Cooper v Centar Investments LTD, et al. (In re Trigem America Corporation), 431 B.R. 855 (C.D. Cal. 2010)
CASE SNAPSHOT
A recent bankruptcy case merits the attention of credit managers and others involved in credit decisions. To avoid credit risk when dealing with a chapter 11 debtor in possession, you must verify that the debtor has court authority to use cash collateral prior to shipping or accepting payment.
Most lawyers are generally familiar with the concept of a floating lien under the Uniform Commercial Code. A secured creditor takes a lien in a collateral category that changes from time to time as items are added or subtracted. A common example is a working capital loan, in which financed inventory is produced and sold, then becoming an account, which is collected to provide the funds to produce new inventory. A secured creditor may perfect a lien in the changing mass of inventory and receivables, as each category exists from time to time.
The Fourth Circuit Court of Appeals recently ruled in the case of In re Construction Supervision Services that the property interest underlying a subcontractor’s lien on funds arises from the date it first furnishes labor or materials to a construction project. The timing of when an interest in property arises is critical as it could allow, as it did here, a subcontractor to prime a lender’s perfected lien on accounts receivable when notice was not served until after the debtor filed bankruptcy. This alert briefly describes the decision’s impact on the constru
The recent Chapter 11 bankruptcy filing by James River Coal was the latest reminder that mining companies continue to face unique and myriad challenges. Several factors, including the depressed global economy, tougher environmental rules and enforcement, funding and liquidity challenges, and market volatility, are causing industry-wide stress, particularly for coal companies. Trade press and pundits suggest that more mining company bankruptcies may be on the horizon.
The US Court of Appeals for the Sixth Circuit has ruled that a lender’s security interest in accounts was not perfected because a reference to “proceeds” in the lender’s UCC financing statement did not expressly refer to “accounts.” The Sixth Circuit surprisingly interpreted the definition of “proceeds”1 in Article 9 of the Uniform Commercial Code to exclude “accounts”2 (despite and without reference to provisions of UCC Article 9 to the contrary).
Those who practice in the secured transactions arena, and our clients, understand the importance of filing financing statements and continuing them on a regular basis. Failure to maintain perfection of a security interest can be disastrous to a secured lender in the case of a bankruptcy case involving its borrower. Financing statements can, however, sometimes be mistakenly terminated. Two recent cases illustrate the issues which may arise when a financing statement is inadvertently terminated.
In re Premier Golf Properties, L.P., BAP No. SC- 11-1508-HPaJu (9th Cir. BAP, Aug. 13, 2012)
CASE SNAPSHOT
The Ninth Circuit B.A.P. affirmed the bankruptcy court decision that post-petition income from greens fees and driving range fees were not “rents, proceeds, or profits” of the secured lender’s pre-petition blanket security interest on all real and personal property (and “all proceeds thereof”) within the meaning of section 552(b), and thus were not cash collateral.
The Perishable Agricultural Commodities Act of 1930 (“PACA”)1 is deservedly renowned for its provisions creating a statutory trust on sold perishable commodities, and the products and revenues thereof. See 7 U.S.C. §499e. The PACA statutory trust can have dramatic consequences in the cases of bankrupt produce buyers; produce sellers often are paid in full, ahead of secured creditors holding liens on all inventory and accounts receivable. That is a story often told.