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This is a foreclosure not BK question: Background. NO preferencial

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This is a foreclosure not BK question:
Background. NO preferencial payments.


ABC Co. is public, insolvent, debt 10x its market cap. Very few assets. In breach in nearly every agreement, including to secureds. No claims of fraud. Revenue has dried up for many reasons. Restructure is mandatory. Most debt 3-5 years old.
Debt: Secured#1 (for years and has made new loans): 40% of debt, 5-10% stock)
Secured #2(for years and still making loans): 20% of debt, 50% of stock -- does not need #1's votes).
accrued unpaid salary 10%
IRS etc 4%
36% judgments, vendors, notes.


Question one:
If secured lender (s) forclose on assets, assuming proper notice, do they own them free and clear of debts owed against them?
For instance a stack of widgets with an unpaid $100K invoice.
For instance: a stock of ABC Widgets that, when sold, are supposed to have commissions paid to sales men. Do prior or future sales still honor commissions?
For instance: a copyright, patent or trademark (owned WFH by company), that have contractual agreements for royalties to be paid to the wfh inventors (who do NOT owned a shared copyright). Tossed out, or paid?
For instance: goods stored at a location that has padlocked the items until back rent is paid for facility. How to retrieve?

An asset sale would likely garner between $300,000 - $4,000,00. If potential buyers are not allowed to thoroughly assess contracts, then probably $300 tops.

Other than IRS, do ANY debt holders, including those with judgments and liens, or employees with accrued unpaid salary jump past secureds? If Secured #2 is #2 position in line, #1 trumps regardless of #2's secured status and majority vote, correct?

Question Two: if secured lien holder wants the assets AND the actual corp entity (because even corp shells have value) then:
If it leaves the assets in the corp, is is liable for all contracts and debts attached to those assets? If so, it is liable only through ABC Co?

B. If it forecloses on the assets, moves them out into others of it's business, sells off some -those are all free of encumbrances?

C. If it does "B" but keeps ABC Co shell (and retains some business activity), is it that the lien holder owns the assets outside of teh company free and clear, but the company still actually owes everyone as long as it's in business?

D. Secured Creditor (s) would still own millions in secured debt. Company would have no assets other than good will, voidable agreements and a shell value (all totaling $300K or less).

Question: If surviving part of Public (and still Public) ABC Co (which does hope to become profitable with reduced structure) simply ignores all suits -- just lets them go to judgment -- what legal negative consequences does it face?
Is there something it files showing it's secured status that can be done cheaply and ignore protracted battles. Just let the other side win? secured lender foreclosed on most assets and still is the secured lender?
Does it avoid some problems if it notices any NEW vendor that seek to do business?
NOTE: company is in type of field that new vendors and new customers will likely not care about notices nor past problems, and some of old vendors will want to restart business regardless.
Submitted: 2 years ago.
Category: Business Law
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Expert:  Richard replied 2 years ago.

Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good afternoon. I've addressed each of your questions below in bold, underlined, italicized text....

ABC Co. is public, insolvent, debt 10x its market cap. Very few assets. In breach in nearly every agreement, including to secureds. No claims of fraud. Revenue has dried up for many reasons. Restructure is mandatory. Most debt 3-5 years old.
Debt: Secured#1 (for years and has made new loans): 40% of debt, 5-10% stock)
Secured #2(for years and still making loans): 20% of debt, 50% of stock -- does not need #1's votes).
accrued unpaid salary 10%
IRS etc 4%
36% judgments, vendors, notes.


Question one:
If secured lender (s) forclose on assets, assuming proper notice, do they own them free and clear of debts owed against them? It depends upon what debts are owed against them and the priority of the liens. If the secured lenders' liens are recorded first, their foreclosure will extinguish any junior liens, but any junior lien creditors would be paid from any excess proceeds from the foreclosure to the extent of excess funds available. All secured creditors get paid from foreclosure in full in the order of their liens until the proceeds from sale run out. .
For instance a stack of widgets with an unpaid $100K invoice. If the secured party's lien is superior, then it has priority against any other secured creditors and against all unsecured creditors
For instance: a stock of ABC Widgets that, when sold, are supposed to have commissions paid to sales men. Do prior or future sales still honor commissions?
For instance: a copyright, patent or trademark (owned WFH by company), that have contractual agreements for royalties to be paid to the wfh inventors (who do NOT owned a shared copyright). Tossed out, or paid? All tossed out if there are no assets after the secured creditors take their assets.
For instance: goods stored at a location that has padlocked the items until back rent is paid for facility. How to retrieve? That depends upon whether or not the landlord was given a landlord's lien to secure the rent. If so, then the landlord has the prior lien; if not, the landlord cannot attach and if the landlord won't release, the secured creditor and the company can file suit to release the goods.

An asset sale would likely garner between $300,000 - $4,000,00. If potential buyers are not allowed to thoroughly assess contracts, then probably $300 tops.

Other than IRS, do ANY debt holders, including those with judgments and liens, or employees with accrued unpaid salary jump past secureds? If Secured #2 is #2 position in line, #1 trumps regardless of #2's secured status and majority vote, correct? Other than landlord lien that could jump ahead, the secured creditors come first in the order of the recordings of their liens. It makes no difference who owns more stock.

Question Two: if secured lien holder wants the assets AND the actual corp entity (because even corp shells have value) then:
If it leaves the assets in the corp, is is liable for all contracts and debts attached to those assets? If so, it is liable only through ABC Co? Creditors are entitled to go after corporate assets only, not the shareholers unless the shareholders have personally guaranteed the obligations. Leaving the property in the company would still leave them subject to the liens and if the creditor sued the company and got a judgment, the creditor could move to attach the property, but it would still be behind the prior liens.

B. If it forecloses on the assets, moves them out into others of it's business, sells off some -those are all free of encumbrances? If it forecloses, he gets all the proceeds until the his debt is paid, then the next lienholder gets all the money until its lien is paid...and so on and so on. If there are no other bidders at foreclosure, the lienholder will simply bid in the amount of their debt and take the property and would own the property individually free of liens.

C. If it does "B" but keeps ABC Co shell (and retains some business activity), is it that the lien holder owns the assets outside of teh company free and clear, but the company still actually owes everyone as long as it's in business? Yes, but if the assets are worth more than what is owed on them, the excess goes to the company.

D. Secured Creditor (s) would still own millions in secured debt. Company would have no assets other than good will, voidable agreements and a shell value (all totaling $300K or less).

Question: If surviving part of Public (and still Public) ABC Co (which does hope to become profitable with reduced structure) simply ignores all suits -- just lets them go to judgment -- what legal negative consequences does it face? The judgments would stay in existence and if the company became profitable, those judgment creditors could attach assets and profits to collect their judgment. It would be better for the company to file for bankruptcy protection.
Is there something it files showing it's secured status that can be done cheaply and ignore protracted battles. Just let the other side win? secured lender foreclosed on most assets and still is the secured lender? The secured status would be indicated by either a recorded lien for real property or a UCC-1 filed with the Secretary of State for personal property such as goods, inventory, equipment.
Does it avoid some problems if it notices any NEW vendor that seek to do business?
NOTE: company is in type of field that new vendors and new customers will likely not care about notices nor past problems, and some of old vendors will want to restart business regardless. The new vendors are going to need secured credit agreements advance payments or deposits or personal guarantees in order to be willing to deal with the company.

Richard, Attorney
Category: Business Law
Satisfied Customers: 47105
Experience: 32 years of experience practicing law and a businessman.
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