Update on Recent Successes Representing Creditors
Dear Valued Clients:
We recently had some interesting cases and successes to share with you that demonstrate our continuing focus on representing creditors:
- Bankruptcy Court Litigation (PA) – Creditor Catches a Debtor Trying to Sell its Collateral Without Sharing in the Profit on the Purchase Price.
It’s commonplace to negotiate a stipulation for relief from the automatic stay where a debtor in bankruptcy makes monthly payments based on the value of the collateral measured as of the date the bankruptcy was filed – which is often less than the amount due under the loan. What is extremely unusual is when the value of the collateral goes up (instead of down) during the bankruptcy case and when your debtor finds a buyer who is willing to pay far more for the collateral than the valuation at the petition date.
Well, we recently had this exact situation for a secured creditor. Our client had agreed to a value of $145,000 for a paving machine in 2013 based on an appraisal conducted when the construction industry was in the doldrums. Three years later, in 2016, the debtor was able to find a buyer for the paver at $225,000 – an $80,000 increase.
As you might imagine, the debtor did not want to share this increase with our client and tried to pull a fast one. We had obtained relief from the stay, but had not repossessed the paver because the debtor was negotiating with our client about a pay-off. The debtor told our client that a buyer was in the wings, but that the purchase had not taken place. Meanwhile, the debtor’s team went into court on short notice to re-impose the automatic stay over the equipment and obtain required court approval to sell the paver to a third-party and pay the $80K increase to other creditors.
We learned that the sale had actually taken place – it had been arranged by an equipment broker in Colorado who sold the paver to a customer in Maine. These witnesses were not available to testify at a hearing on short notice in Philadelphia and, without them, it was doubtful that the truth would come out.
We did not give up. Instead, we deposed the debtor’s CEO and pulled key admissions from him that would have convinced the court that the debtor took steps to sell, sold, and received payment for the paver all before giving notice, having a hearing, and getting the court’s permission as required. Let’s just say the CEO’s testimony to the contrary would not have been believable.
Based on the record we developed in that deposition, the debtor agreed to split the $80K “profit” with our client rather than take the risk of putting their CEO on the stand. As a result, our client was paid a total of $185,000 from the $225,000 proceeds instead of $145,000.
Bankruptcy Court Litigation (NJ) – the Battle Over Whether an Agreement is a Lease or a Loan and Favorable Settlement Restructuring Indebtedness and Dismissing the Bankruptcy.
We also had another interesting case in a bankruptcy court in New Jersey for a Utah based equipment lender. Our client had exercised its self-help rights and repossessed all of its collateral from a contractor. Because of this, the contractor filed for bankruptcy and an emergency motion to compel our lender to return the equipment. The motion also asked the court rule that our client’s lease agreement was actually a “disguised security agreement” — which would limit its rights significantly as a creditor in bankruptcy and the amount of its recovery if the bankruptcy continued.
Again, we fought for our client. While we were hired on the afternoon before the hearing, Tony appeared telephonically arguing our client’s case and even cross-examining witnesses over the phone (not the ideal situation, but the best option available under the circumstances). Even though the court ordered the turnover of the repossessed construction equipment, we still won several key concessions and economic advantages for our client. The debtor had to pay for the cost to recover the construction equipment and not our client. The debtor also had to start making monthly payments of “adequate protection” that were very close to the amounts that would have been paid under the lease for the privilege of continued use of the collateral. Finally, because the debt on the equipment was the reason for the bankruptcy, our client agreed to consent to dismissal of the bankruptcy – but only after we negotiated a binding modification to the lease agreement where our lender will be paid much more outside the bankruptcy, than if the case had not been dismissed.
- Writ of Seizure for Heavy Equipment (PA) – A Quick Strike in State Court Results in a Consent Judgment for the Value of the Collateral and Protects Our Equipment Lender.
In this case, we represented a California equipment lender in a state court case in Northeastern Pennsylvania. After the client learned that its borrower was selling its business, including its collateral, we were retained to act fast and file suit and obtain a “writ of seizure” for the collateral – a large tire “shredder” used for recycling truck tires. Fortunately, we have years of experience in cases just like this where speed is a factor and where an “action in replevin” and a “writ of seizure” have to be filed and prosecuted quickly before collateral disappears or is transferred to a third-party. In this case, on the strength of the papers, the borrower and the buyer of the equipment quickly agreed to consent to a judgment in the amount of the value of the equipment being sold to avoid the risk of it being seized. As a result of the consent judgment, the equipment lender is now protected and will be paid when the transaction closes. One real benefit in this case is the fact that our client did not have to spend the funds to actually seize a large used tire shredder and sell it to recover. Instead, the buyer is paying our client the fair value for the collateral and is protected by a judgment against the parties involved if the sale falls through or anything unexpected occurs.
Finally, we welcome the opportunity to meet with you or discuss putting our experience and focus to work for you and evaluating potential or existing claims. Thank you.