federal equity receiverships- 101

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Federal Equity Receiverships- 101RESTRUCTURING, INSOLVENCY & TROUBLED COMPANIES 2016 SERIES

Premier date: June 3, 2016

Premier Date: June 3, 2016

FEDERAL EQUITY RECEIVERSHIPS - 101

RESTRUCTURING, INSOLVENCY & TROUBLED COMPANIES 2016 SERIES


WE WOULD LIKE TO TAKE THIS OPPORTUNITY TO THANK OUR SPONSORS



meet the facultyPANELISTS

Ira Bodenstein Shaw Fishman Glantz & Towbin LLCMichael Eidelman Vedder PriceGianluca Morello Wiand Guerra King P.L.

MODERATOR Jonathan Friedland Sugar Felsenthal Grais & Hammer LLP


Practical and entertaining education for business owners and executives, accredited

investors, and their legal and financial advisors. For more information, visit

www.financialpoise.comDISCLAIMER: THE MATERIAL IN THIS PRESENTATION IS FOR INFORMATIONAL PURPOSES ONLY. IT SHOULD

NOT BE CONSIDERED LEGAL ADVICE. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE WHAT MAY BE BEST FOR YOUR INDIVIDUAL NEEDS.

http://www.financialpoise.com/


about this webinarA receivership is a legal tool available to a secured party and to certain government agencies. The use of receiverships is on the rise because it can offer the fastest and most cost-effective method of gaining control over a borrower’s collateral upon default or another party’s property in the case of wrongdoing.

It is important to recognize that these two separate purposes really divides receiverships into two fundamentally different types: first, state court receiverships commenced in connection with real estate foreclosure actions; second, regulatory/equity receiverships requested by state and federal agencies, such as the SEC and FDIC.

This webinar discusses both types of receiverships, explains how they are commenced, how receivers are appointed, the powers of receivers, and a host of other details about this increasingly popular tool.

about this seriesCompanies fail all the time, for all sorts of reasons. Some companies become distressed, or even insolvent, because of mismanagement; others because of fraud; others for myriad other reasons- some intrinsic to the company and some extrinsic.

Regardless of the cause, failing or failed companies create a unique set of issues, risks, and even opportunities for all involved. This area of law and finance has become so specialized that no fewer than five (American Bankruptcy Institute; Association of Insolvency & Restructuring Advisors; Commercial Law League of America; National Association of Federal Equity Receivers; Turnaround Management Association) national organizations exist to help those who specialize in the field to stay up to date on the latest developments, strategies, and tactics in the area.

Join some of the leading experts in World, from among the membership of these organizations, as they discuss- in plain English for the non-expert- the basics and the latest in Restructuring, Insolvency & Troubled Companies.

As with all Financial Poise webinars, each episode in the series is designed to be viewed independently of the other episodes, and listeners will enhance their knowledge of this area whether they attend one, some, or all of the programs.


episodes in this series

EPISODE #1 Help, My Business is in Trouble! 2/5/2016

EPISODE #2 Opportunity Amidst Crisis – 3/4/2016Buying Distressed Assets, Claims, and Securities for Fun & Profit

EPISODE #3 What to Expect & Do When Your Customer Becomes Insolvent4/8/2016

EPISODE #4 A Distressed Company and its Secured Lender 5/6/2016

EPISODE #5 Federal Equity Receiverships - 101

6/3/2016 Dates above are premier dates All webinars also available On Demand through West LegalEd Center and Vimeo



Appointment

Federal court must have jurisdiction:

• If appointment sought by SP then usually will require diversity + minimum amount in controversy (28 U.S.C. §1332) b/c SP’s rights not commonly based upon federal question- In such cases the court ancillary jurisdiction to appoint a receiver

• Government entities can also appoint for violation of federal laws

e.g. SEC; FDIC


Powers

• Officer of the court • Manages and operates the property according to the laws of the state

where the property is located

o Court has broad power to determine appropriate relief in an equity receivership, including to stay actions against entity in receivership

• Receiver may be sued with respect to any acts taken or transactions engaged in while carrying on the business as a receiver- See 28 U.S.C §959(a)

• Governed by equity in most instances


Powers (con’t)28 U.S.C. §754: “A receiver appointed in any civil action or proceeding involving property, real, personal or mixed, situated in different districts shall, upon giving bond as required by the court, be vested with complete jurisdiction and control of all such property with the right to take possession thereof. He shall have capacity to sue in any district without ancillary appointment, and may be sued with respect thereto as provided in section 959 of this title. Such receiver shall, within ten days after the entry of his order of appointment, file copies of the complaint and such order of appointment in the district court for each district in which property is located. The failure to file such copies in any district shall divest the receiver of jurisdiction and control over all such property in that district.”


Asset Sales

• Governed by 28 U.S.C. §§ 2001, 2002, 2004, with possibility of court-approved deviations

• Provisions very specific with respect to certain requirements (e.g. notice provisions, appraisals)

• Provisions very vague with respect to the procedures to be employed in the sales

• 28 U.S.C. §2001(b)- No right of redemption

• If notice is proper and otherwise complies with law then sale will be confirmed price is so grossly inadequate as to shock the conscience of the court + additional circumstances indicating unfairness, such as chilled bidding.


Asset Sales (con’t)

• Notice of a public sale must be approved by court and published at least once a week for four weeks before the sale, in at least one newspaper in general circulation in the county, state or judicial district where the property is located

o Newspaper notice does not necessarily = commercially reasonable notice; consider advertising in resources such as www.dailydac.com

• A public sale must occur in the district where the receiver was appointed, unless the court permits it to occur in another district

http://www.dailydac.com/


Asset Sales (con’t)

• A private sale may occur if court determines that it is best interest of the estate

• If private sale of real property then the court must appoint three disinterested appraisers to appraise each parcel of property; court has discretion as to whether appraisals are required to sell personal property


Asset sales (con’t)

• The originally proposed offer will not be confirmed by court unless sales price is at least two-thirds of appraised value, or if another offer of at least 10 percent over the original offer is received

• Notice of private sale also must be approved by the court and published in a newspaper of general circulation at least 10 days before the hearing on the confirmation of the sale

o Newspaper notice does not necessarily = commercially reasonable notice; consider advertising in resources such as www.dailydac.com



The Priority of Government Claims

31 U.S.C. § 3713- The federal priority statute provides that, when a debtor of the United States is insolvent and not in

bankruptcy, it must pay its debts to the government first before paying any other creditor.

Its purpose is "to secure adequate public revenues to sustain the public burden." United

States v. State Bank of North Carolina, 31 U.S. 29, 35 (1832)


The Priority of Government Claims (con’t)

31 U.S.C. § 3713 (b)- A representative of a person or an estate (except a trustee acting under title 11) paying any part of

a debt of the person or estate before paying a claim of the government is liable to the extent of

the payment for unpaid claims of the government.


Nationwide Service of Process

28 U.S.C. §1692- allows nationwide service,

with territorial jurisdiction of appointing court extending

to any judicial district in which receivership property is

found


Appeals

28 U.S.C. §1292(a)(2)- limits the types of orders entered in a receivership proceeding which are appealable on an interlocutory basis (all other orders appealable/not appealable based on standard jurisprudence):

• Order appointing • Order directing sale of receivership assets• Order confirming sale


Federal Equity Receiverships v. Bankruptcy: Similarities

• Some district courts have enacted local rules specifically pertaining to receiverships

• District judges may refer receivership proceedings to magistrate judges

• This presents the issue of the parties’ willingness to consent to having the magistrate judge hear the case and order entry of judgment, pursuant to 28 U.S.C. §636(c), or merely make recommendations to the district judge after hearing the merits


Federal Equity Receiverships v. Bankruptcy: Similarities (con’t)

• Receivers have standing to assert state fraudulent actions theories for the receivership estate

• Courts may rely on analogous Bk Code provisions for guidance

• Ability to have a claims process (but see Slides 16 and 17)


Federal Equity Receiverships v. Bankruptcy: Differences

• Receiver has no authority to avoid and recover preferential transfers, although may try to do so under claims that are available to a receiver, such as claims for unjust enrichment

• Receiver has no authority to employ the “strong arm” powers of Bk Code. §544 to avoid unperfected liens


Federal Equity Receiverships v. Bankruptcy: Differences(con’t)

• Receiver may not be subject to in pari delicto defense

• Receiver predominantly governed by equity rather than statutes, so may have more ability to adapt to certain circumstances


Want to learn more?

Financial Poise wholeheartedly recommends you look into NAFER. More info at http://www.nafer.org/

NAFER, the National Association of Federal Equity Receivers:Its mission is to provide a forum for federal equity receivers to consult with one another regarding the legal and practical issues they face in order to develop best practices and common solutions. By improving the quality, standardization, and expertise in the receivership field, it aims to make it possible for those choosing receivers to do so with confidence.

http://www.nafer.org/

http://www.nafer.org/

More About The Faculty: JONATHAN FRIEDLAND

[email protected] Friedland is a partner with Sugar Felsenthal Grais & Hammer LLP. He regularly represents parties in the purchase and sale of businesses and counsels businesses and their owners in their everyday affairs. Jonathan is also a nationally recognized expert in matters related to financially distressed companies.

Jonathan holds the highest possible rating from Martindale-Hubbell (AV® Preeminent™) and AVVO (10/10), has been repeatedly recognized as an Illinois “superlawyer” in the areas of Business/Corporate Law and Bankruptcy & Creditor/Debtor Rights, and has received several other similar distinctions. He is licensed to in Arizona, Illinois, New Jersey and New York.

Jonathan has been profiled, interviewed, and/or quoted in numerous publications, including Buyouts Magazine; Smart Business Magazine; The M&A Journal; Inside Counsel; LAW360; Business Week.com; The Bankruptcy Strategist; Dow Jones Daily Bankruptcy Review; Bankruptcy Court Decisions; Dow Jones LBO Wire; and The Daily Deal. He has authored three books and more than a hundred articles, and has spoken on more than 100 panels.

Jonathan is also the founder and chairman of DailyDAC, LLC, d/b/a Financial Poise™, an on-line provider of continuing education, information, and business intelligence for business owners, investors, and their trusted advisors. Jonathan graduated from the State University of New York at Albany, magna cum laude, in 1991 after three years of study and from the University of Pennsylvania Law School in 1994. He clerked for a federal judge before entering private practice, spent several years teaching MBA candidates as an Adjunct Professor of Strategic Management at the University of Chicago Booth School of Business, and was the 2006 Clayton Center for Entrepreneurial Law Visiting Professor of Business Law at the University of Tennessee College of Law. Jonathan was a partner with Kirkland & Ellis LLP before joining SugarFGH.



More About The Faculty: D

IRA [email protected]

Ira Bodenstein is a Member of Shaw Fishman Glantz & Towbin LLC.

Appointed by former United States Attorney General Janet Reno, Ira Bodenstein served as a United States Trustee for Region 11, which is comprised of the Northern District of Illinois and the State of Wisconsin, from May 1998 through January 2006, when he joined Shaw Fishman. As a United States Trustee, Ira served as head of the Justice Department component with primary responsibility over all bankruptcy cases filed in Region 11. This tremendous experience gives him a unique perspective and insight when working with his bankruptcy clients. Having been a U.S. Trustee, he has a keen understanding of the trustee process and how to efficiently accomplish what is best for the parties involved.

He regularly counsels his clients on the necessity and timing of filing reorganization cases, and the rights of unsecured and secured creditors prior and subsequent to the filing of a bankruptcy. He is experienced in all facets of chapter 11 reorganization cases, including preparing and confirming plans of reorganization in debtor cases, representation of creditors’ committees, opposing a debtor’s plan on behalf of creditors, and representation of creditors and debtors in preference and fraudulent conveyance litigation. He also counsels lenders on their rights as secured creditors.



MICHAEL [email protected]

Michael M. Eidelman is a Shareholder at Vedder Price and a member of the Corporate practice area. He also serves as West Coast Director of the firm.

Mr. Eidelman concentrates his practice in bankruptcy and insolvency matters and has acted as lead counsel for debtors, secured and unsecured creditors, Chapter 7 and 11 trustees, landlords, purchasers of assets, and creditors’ and bondholders’ committees. In addition, Mr. Eidelman has represented companies, creditors, court-appointed receivers and assignees for the benefit of creditors in out-of-court restructurings and liquidations. Mr. Eidelman also represents officers and directors of financially distressed companies. He has substantial litigation experience in all aspects of creditors’ rights, in both U.S. state and federal jurisdictions and in cross-border transactions in Canada and Mexico. Mr. Eidelman was also appointed by the U.S. District Court for the Northern District of Illinois as Receiver in U.S. Commodity Futures Trading Commission v. Peregrine Financial Group, Inc. and Russell R. Wasendorf, Sr. (Case No. 1:12-cv-05383).

Mr. Eidelman is a member of the Turnaround Management Association and the Chicago, Illinois and American Bar Associations. He served as a member and Co-Chairman of the Bankruptcy Court Liaison Committee, which was established to address issues concerning bankruptcy judges and lawyers in the Northern District of Illinois. He is also a frequent speaker and author on numerous bankruptcy-related issues.



GIANLUCA [email protected]

Gianluca Morello is a Shareholder of Wiald Guerra King P.A.

Gianluca practices in the areas of securities litigation and regulation, antitrust litigation and counseling, financial services litigation, and other commercial litigation. Gianluca defends securities fraud class actions and other matters involving claims of fraud, civil racketeering, and other misconduct asserted against financial services firms and other businesses and their related individuals; antitrust claims asserted in class or other actions; and other claims asserted against businesses and individuals in the financial services and other industries. He also regularly represents court-appointed receivers in all facets of their responsibilities, including in the operation, sale, and liquidation of businesses; in “clawback” and other litigation; and in disputes with creditors. Gianluca has successfully argued several leading receivership decisions in the U.S. Court of Appeals for the Eleventh Circuit. He also counsels businesses on structuring business practices in compliance with securities and antitrust laws.

Visit www.eisneramper.comEisnerAmper. Let's Get Down to Business®

EisnerAmper LLP is a leading full-service advisory and accounting firm, and is among the largest in the United States. We provide audit, accounting, and tax services, as well as corporate finance, internal audit and risk management, litigation services, consulting, private business services, employee

benefit plan audits, forensic accounting, and other professional advisory services to a broad range of clients across many industries. We work with high net worth individuals, family offices, closely held businesses, start-ups, middle market and Fortune 500 companies. EisnerAmper is PCAOB-registered and provides services to more than 200 public companies and to thousands of entities spanning the hedge, private equity, brokerage and insurance

space in the financial services marketplace. As companies grow we help them reach their goals every step of the way. With offices in New York (NY), New Jersey (NJ), Pennsylvania (PA), California (CA), and the Cayman Islands, and as an independent member of Allinial

Global, EisnerAmper serves clients worldwide.

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Important Notes

• THE MATERIAL IN THIS PRESENTATION IS FOR GENERAL EDUCATIONAL PURPOSES ONLY.

• IT SHOULD NOT BE CONSIDERED LEGAL, INVESTMENT, FINANCIAL, OR ANY OTHER TYPE OF ADVICE ON WHICH YOU SHOULD RELY.

• YOU SHOULD CONSULT WITH AN APPROPRIATE PROFESSIONAL ADVISOR TO DETERMINE WHAT MAY BE BEST FOR YOUR INDIVIDUAL NEEDS.