and leave messages. </span></div><div><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;"><br></span></div><div><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;">The patient sued Gulf Coast, alleging <i>inter alia </i>that such collection practices violate the TCPA because </span><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;">the telephone phone number was provided to the hospital, not Gulf Coast. </span><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;">The district court granted summary judgment in favor of Mais. On appeal, the Eleventh Circuit reversed.</span></div><div> </div><div>The Eleventh Circuit found <span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;">that the FCC ruling was intended to reach a wide range of creditors and collectors, including medical debt collectors. Therefore, prior express consent was obtained in accordance with the ruling. Moreover, the court held that there was no practical distinction between the patient providing his telephone number directly and disclosure by an intermediary because the main issue is whether the party gave consent to be contacted, not whether the number was provided directly.</span></div><div><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;"><br></span></div><div><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;">This ruling raises a question as to how attenuated or distant must the connection be between the collector and the debtor before they fall out of the prior express consent exception. Disputes over tracing such tenuous connections appear ripe for litigation.</span></div><div><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;"><br></span></div><div><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;"><br></span></div>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-64484181008501940652015-01-07T08:40:00.000-08:002015-01-07T08:40:00.294-08:00Chapter 11 Bankruptcy in a Nutshell<a href="http://macfern.com/attorneys/renofernandez/" target="_blank">Reno Fernandez</a> spoke on this panel for the 2014 California State Bar Annual Meeting entitled "<a href="https://calbar.inreachce.com/Details/Information/078be5f2-b8eb-4de9-8676-2ec8d47348f5" target="_blank">Chapter 11 in a Nutshell</a>." The video is now available <a href="https://calbar.inreachce.com/Details/Information/078be5f2-b8eb-4de9-8676-2ec8d47348f5" target="_blank">here</a>.<br />
<br />
Viewers earn one hour of MCLE credit as well as one hour of Legal Specialization in Bankruptcy Law credit. <br />
<br />
<span style="font-family: inherit;"><span style="font-size: 16px; font-style: normal; font-weight: normal;">This
<a href="https://calbar.inreachce.com/Details/Information/078be5f2-b8eb-4de9-8676-2ec8d47348f5" target="_blank">program</a> will take the mystery and confusion out of the Chapter 11
bankruptcy process. Learn the basics of Chapter 11 from the filing of
the bankruptcy petition and first day motions through confirmation of a
plan of reorganization. </span></span>Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-67342406441482351522014-12-26T11:38:00.002-08:002015-01-07T13:47:06.953-08:00Winding Up and Dissolving a Nonprofit CorporationThis article discusses the basic steps to wind up and
dissolve a nonprofit public benefit corporation under California law.
Although this background is helpful, it is not a substitute for
retaining competent counsel to assist with the analysis of alternatives
and the preparation of the required resolutions, minutes,
forms, notices and letters. This article does not cover mutual benefit
corporations, private foundations, freestanding
charitable trusts, political action committees or religious
corporations, although there are many similarities. <br />
<br />
<b>The Role of the Attorney General</b> <br />
<br />
A
key distinction from winding up and dissolving an ordinary corporation
is that the Attorney General of the
State of California (the “AG”) must receive notice and may play a role
in the ultimate disposition of assets. The AG considers public
benefit corporations to hold assets
in a charitable trust by their very nature, over which the AG has broad
powers of supervision. California Government Code (“Gov’t C.”)
Sections 12598 through 12599.7;
<i>Holt v. College of Osteopathic Physicians & Surgeons</i> (1964) 61 Cal.2d 7590;
<i>People v. Cogswell</i> (1896) 113 Cal. 129, 136. Certain filing requirements with the Secretary of State of
California are triggered upon dissolution, as are certain tax
reporting requirements.<br />
<br />
<b>Merger Alternative</b><br />
<br />
The
option of merging with another nonprofit or for-profit business should
be considered. A public benefit corporation may merge with any type of
business
entity, including a for-profit entity. California Corporations Code
(“Corp. C.”) § 6010(a). However, without the prior written consent of
the AG, a public benefit corporation
may only merge with another public benefit corporation (or a religious
corporation or a foreign nonprofit corporation or an unincorporated
association), the governing documents of which provide that its assets
are irrevocably dedicated to charitable, religious,
or public purposes. Corp. C. § 6010(a). For more information on the merger alternative, <a href="http://calbk.blogspot.com/2014/12/merging-california-nonprofit-corporation.html">read here</a>.<br />
<b> </b><br />
<b>Considerations</b><br />
<br />
If a dissolution is warranted,
it should be planned and commenced promptly in order to avoid drifting
into insolvency or wasting assets, which course of conduct could expose
directors to liability. Corp.
C. §§ 5232, 5233 & 5240.<br />
<br />
The assets of a public benefit corporation may be sold for fair
value, with the proceeds distributed to another public benefit or
religious corporation, or donated directly to another public benefit or
religious corporation, and the articles
of incorporation can be amended to designate new recipients of the
corporation’s assets, subject to the powers of the AG, as
applicable. Corp. C. § 5820.<br />
<br />
An election to wind up and dissolve can be revoked at any time
before a certificate of dissolution is filed with the Secretary of
State. Corp. C. §
6612. Likewise, subject to the rights of
any affected third parties, the board may abandon a sale at any time.
Corp. C. § 5911(b).<br />
<b> </b><br />
<b>Election to Wind Up and Dissolve</b><br />
<br />
The corporation may elect to wind up and dissolve by approval of its board of directors as
provided in its governing documents. Corp. C. § 5032 &
6610(a)(3). If the number of directors remaining in office is less
than a quorum, the corporation may nevertheless elect to wind
up and dissolve by unanimous consent of the remaining directors or
majority vote of the remaining directors at a meeting held pursuant to a
valid waiver of notice of the meeting. Corp. C. § 6610(c). Although
approval of third parties may be required to amend
the articles, there is no requirement that their consent to a
dissolution must be obtained unless provided in the governing
documents.<br />
<br />
<b>Powers and Duties of the Board</b> <br />
<br />
The process of winding up and dissolving commences upon the board’s
resolution. The board continues and has full power to wind up and
settle the corporation’s affairs. However, the corporation may only
conduct activities necessary to wind
up and dissolve. This includes all tasks necessary for an orderly
winding down of operations, including phasing out services, but new
activities should not be undertaken.<br />
<br />
The board’s powers are the same as prior to electing to dissolve,
except that the board may “sell at public or private sale, exchange,
convey or otherwise dispose of all or any part of the assets of the
corporation for an amount deemed reasonable
by the board.” Specifically, the boards powers and duties in a
dissolution are as follows:<br />
<div style="margin-bottom: 12.0pt; margin-left: .5in; margin-right: .5in; text-align: justify; text-indent: 0in;">
<blockquote class="tr_bq">
The powers and duties of the directors (or other persons appointed by
the court pursuant to Section 6515) and officers after commencement of a
dissolution proceeding include, but are not limited to, the following
acts in the name and on behalf of the corporation:</blockquote>
</div>
<blockquote class="tr_bq">
<div style="margin-bottom: 12.0pt; margin-left: .5in; margin-right: .5in; text-align: justify; text-indent: 0in;">
(a) To elect officers and to employ agents and attorneys to liquidate or wind up its affairs.</div>
</blockquote>
<blockquote class="tr_bq">
<div style="margin-bottom: 12.0pt; margin-left: .5in; margin-right: .5in; text-align: justify; text-indent: 0in;">
(b) To continue the conduct of the affairs of the corporation insofar as necessary for the disposal or winding up thereof.</div>
</blockquote>
<blockquote class="tr_bq">
<div style="margin-bottom: 12.0pt; margin-left: .5in; margin-right: .5in; text-align: justify; text-indent: 0in;">
(c) To carry out contracts and collect, pay, compromise and settle debts and claims for or against the corporation.</div>
</blockquote>
<blockquote class="tr_bq">
<div style="margin-bottom: 12.0pt; margin-left: .5in; margin-right: .5in; text-align: justify; text-indent: 0in;">
(d) To defend suits brought against the corporation.</div>
</blockquote>
<blockquote class="tr_bq">
<div style="margin-bottom: 12.0pt; margin-left: .5in; margin-right: .5in; text-align: justify; text-indent: 0in;">
(e) To sue, in the name of the corporation, for all sums due or owing to the corporation or to recover any of its property.</div>
</blockquote>
<blockquote class="tr_bq">
<div style="margin-bottom: 12.0pt; margin-left: .5in; margin-right: .5in; text-align: justify; text-indent: 0in;">
(f) To collect any amounts remaining unpaid on memberships or to recover unlawful distributions.</div>
</blockquote>
<blockquote class="tr_bq">
<div style="margin-bottom: 12.0pt; margin-left: .5in; margin-right: .5in; text-align: justify; text-indent: 0in;">
(g) Subject to the provisions of Section 5142, to sell at public or
private sale, exchange, convey or otherwise dispose of all or any part
of the assets of the corporation for an amount deemed reasonable by the
board without compliance with the provisions of
Section 5911, and to execute bills of sale and deeds of conveyance in
the name of the corporation.</div>
</blockquote>
<blockquote class="tr_bq">
<div style="margin-bottom: 12.0pt; margin-left: .5in; margin-right: .5in; text-align: justify; text-indent: 0in;">
(h) In general, to make contracts and to do any and all things in the
name of the corporation which may be proper or convenient for the
purposes of winding up, settling and liquidating the affairs of the
corporation.</div>
</blockquote>
<div style="text-indent: 0in;">
Corp. C. § 6710. Nevertheless, to the extent applicable, assets remain subject to restrictions upon charitable trusts.<br />
<b> </b><br />
<b>Sale of Assets</b></div>
<br />
Subject to the terms of any express charitable trusts affecting the corporation's assets, the corporation may sell or otherwise dispose of
all or substantially all of its assets. Corp. C. § 5911. It is important to determine whether
and to what extend the assets are impressed with charitable
trusts.<br />
<br />
The sale or disposition of all or substantially all of the assets
requires approval of the board. Corp. C. § 5911(a)(1). A sale or
disposition outside of the usual course of business must be approved by
any persons specified in the articles of incorporation.
Corp. C. § 5911(a)(2). Although approval may be obtained after the
transaction (Corp. C. § 5911(a)(2)), it is best to proceed carefully pursuant to proper authority. The AG carries out a heightened review process when assets are sold
to a for-profit entity. See the AG's <a href="http://oag.ca.gov/sites/all/files/agweb/pdfs/charities/publications/grp.pdf" target="_blank">Sales of Charitable Assets to For-Profit Entities - Review Protocol</a>.<br />
<br />
<span style="font-size: small;"><span style="font-family: inherit;"><span style="color: black;">An instrument conveying the corporation's property can include a certificate
by the corporate secretary attesting that the transaction was properly
noticed. This is
<i>prima facie</i> evidence of authorization and conclusive in favor of
any food faith purchaser without notice of any trust restrictions or
failure to comply with restrictions. Corp. C. </span></span></span><span style="font-size: small;"><span style="font-family: inherit;"><span style="color: black;">§</span></span></span><span style="font-size: small;"><span style="font-family: inherit;"><span style="color: black;">§ 5912, 7912 &
9632. </span> </span></span><br />
<b> </b><br />
<b>Notice to Attorney General</b><br />
<br />
The corporation must give written notice to the AG at least 20 days before it
sells or disposes of all or substantially all of its assets outside of
the ordinary course of business, unless the AG has given a written
waiver of notice of the particular transaction.
Corp. C. § 5913. If no action by the AG is sought, the notice should
include a statement that the documents are delivered only to provide the
notice required by the statute. <span style="color: black; font-size: 11.5pt;">The notice should include:
</span><br />
<div class="MsoNormal">
<br /></div>
<div style="margin-left: 1in;">
<span style="color: black; font-size: 11.5pt;">(1)<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span><span style="color: black; font-size: 11.5pt;">A
letter signed by an attorney for the corporation or a director
describing and stating the material facts of the proposed transaction
(1</span><span style="color: black; font-size: 11.5pt;">1 California Code of Regulations
(“CCR”) Section 999.1(c));</span></div>
<div style="margin-left: 1in;">
<span style="color: black; font-size: 11.5pt;">(2)<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span><span style="color: black; font-size: 11.5pt;">A copy of the board’s resolution or minutes discussing or otherwise authorizing the proposed transaction;</span></div>
<br />
<div style="margin-left: 1in;">
<span style="color: black; font-size: 11.5pt;">(3)<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span><span style="color: black; font-size: 11.5pt;">A copy of the corporation’s current financial statement;</span></div>
<br />
<div style="margin-left: 1in;">
<span style="color: black; font-size: 11.5pt;">(4)<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span><span style="color: black; font-size: 11.5pt;">A copy of the corporation’s articles of incorporation and bylaws if not already on file with the Registrar of Charitable Trusts;</span></div>
<br />
<div style="margin-left: 1in;">
<span style="color: black; font-size: 11.5pt;">(5)<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span><span style="color: black; font-size: 11.5pt;">A copy of the articles of incorporation of any other corporation that is a party to the proposed transaction; and</span></div>
<br />
<div style="margin-left: 1in;">
<span style="color: black; font-size: 11.5pt;">(6)<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span><span style="color: black; font-size: 11.5pt;">On request of the AG, independent appraisals or other evidence that the sale price and terms are fair to the corporation.</span></div>
<br />
The notice should be submitted to the nearest AG’s office. 11 CCR § 999.1(a). The notice is deemed filed when it is received,
not when it is mailed.
<i>Id.</i> A request for waiver will be granted or denied within 30
days after filing. It is best to give notice well before the 20-day
deadline as the AG’s written response can serve as proof of timely
notice or waiver of notice.<br />
<br />
<b>Special Requirements of Health Facilities</b> <br />
<br />
There are additional notice and approval requirements (Corp. C. §§
5914-5925) for “health facilities” as defined in the California Health
and Safety Code Section 1250, which defines a “health facility” in
general to be: <br />
<blockquote class="tr_bq">
<div style="margin-bottom: 12.0pt; margin-left: .5in; margin-right: .5in; text-align: justify; text-indent: 0in;">
[A]ny facility, place, or building that is organized, maintained, and
operated for the diagnosis, care, prevention, and treatment of human
illness, physical or mental, including convalescence and rehabilitation
and including care during and after pregnancy,
or for any one or more of these purposes, for one or more persons, to
which the persons are admitted for a 24-hour stay or longer….</div>
</blockquote>
<div style="text-indent: 0in;">
This definition appears not to apply to facilities licensed as a Residential Care Facility for the Elderly
under Health and Safety Code Section 1569,
<i>et seq.</i> unless the facilities meet the definition of a "health facility" for other reasons.<br />
<b> </b><br />
<b>Distribution</b></div>
<div style="text-indent: 0in;">
<br />
Plans to control the ultimate
distribution of assets should be made prior to completion of the
corporation’s dissolution. The AG’s prime concern is the purpose and
use to which the assets will be dedicated after distribution.
Assets subject to restrictions under the articles of incorporation, the
bylaws or a trust must be distributed for a use that is consistent with
the restrictions. Corp. C. § 6716;
<i>Estate of Zahn</i> (1971) 16 Cal.App.3d 106. Moreover, assets of a
nonprofit corporation that is exempt from taxation under Internal
Revenue Code 501(c)(3) must be dedicated to the purposes for which the
exemption was given</div>
<div style="text-indent: 0in;">
The AG’s waiver of objections is
necessary to distribute certain assets of a public benefit corporation,
or the distribution may be made pursuant to a court decree. Corp. C. §
6716(c); 11 CCR 999.1-999.8.
The corporation itself has no vested right to designate the
recipients. <i>In re Veterans’ Indus., Inc.</i> (1970) 8 Cal. App.3d
902. The AG will often request to review copies of the tax exempt
determination letter for each recipient, the minutes authorizing
the distribution and other information. The AG’s waiver of objections
must be attached to the certificate of dissolution to be filed with the
Secretary of State.</div>
<div style="text-indent: 0in;">
As a practical matter, the AG should waive any objection unless the corporation proposes to distribute assets for a
purpose not contemplated by the language of its
articles. If the AG objects to the
proposed distribution, there is an opportunity to obtain court
approval of a distribution outside of the articles under the doctrine
of
<i>cy pres</i>. <i>Cy pres</i> is a French phrase translated “as near
as,” and in American law it means: “The equitable doctrine under which a
court reforms a written instrument with a gift to charity as closely to
the donor's intention as possible, so that
the gift does not fail.” Black’s Law Dictionary (9<sup>th</sup> ed. 2009), cy pres.<br />
<b> </b><br />
<b>Dissolution Procedure</b></div>
<br />
Dissolution is accomplished by taking the following steps:<br />
<br />
<div style="margin-left: 0in;">
1.<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span>The board adopts resolutions to wind up and dissolve;</div>
<div style="margin-left: 0in;">
2.<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span>A certificate of election to wind up and dissolve
is filed with the Secretary of State (this step is not necessary
if all directors vote to dissolve) (Corp. C. § 6611(c);</div>
<div style="margin-left: 0in;">
3.<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span>Notice to the AG is given;</div>
<div style="margin-left: 0in;">
4.<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span>Notice to creditors is given;<br />
5.<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span>The corporation
winds up operations, pays or provides for liabilities and distributes
assets (see the requirements for AG or court approval of distributions
above);</div>
<div style="margin-left: 0in;">
6.<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span>The corporation files a certificate of dissolution
with the Secretary of State, signed and verified by a majority of
directors (the AG’s waiver of objections must be attached, and it must
state that the final tax returns have or will
be filed);</div>
<div style="margin-left: 0in;">
7.<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span>If assets are held in a charitable trust, notice is given to the Registrar of Charitable Trusts; and</div>
<div style="margin-left: 0in;">
8.<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span>Final IRS Form 990 (with Schedule N) and FTB Form 199 tax returns are filed.</div>
<br />
<b>Providing for Claims</b> <br />
<br />
The debts of the corporation must be provided for. There is a streamlined notice and claim procedure available
to nonprofits in order to clear up any unknown or doubtful claims.
Specifically, the corporation notifies all potential creditors that can be
identified, following which creditors will have 120
days to submit a proof of claim. A creditor who fails to submit a
claim or whose claim is rejected and fails to initiate a proceeding to
enforce the claim within 90 days will be forever barred. Corp. C. §
6618.<br />
<b> </b><br />
<b>Taxes</b><br />
<br />
The final Form 990 return must be filed four months and 15 days
after the date of the organization's termination. The corporation must also file
Schedule N, which includes:<br />
<br />
1.<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span>A description
of the assets and any transaction fee, the date of distribution, the
fair market value of the assets and information about the recipients of
the assets;<br />
<br />
2.<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span>A disclosure of whether an officer, director, trustee or key employee is or
is expected to be involved in the successor
entity; and<br />
<br />
3.<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span>A certified copy of the articles of dissolution or merger,
resolutions and plans of liquidation or merger.<br />
<br />
Unless otherwise
exempt, the corporation must also file Form 199 with the Franchise Tax
Board. California Revenue & Taxation Code § 23332.<br />
<b><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></b><br />
<b>Post-Dissolution Activities</b><br />
<br />
The existence of a nonprofit corporation continues for certain
limited purposes after dissolution. Specifically, the corporation may
continue to wind up it affairs, file final tax returns and handle
administrative matters. The corporation
may also continue as plaintiff or defendant in any pre-existing
litigation, and it may bring new actions necessary to wind up. Corp. C.
§ 6720. The AG and third parties may sue the dissolved corporation as a
nominal defendant in order to recover any improper
distributions from third parties. Corp. C. § 6721.Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-80283732850471555012014-12-25T15:04:00.000-08:002014-12-25T15:25:34.109-08:00Mergers with California Nonprofit CorporationsThis article discusses the basic steps and considerations in mergers involving California nonprofit public benefit corporations. Although this background is helpful, it is not a substitute for retaining competent counsel to assist with the analysis of alternatives and the preparation of the required resolutions, minutes,
forms, notices and letters. This article does not cover mutual benefit corporations, private foundations, freestanding
charitable trusts, political action committees or religious corporations, although there are many similarities. <br />
<br />
<b>Dissolution Alternative </b><br />
<br />
If financial distress is a motivating factor, consider winding up and dissolving the entity. If a dissolution is warranted,
it should be planned and commenced promptly in order to avoid drifting
into insolvency or wasting assets, which course of conduct could expose
directors to liability. California Corporations Code
(“Corp. C.”) §§ 5232, 5233 & 5240.<br />
<b> </b><br />
<br />
<b>The Role of the Attorney General</b> <br />
<br />
A key distinction from mergers involving an ordinary corporation is that the Attorney General of the
State of California (the “AG”) must receive notice and may play a role. The AG considers public
benefit corporations to hold assets
in a charitable trust by their very nature, over which the AG has broad
powers of supervision. California Government Code (“Gov’t C.”)
Sections 12598 through 12599.7;
<i>Holt v. College of Osteopathic Physicians & Surgeons</i> (1964) 61 Cal.2d 7590;
<i>People v. Cogswell</i> (1896) 113 Cal. 129, 136 <br />
<br />
<b>Forms of Entity</b><br />
<br />
A public benefit corporation may merge with any type of business
entity, including a for-profit entity. Corp. C. § 6010(a). However, without the prior written consent of
the AG, a public benefit corporation
may only merge with another public benefit corporation (or a religious
corporation or a foreign nonprofit corporation or an unincorporated
association), the governing documents of which provide that its assets
are irrevocably dedicated to charitable, religious,
or public purposes. Corp. C. § 6010(a).<br />
<br />
<b>Factors to Consider</b><br />
<br />
Among other things, the following factors particular to the merger of a
public benefit corporation should be considered before undertaking a merger.<br />
<br />
<i> 1. <u>Bequests</u></i>. The surviving entity will succeed to and receive the bequests,
devises, gifts, grants and other promises in a will or other instrument
of donation, subscription or conveyance of the disappearing entity.
Corp. C. §§ 6022, 8022 & 9640(a). If the subject entity has significant pending bequests, a merger presents an advantage
because such bequests will not be received after a dissolution.<br />
<br />
<i>2. </i> <i><u>Continued Oversight</u>. </i>Some of the existing directors may serve in the resulting new
corporation and continue their oversight of the assets of the original
enterprise. If the subject nonprofit elects to merge with another entity, consider requiring seats on the surviving entity's
board of directors and discuss the terms of maintaining the seats.<br />
<br />
<i> 3.</i><span style="font: 7.0pt "Times New Roman";"><i> </i> </span><i><u>Effect of Merger</u>. </i>The surviving entity succeeds to all rights and property, and is
subject to all debts, liabilities and trust obligations, of the
disappearing entity. Corp. C. §§ 6020(a), 8020(a) & 9040(a). The surviving entity assumes the
California tax liability of the disappearing entity. All creditors’
rights, liens and trusts on the merging entities’ property (only to the
extent of property subject to the lien immediately before the merger is
effective) are preserved unimpaired as if the
surviving party had incurred them itself. Corp. C. §§ 6020(b), 8020(b)
& 96540(a).
The surviving party’s record ownership of the disappearing party’s
real property may be evidenced by recording a certified copy of the
merger agreement, or a certificate in the form prescribed by the
Secretary of State, in the appropriate county
recorder’s office.<br />
<span style="font: 7.0pt "Times New Roman";"></span><br />
<i> 4. <u>Choice of Entity</u></i> The choice of which entity will be the surviving entity should be made carefully. The
board should obtain information on, and consider, the tax exempt status
of each entity, the history of each entity, the employees and existing
employment benefits as well as
the preservation of bequests and opportunities for continuing
oversight<b>.</b><br />
<br />
<b>Notice to Attorney General</b> <br />
<br />
The AG must be provided with a copy of the proposed merger agreement
at least 20 days prior to consummation of the merger. Corp. C. §
6010(b). However, the AG’s affirmative consent is not required unless
members receive consideration other
than membership in the surviving entity. Corp. C. § 6010(c). Many public benefit corporations have no members, in which case a merger appears not to require
the consent of the AG.<br />
<br />
Note that a merger of two California public benefit corporations does
not require a determination of fairness by the Corporations
Commissioner. A tax clearance certificate from the Franchise Tax Board
was once required, but it is no longer required.<br />
<br />
<b><span style="font: 7.0pt "Times New Roman";"></span></b><b>Approval of Boards</b><br />
<b> </b>
<br />
A merger must be approved by each entity’s board of directors,
members (if any), any other person entitled to approve amendments to the
entity’s articles and anyone authorized or required to approve the
merger according to the laws under which
each entity is organized. Corp. C. §§ 6011-6012 & 6019.1. Member
approval (if the other entity has members) may be obtained before or
after board approval.<br />
<b> </b><br />
<b>Merger Agreement</b><br />
<br />
The merger agreement document itself, and not just its terms, must be
approved by the board and signed by authorized officers of each
corporation. Corp. C. §§ 6011, 6013, 6019.1(e), 8011, 8013, 8019.1(f) & 9640. The merger agreement must contain:<br />
<br />
(1) the terms of the merger;<br />
<br />
(2) any amendments to the articles or
bylaws of the surviving corporation required by the merger;<br />
<br />
(3) the
name, place of incorporation and status of each party;<br />
<br />
(4) the identity
of the surviving party;<br />
<br />
(5) the manner of converting
memberships of one entity into the other (if applicable);<br />
<br />
(6) any other
desirable provisions; and<br />
<br />
(7) any provisions or details required by the
laws under which any party to the merger is organized <br />
<b> </b><br />
<b>Taxes</b><br />
<br />
<div style="margin-left: 1.5in;">
</div>
The surviving entity is deemed to have assumed the California tax
liability of the disappearing entity. After filing the aforesaid
certificates, the Secretary of State will notify the Franchise Tax Board
of the merger. Corp. C. §§ 6020.5(b),
8020.5(b) & 9640(a).<br />
<br />
The final Form 990 return must be filed four months and 15 days
after the date of the organization's termination. The organization must also file
Schedule N, which includes:<br />
<br />
(1) a description
of the assets and any transaction fee, the date of distribution, the
fair market value of the assets and information about the recipients of
the assets;<br />
<br />
(2) a disclosure of whether an officer, director, trustee or key employee is or
is expected to be involved in the successor
entity; and<br />
<br />
(3) a certified copy of the articles of dissolution or merger,
resolutions and plans of liquidation or merger.<br />
<br />
Only a certified public accountant or other properly licensed tax professional can advise you on the tax implications and reporting requirements of a merger. <br />
<br />
<br />
<b>Filing with Secretary of State</b><br />
<br />
The merging
corporations prepare certificates of approval of the
merger, which the surviving entity attaches to a copy of the merger
agreement and any amendments to the surviving entity’s articles required
by the merger, all of which is filed with
the Secretary of State. The surviving entity files the disappearing
corporation’s officers’ certificate with the Secretary of State.Unknownnoreply@blogger.comtag:blogger.com,1999:blog-5527711953912119937.post-22891635058512980762014-12-19T13:30:00.002-08:002014-12-22T09:11:09.925-08:00Too Early to Dismiss? BAP Overturns Order Dismissing Chapter 11 Case as
Bad Faith Filing<h1 class="title"><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif; font-size: 17px; font-weight: normal;">In <i>Sullivan v. Harnisch (In re Sullivan)</i>, CC-14-1225-TaDKi (9th Cir. BAP December 9, 2014), the Bankruptcy Appellate Panel of the United States Court of Appeals for the Ninth Circuit (the "BAP") reversed a bankruptcy court order dismissing a chapter 11 bankruptcy case as having been filed in bad faith. </span></h1><h1 class="title"><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif; font-size: 17px; font-weight: normal;">The case was commenced by filing a skeletal bankruptcy petition. The debtor filed a status report eight days later. Six days later, the debtor filed schedules and a statement of financial affairs. The next day, the creditor (who held judgments and judgment liens) moved to dismiss the case </span><span style="font-size: 17px; -webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><span style="font-weight: normal;">as a bad faith filing, contending that the bankruptcy case amounted to a two-party dispute and was filed solely to delay collection attempts.</span></span><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif; font-size: 17px; font-weight: normal;"> The creditor further contended</span><span style="font-weight: normal; font-size: 17px; -webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"> that confirmation of a chapter 11 plan was unlikely because the creditor would vote against it. </span></h1><h1 class="title"><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif; font-size: 17px; font-weight: normal;">The hearing on dismissal was scheduled simultaneously with a scheduling conference as well as the debtor’s motions to employ counsel and approve a budget. </span><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif; font-size: 17px; font-weight: normal;">The bankruptcy court called the motion to dismiss first. After argument, but without testimony or other</span><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif; font-size: 17px; font-weight: normal;"> evidence, the court took the motion under submission and continued the remaining hearings. Thereafter, the court dismissed the case, </span><span style="font-size: 17px; -webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><span style="font-weight: normal;">finding bad faith and no possibility of confirming a plan.</span><span style="font-weight: normal;"> </span></span><span style="font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif; font-size: 17px; font-weight: normal;"> The debtor appealed.</span></h1><div class="content-content" id="content-content"><div class="node odd full-node node-type-circuit_court_opinion_summary" id="node-2160"><div class="inner"><div class="content clearfix"><div class="field field-type-text field-field-cco-summary-facts"><div class="field-items"><div class="field-item odd"><h1 class="title"><span style="font-weight: normal; font-size: 17px; -webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">The BAP ruled that the bankruptcy court abused its discretion by considering to consider the interests of the creditor who moved for dismissal and not the best interests of creditors in general. It is also important to note the speed of the proceedings and the fact that dismissal came before the first steps of the case. </span></h1><h1 class="title"><span style="font-size: 17px; font-weight: normal; -webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Creditors and bankruptcy judges favor early dismissal if a case was clearly files in bad faith as delay causes harm. However, i</span><span style="font-size: 17px; font-weight: normal; -webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0); font-family: 'Helvetica Neue Light', HelveticaNeue-Light, helvetica, arial, sans-serif;">n future cases, bankruptcy judges and attorneys may ask themselves: "Is it too soon for dismissal?"</span></h1></div>
</div>
</div>
</div>
</div>
</div>
</div>
Unknownnoreply@blogger.com