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8/9/2019 Illuminating the Dark Side of the Bank
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Richard A. Rogan
March 22-23, 2010
ILLUMINATING THEDARK SIDE OF THE BANK
2010 Jeffer Mangels Butler & Mitchell LLP. All rights reservedLOSANGELES SAN FRANCISCO ORANGE COUNTY
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The information in this presentation has been prepared by Jeffer, Mangels, Butler & Mitchell LLP (JMBM) forgeneral informational purposes only and should not be construed as legal advice on any subject matter, or to answerspecific legal problems you may have.
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Disclaimer
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Illuminating the Dark Side
Workouts
Forbearance
Chapter 11
Bankruptcy
Foreclosure
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The Sting of A Sweet Deal
Mary and Frank
HoneyBear
Corporation
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Bank Loans for Expansion
Daisy
HoneyBear Plant
Sam
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Bank Loans for Expansion
Daisy
ExpandedHoneyBear Plant
Sam
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Business Setbacks
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Loan Defaults
Borrowerpanics
Diverts cash Hides
problems Bank finds
out
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Develop Workout Strategy
Gather facts
Use
"10 Points"
to develop
strategicapproach
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Face to Face Meeting
Meet in person
Site visit
Inspect collateral
Does Borrower
understand themagnitude of the
problem?
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Evaluate Borrower and Guarantors
Strengths
Weaknesses
Honesty Financial
acumen
Ability to thinkdynamically
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Downside Risk and Collateral
Liquidation
analysis
Collateralvalue
Unencumbered
assets
Stabilize
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Gain a Full Understanding of the Credit
Properly
underwritten?
Understand thebusiness
Revenue sources
Costs
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Loan Documentation
Careful review
Amend to fix
errors
UCC search
Real estateliens
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Action Plan
Business plan
Collateral
support Cash flow
Management
Sources ofrepayment
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Forbearance
Written
agreement
Purpose: Waive
defaults
Modify
performance
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Forbearance Terms
Payments
Collateral
Covenants
Reporting
Consultant?
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Forbearance Costs and Expenses
Time =
Collateral + Money
Forbearance Fees
Attorneys' Fees
Third-Party AuditFees
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Tools to Liquidate Collateral
Distress Sale Outside of
Bankruptcy
Foreclosure by Secured Creditor
Receivership
Assignment for Benefit of
Creditors ("ABC")
Bankruptcy
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Negotiated Sale
Quick
Flexible
No Court approval
Junior liens
Unsecured creditors
Fiduciary duties
Form unofficial CreditorsCommittee
Composition agreement?
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Foreclosure
Quick
Personal Property,10 days
IRS Notice,
25days
Real Property,
3 months + 20 days
Must pay off Secured Creditor
No Court approval
Not a fraudulent transfer
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The Potential Buyers
Today's
potential
buyers want agreat deal!!
And if they do
not get it
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The Potential Buyers
Today's
potential
buyers fade
away like
ghosts
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Foreclosure Issues
Multiple securedcreditors, landlords,leases
Group sale? Priority of payment
Lien-free sale
Some assets mightnot be subject tobanks lien
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Auction
Foreclosure
Consensual
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Receiverships
Neutral party
Court Appointed
Sale requires
Court approval Liens must be paid
or negotiated
Receiver controlssellers position
Rents and profits
receivers Loan defaults
Equity receivers
Corporatedissolutions
Partnershipdissolutions
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Receiverships
Does the
collateral
generateincome to pay
the costs of a
receivership?
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Assignment for Benefit of Creditors
Neutral party
No Courtinvolvement
Creditorscommittee
Assignee controlssellers position
Liens must be paidor negotiated
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Bankruptcy
Chapter 11
Chapter7
Involuntary
Prepackaged
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Chapter7
Chapter7 Trusteeis appointed
Debtor's assets
are liquidated Trustee tries to
sell assets toraise cash
Paid to creditorsin order ofpriority
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Chapter 11
Chapter 11Debtor inpossession
Trusteeappointed forcause
Liquidation orPlan ofReorganization?
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Electronic Filing
A BankruptcyCase iscommenced
when a Petitionis filed by oragainst the
Debtor PACER is 24/7
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Proof of Claim
Principal
Interest
Fees
As of date of
filing Exhibits
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Use of Bank's Cash Collateral
Bank's Consent or
Court Order
Forbid use until terms acceptable toBank
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Adequate Protection
Indubitable
equivalent
Typicallyperiodic
payments
Alternative to
stay relief
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Relief from Automatic Stay
Cause
No Adequate
Protection Can't confirm Plan
No equity and not
needed for effective
reorganization
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Potential Buyers
Seller
Creditors
Stalking Horse Bidder
Section 363 Sales: The Players
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Strike deal
before
bankruptcy
Write restrictiveterms of sale
Seller files Chapter 11
Immediately moves
to confirm Plan or
approve sale
Must satisfy Court
and creditors
Fairness issues
Sale - Auction
Prepackaged
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Section 363 Sales in Bankruptcy
Confirm negotiatedsale or
Auction property
Debtor orBankruptcy Trusteesells property "freeand clear" of liens
Sold out lienholdersget paid or consent
Good faith buyer
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Chapter 11 Plan
Chapter 11 Plan ofReorganization
DisclosureStatement
Creditors vote
Confirmation
hearing
Post-confirmation
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Cramdown
Not less than
Chapter7
"Fair andequitable"
At least one
unimpaired
class accepts"Squeezed!"
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www.SpecialAssetsLawyer.com
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Questions?
Richard A. RoganJeffer, Mangels, Butler &
Marmaro LLP
Two Embarcadero Center,
5th Floor
San Francisco, CA 94111
(415) 398-8080
RRogan@JMBM.com
LOSANGELES SAN FRANCISCO ORANGE COUNTY
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