1:00 p.m.- 1:45 p.m Commercial & Bankruptcy Law Seminar. Credit Workouts: Agricultural and Other Businesses

Transcription

1 2015 Commercial & Bankruptcy Law Seminar Credit Workouts: Agricultural and Other Businesses 1:00 p.m.- 1:45 p.m. Presented by Thomas Ashby Baird Holm LLP 1500 Woodmen Tower 1700 Farnam Street Omaha, NE Phone: Friday, May 29, 2015

2 Credit Workouts: Agricultural and Other Businesses Iowa State Bar Association May 29, 2015 Tom Ashby Of Baird Holm LLP 1500 Woodmen Tower 1700 Farnam Street Omaha, NE Ph: (402) Prebankruptcy Planning for Advantage Review lien perfection. Review paperwork for no oral agreements. Preference day counting: to your creditor to other creditors Prebankruptcy Planning for Advantage -- Wrong payor, as to your client or other creditors? 2015 Baird Holm LLP 1

3 Prebankruptcy Planning Work in progress. Crop planted or harvested? Financial statements and cash flow projections. Location, condition and value of collateral. Prebankruptcy Planning Accounts receivable aging and list. Computer access: Training and passwords Customized software or software as a product: source codes, object codes, schematics, statements of principles of operation. Inventory, including feed. Prebankruptcy Planning --Who owns the feedlot grain or the horses? 2015 Baird Holm LLP 2

4 Prebankruptcy Planning Who owns the equipment that isn t titled via a certificate of title? Prebankruptcy Planning Easement agreements if landlocked borrower. Workout Agreements Agreement to debt amount and no offsets, recoupments, or defenses. Release or acknowledgment of no causes of action against your creditor Baird Holm LLP 3

5 Workout Agreements Worded thoroughly as to debtor, guarantors, other insiders. Purchase money liens and 11 U.S.C. 522(f)(1)(b). Lock box. Workout Agreements Language to reduce risk of bankruptcy modifications. Questions about enforceability in bankruptcy. But almost always good to seek and also can legitimately constrain a nonbankrupt insider. Workout Agreements Control agreements for investment property. VINs, serial numbers, hour meter readings Baird Holm LLP 4

6 Workout Agreements Representations of benefit if wrong payor. Hypothecation agreement with nonobligor. Workout Agreements --Fixtures: Stipulation as to what is or is not personal property. --Applying bank accounts to debt: discussed later. Vendor Workout Agreement Special Considerations Timeliness of goods/services and acceptance after inspection. Facts related to solvency if preference risk. Value of laid-in components and/or future technical support? See 325 B.R. 253, 326 B.R. 179, 159 B.R Baird Holm LLP 5

7 Vendor Workout Agreements --Purchase money security interest: Granting language. State of formation of entity buyer. Correct name of entity buyer. --Seller right to use buyer brand name, etc., if disposing of goods or software. Bank Accounts Overdrafts: historical honoring 1. Letter to confirm no promise to honor. 2. Tactical discretionary overdrafting? 3. Avoid creditor control: a. IRS b. Generally Bank Accounts Early detection: 1. Shifting to another financial institution. 2. Collateral proceeds. 3. Bankruptcy lawyer Baird Holm LLP 6

8 Bank Accounts Applying balance to debt: 1. Relationship effects. 2. Setoff vs. applying collateral proceeds. 3. Usually unwise to call it only a setoff. Bank Accounts 4. Call and letter to debtor. 5. Notice of disposition under UCC? Legal advice. Fixtures Personal property becomes fixture when: (1) It is actually annexed to realty, or to something appurtenant thereto; (2) It is put to the same use as the realty with which it is connected; and (3) The party annexing it intends to make a permanent accession to the realty. Young v. Iowa DOT, 490 N.W.2d 554, 556 (IA 1992) Baird Holm LLP 7

9 Fixtures: interpreting the test --Annexation to realty can be actual or constructive. Lamble v. Schreiber, 19 N.W.2d 659 (IA 1945). --Intent of the annexer is paramount factor. Physical attachment is not essential. Young, 490 N.W.2d at Almost unavoidably a fixture if a building cannot be removed without destruction of a substantial part of its value. Id. --If dispute is between landlord and tenant, apparently tenant loses if tenant did not place the property on the realty. SCS Property Management v. Vokes, 836 N.W.2d 152 (IA Ct. App. 2013). Fixtures Can include stipulation with owner/obligor in workout agreement, although it only binds the parties and their privies, Tillotson v. Stephens, 237 N.W. 2d 108, 110 (Neb. 1975), and perhaps also on third parties who act after notice of the stipulation. Id. Fixtures Consider agreement with landlord as to tenant equipment/furnishings if you lend to the tenant. Consider contra if you are a landlord Baird Holm LLP 8

10 Hypothetical Case: Scope Reminder Hurt: Physician residing in Sioux City, IA, who borrows to invest in cattle in a feedlot. This is a small part of the physician s estate and his only cattle investment. Solicitor: Hurt s lawyer Feedlot: $19,000 lender to physician. Hypothetical Scope Reminder Feedlot s promissory note or feeding agreement provides: If Hurt does not timely pay, finance charges of 16%/year will be applied. Hurt doesn t pay. Hypothetical Scope Reminder Feedlot hires Tom Collector as legal counsel to work out the debt. Collector sends a demand letter to Hurt, demanding the $19,000 plus finance charges of 16% per year from date of billing. Collector includes a debt validation paragraph Baird Holm LLP 9

11 Potential Defenses and Causes of Action Against Feedlot A. Truth-in-Lending Act: 15 U.S.C. 1602(h). -- Finance charges; didn t state delinquency charges or statutory interest. --Is this a commercial or consumer debt? Potential Defenses and Causes of Action Against Feedlot B. Oppression, trade practices violation, etc.: Is there a contractual agreement, to charge 16% from date of billing? Fair Debt Collection Practices Act (sidebar) If a consumer debt: Collector also risks liability under the federal Fair Debt Collection Practices Act, 15 U.S.C. 1692, et seq. E.g.: possibly subdivisions (2)(A) or (10) of 15 U.S.C. 1692e Baird Holm LLP 10

12 Hypothetical Scope Reminder Ponder: --What if Solicitor misses the possbile miscues by Feedlot and Collector? --Implications of IDCPA s regulation of first party collections? Iowa Code (5). Questions? Credit Workouts: Agricultural and Other Businesses Iowa State Bar Association May 29, 2015 Tom Ashby Of Baird Holm LLP 1500 Woodmen Tower 1700 Farnam Street Omaha, NE Ph: (402) tashby@bairdholm.com 2015 Baird Holm LLP 11