Special Assets Lawyer Blog

Dick Rogan to Speak at SAMA Conference

Fri, 12 Apr 2013 09:21:53 -0800

I will be a panelist discussing "Specialized Loan Workouts" at the upcoming 4th Annual Special Assets Management Association conference to be held next week at the Santa Barbara Biltmore Hotel. My fellow panelists are the highly capable workout professional Cyndee Herles, Senior Vice President of Comerica Bank and hotel receiver Tim Post of Amber Hotels, Inc.

Cyndee, Tim and I will be discussing various topics of current interest to workout professionals. Our panel's presentation is set for 2:00 p.m. on Thursday, April 18, 2013.

Topics of discussion will include practical tips on how to size up a problem loan, what to give counsel, how to assess a Chapter 11 filing at the outset, when to get a receiver appointed, when not to get a receiver appointed and how to work with a receiver to maximize recovery for the Bank.

If you are attending the SAMA Conference, catch my partners, Joel Berman and Barry Freeman on Thursday morning, April 18. Joel is on the always interesting "Lender Liability" panel at 8:30 a.m.. Barry is on the panel discussing the important topic, "Engagement of Financial Consultants and Advisors," starting at 11:00 a.m.

SAMA is a terrific organization dedicated to workout professionals. Meetings are held in both Northern and Southern California. If I don't see you at the SAMA Conference next week, I hope to see you at a Northern California meeting sometime this year.

Can a Plan of Reorganization Separately Classify a Claim That Is Personally Guaranteed?

Fri, 05 Apr 2013 15:51:36 -0800

Recently, we've been seeing debtors try to confirm cram down plans of reorganization that are unfavorable to the secured creditor by "gerrymandering" the class of unsecured claims. The typical situation finds the secured creditor holding an undersecured loan. Under Section 506(a) of the Bankruptcy Code, the secured creditor's claim is automatically bifurcated into a secured claim in an amount equal to the value of the collateral and an unsecured claim for the balance of the debt.

Here's an example taken from a recent case that Ben Young, the author of this important article, and I handled. Our litigation partners, Joe Demko and Matt Kenefick, won a long, hard-fought jury trial in a fraudulent transfer case. Joe and Matt were victorious on appeal and perfected a judgment lien. The judgment debtor filed a Chapter 11 case, too late to avoid the judgment lien, and scheduled its co-judgment debtors as unsecured creditors. Our client's claim was larger than the value of the collateral, so our client had both an secured claim and an unsecured claim.

The judgment debtor filed a plan of reorganization that treated our client very unfairly and sought to cram down that plan on our client. To succeed, the judgment debtor needed one class of her impaired creditors to vote for her proposed plan of reorganization. Let's break down what this means:

• A plan of reorganization is supposed to treat substantially similar creditors alike. As a practical matter, that means that each secured claim is usually placed in its own class, and all unsecured claims are usually lumped together in one unsecured class.

• A debtor may obtain confirmation of its plan despite the negative vote of a class of creditors as long as at least one class of impaired creditors votes for its plan, and the plan itself meets certain other tests.

• A class of claims accepts the plan if creditors holding more than two-thirds in amount and more than one-half in number of the claims in the class vote for the plan, not counting the votes of any insiders.

In our case, the judgment debtor knew that our client's unsecured claim was more than one-third of all unsecured claims. It also knew that our client would not vote for her plan. The judgment debtor's clever solution was to argue that our client's unsecured claim was not "substantially similar" to the other unsecured claims, and that the other claims should be placed in their own class. Since the other claimants were her co-judgment debtors and were friendly, the debtor figured it could get their votes and confirm the plan. Ultimately, Ben, Joe and Matt were able to negotiate a settlement that paid our client's judgment in full.

It is against this backdrop that Ben's article on "gerrymandering" claims should be read. Workout professionals should be aware of this tactic and be able to recognize and respond to it.

Lenders: Beware of the Arizona "Two-Dollar Bankruptcy"

Tue, 12 Feb 2013 11:06:51 -0800

Recently, my partner, Matt Kenefick, obtained a large judgment here in California against an Arizona resident. The desert rat refused to pay up voluntarily, hiding behind Arizona's unique and highly protective community property laws. The problem Matt faced was that only one spouse had been involved in the nefarious scheme to separate our client from its money.
Matt ultimately collected from the Arizona judgment debtor, but the difficulties he faced are worth highlighting for those of us who normally do business in states other than Arizona.

Lenders: Beware of the Arizona "Two-Dollar Bankruptcy"
by Matthew Kenefick

Lenders commonly rely upon form documentation when making a loan, often assuming that the form complies with the ever-changing law governing the deal. As we all know, a mistake in documentation can result in serious collection issues if the loan goes into default. If the defaulting obligation is secured by a personal guaranty given by an Arizona resident, or if the guaranty has to be enforced in Arizona, there may be enforcement problems.

Double Bogie: Bank's Security Interest in Green Fees Cut Off by Club's Bankruptcy

Mon, 07 Jan 2013 17:07:12 -0800

A good workout professional also knows how to help the Bank make loans that are properly structured. Many of the "sad" stories we have recently experienced were the result of a huge decrease in property values, but several arose out of mistakes made in underwriting and structuring loans. Well-run institutions are taking care to be mindful of past mistakes as they venture back into the lending arena.

In this post, my partner, Ben Young, points out a common misconception about golf courses. Over the years, we've seen countless golf course deals fail. Lenders often forget to take personal property security interests in inventory, equipment and clubhouse furniture, forget to tie down the water rights, ignore leased land and parking arrangements and do not take care to properly secure rights to the liquor license. As Ben points out, some lenders erroneously rely on ongoing accounts receivable, even if the golf course files Chapter 11.

Must an Assignee for the Benefit of Creditors Give Notice to Creditors Before Selling the Assignor's Assets?

Thu, 30 Aug 2012 17:15:28 -0800

Assignments for the benefit of creditors are a terrific tool to facilitate the liquidation of assets of a failing enterprise. In this article, my partner, Ben Young, explains why a recent opinion from the California Fourth District Court of Appeal missed the point and why ABCs remain a powerful tool available to get the bank paid.

MUST AN ASSIGNEE FOR THE BENEFIT OF CREDITORS
GIVE NOTICE TO CREDITORS BEFORE SELLING THE ASSIGNOR'S ASSETS?

by Bennett G. Young

Assignments for the benefit of creditors (ABC's as they are called) are known for their speed and flexibility. In California, the practice of an ABC occurring followed seconds later by a sale of the assignor's assets is well established. The buyer's ability to take over the failing business quickly in a seamless transition is a principal benefit of the ABC process. The speed and the seamless transition help preserve going concern values for the benefit of creditors.

A recent unpublished decision of a California appellate court appears to question this practice. El Saad v. Tarakji, No. G044716, 2011 WL 5910059 (Cal. Ct. App. Nov. 28, 2011). In Tarakji, Callcom obtained a fraud judgment against West Coast Distributors. One month later, West Coast made an assignment for the benefit of creditors and three days later the assignee sold all of West Coast's assets to Platinum Touch, a newly formed entity owned by West Coast's insiders, for $20,000 cash and the assumption of $4.7 million in purported secured debt.

Foreclosing on an Assisted Living Facility: What is the lender's role? Who is responsible for patients?

Tue, 28 Aug 2012 10:58:57 -0800

As we all know, there are business cycles that affect certain industries. When the going is good, lenders are lining up to make loans, and borrowers are not as picky as one might hope in taking on debt. When the worm turns, however, borrowers often find themselves in financial distress, right along with their competitors.

Currently, we are seeing assisted living facilities running into problems. These borrowers pose special problems for lenders, who must walk a thin line between collecting a bad debt and dispossessing seniors and handicapped persons. The lender handling a troubled assisted living facility wants to avoid taking over the property because the lender is ill-equipped to care for the residents. But how do you do the right thing - both for the bank and for the residents?

Marianne Dickson of our office recently was faced with this dilemma when a bank client called and asked us to move to have a receiver appointed over an assisted living facility. Here is how Marianne dealt with the problem for our client.

Bankruptcy lawyers in the limelight?

Mon, 13 Aug 2012 13:22:27 -0800

Quick! Name a celebrity bankruptcy lawyer!

Drawing a blank? That's because bankruptcy lawyers try hard to keep their clients out of the glare of publicity, and rarely comment on their clients' matters.

So, we were more than pleased when my partner, bankruptcy lawyer par excellence, Bob Kaplan, was featured in the recent Northern California Super Lawyers(R) magazine. Bob is the kind of lawyer who gets the best possible results of his clients in the least possible time. He works on the biggest deals out there, and plenty of smaller ones. He treats each with the utmost importance.

Hidden Liens - ERISA liens arising under 29 U.S.C. Section 1368

Mon, 14 May 2012 09:34:09 -0800

My partner, Guy Maisnik, is well-known as a fabulous real estate and hospitality law guru. Guy always seems to be closing an exciting deal for one of our good clients. Guy has been working on the Hidden Liens Project with the Commercial Transactions Committee of the Business Law Section of the State Bar of California, and he prepared a bulletin about a troublesome hidden lien that tends to surface when we close down an operating company for a secured creditor.

Lenders Beware: Read your guaranty carefully for technicalities that could leave you unprotected

Wed, 18 Apr 2012 16:17:00 -0800

Once again, my partner, Joe Demko, who handles much of our bank litigation, has a tip to pass along. This time, Joe warns about a drafting problem in a carve out from a "bad boy" guarantee. The essence of Joe's warning is that the person drafting loan documents must consider all possible outcomes of a condition. All too often, we see loan documents drafted to assume only the expected outcome. When the JMBM Special Assets Team is asked to get involved, we are faced with loan documents that fail to give us the teeth we need to collect the loan. Joe tells this sad story well.

Lenders Beware: Read your guaranty carefully for technicalities that could leave you unprotected

Plumber Street Office Limited Partnership v. NRFC NNN Holdings LLC

by Joseph Demko

Recently the California Court of Appeal in GECCMC 2005-C1 Plumber Street Office Limited Partnership v. NRFC NNN Holdings LLC 2012 Westlaw 1035318 held there was no recourse against a guarantor who had signed a "bad boy" guaranty which provides for, among other things, the guarantor to be liable if "without the prior written consent of [the lender, either lease] is terminated or cancelled." The lender attempted to hold the guarantor liable because the tenant abandoned the property and thereafter the borrower defaulted. The lender brought suit against the guarantor, seeking to recover $42,000,000. The trial court entered summary judgment for the lender, but the appellate court reversed, holding that the tenant's abandonment of the property did not "terminate" the lease because the landlord/borrower never gave notice of termination to the tenant.

The Dos and Don'ts of Lender Liability - SAMA Program in San Francisco

Wed, 22 Feb 2012 15:38:03 -0800

As many of you may know, I was asked to help launch the Northern California chapter of the Special Assets Management Association (SAMA), and I currently serve on its Event Planning Committee. SAMA is hosting a luncheon program on "The Dos and Don'ts of Lender Liability" on March 1st at the Hyatt Regency in San Francisco.

My partner, Joe Demko, is a panelist, along with other professionals with deep experience in lender liability issues.

It's as Easy as "ABC" -- Assignments for the Benefit of Creditors

Wed, 15 Feb 2012 17:40:25 -0800

Assignments for the Benefit of Creditors are an often overlooked procedure for liquidating a company. A good way to understand ABCs is to think of them as an out of Court Chapter 7 case. Creditors - both secured and unsecured - and debtors turn to ABCs when a company (or its assets) need to be sold so the proceeds can be paid over to creditors. An ABC is an alternative to liquidation by foreclosure, receiver's sale, Section 363 sale in bankruptcy, and sale by the debtor itself.

JMBM Welcomes Insolvency Lawyer, Bennett G. Young

Wed, 15 Feb 2012 17:28:50 -0800

Jeffer Mangels Butler & Mitchell LLP (JMBM) is pleased to announce that Ben Young has joined the firm as a partner in the Bankruptcy Department.

With more than 30 years of experience in insolvency matters, Ben provides a full range of bankruptcy, insolvency and restructuring expertise to his clients. He handles debt and equity restructuring, complex workouts, assignments for the benefit of creditors, receiverships and foreclosures for a wide range of businesses and financial institutions.

Don't Create A Liability When You Sell A Loan

Mon, 09 Jan 2012 18:30:19 -0800

These days, many institutional lenders are selling non-performing loans to financial and strategic buyers. The concept is usually sound because the selling institution can recover at least the amount at which the loan is carried on its books, often together with out-of-pocket fees and costs. The idea is simple: Get the loan off the books of the Bank and move on to other matters that are profitable.

Why It Is Important For A Lender To File A Proof Of Claim

Fri, 30 Dec 2011 18:18:34 -0800

Unless you are a specialized lender who makes loans to debtors-in-possession, you do not make a loan with the expectation that your borrower is going to file bankruptcy. Although the number of bankruptcy filings in California and nationally is trending slightly lower, filings remain at higher than normal levels. Nearly every lender has received the notice of a bankruptcy filing that was unexpected and then faced decisions as to what to do next.

SAMA Comes to Northern California

Wed, 23 Nov 2011 12:17:29 -0800

A few years ago, the Special Assets Management Association (SAMA) was born in Southern California. SAMA is a member-driven non-profit organization dedicated exclusively to fostering the best practice in the workout arena through continuing education, mentoring, skill sharing and peer support. I hear from my partners and clients in Southern California that SAMA has been quite successful in providing continuing education for workout professionals as well as a platform for workout professionals to network with one another.

SAMA is now coming to Northern California, and I am privileged to be a member of the Event Planning Committee that will be working to get SAMA North off the ground.

Our first event will be a breakfast program in San Francisco on December 8 on "Current State of the Workout" featuring Greg Bloyd of Bank of the West and Seth Moldoff of Wells Fargo Bank. The meeting will be held at Silk's Restaurant in the Mandarin Oriental Hotel at 7:30 a.m. I hope that you can join us that morning to inaugurate SAMA in Northern California.