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Mba 215 Group Project Power Point
 

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    Mba 215 Group Project Power Point Mba 215 Group Project Power Point Presentation Transcript

    • MBA 215 Business Law Professor Ida Jones Group Project: Chapter 24 Debtor – Creditor Relations & Bankruptcy David Bacci Larry Narbaitz Michelle Van Valkenburg 1
    • Project Overview • Key Points Chapter 24: Debtor–Creditor Relations • Key Points Review Chapter 24: Bankruptcy • Relationship to Material in Previous Chapters • Our Blog: Bankruptcy Hits Home 2
    • Chapter 24 Key Points Debtor-Creditor Relations & Bankruptcy • Loan Agreements • Commercial Loan Categories • Secured Transactions Under the UCC • Perfecting a Security Interest • Subordination • Lender Liability • Special Defenses Available to Federal Insurers 3
    • Loan Agreements • Parties To The Agreement – Lenders, Borrowers • Commitment To Make a Loan – Term Sheet, letter outlining the terms and conditions for on which the lender will lend • Description Of The Loan – Funding, Interest Rates, Repayment Terms • Representations & Warranties – Qualifications, Truthfulness of Representations 4
    • Loan Agreements (cont’d) • Conditions To Closing – Authority to Approve, Payment of Fees • Covenants – Specific Actions borrower’s promises that it will or will not take as long as the loan is outstanding • Default – Events that will trigger the lenders rights to terminate the loan • Remedies for Default – Sets forth the lenders remedies incase of default, optional by lender 5
    • http://content.edgar-online.com/edgar_conv_img/2007/01/19/0001104659-07-003502_G22113MMI038.JPG 6
    • Commercial Loan Categories • Loans Categorized By Lender – Banks, Insurance Companies, Purchasers of Commercial Paper • Loans Categorized By Purpose – Term & Revolving 7
    • 8 http://www.namethatvalue.com/images/getreport2.jpg https://www.stopwaste.org/AlamedaCommerce/ProductImg/rlf.jpg
    • Secured Transactions Under UCC • Terminology – Security Interest, Debtor, Secured Party, Security Agreement • Formal Requirements • Rights And Remedies • Security Agreement – Parties to the Agreement, Granting Clause, Description of the Collateral, – After Acquired Property, Proceeds, Debtors Obligations, Cross-Collateral – Remedies for Default Rights And Remedies • Additional UCC Information – Bagley Chapter 8 p258, Contracts 9
    • Perfecting a Security Interest • Methods of Perfection – Possession, Control, Filing, Automatic • Filing Procedure (To Provide Notice) – What: File a Financing Statement, Where: Office of the Secretary of State, When: In Advance of the Transaction 10
    • Subordination • An agreement whereby one or more creditors of a common debtor agree to defer payment of their claims until another creditor of the same debtor is fully paid. • Indebtedness To Insiders – Officers, Directors, Share Holders • Lien Subordination – An agreement between two secured creditors whose respective security interests, liens, or mortgages attach to the same property 11
    • Lender Liability • Breach of Contract – Lenders failure to act as required by the terms of an agreement • Breach of Duty of Good Faith – Lenders failure to act reasonably and fairly • Fraudulent Misrepresentation – Lender liable for making a false statement. – Chapter 7, Contracts (p224), fraud in the factum (misrepresent) and fraud in the inducement (falsely persuade) – Chapter 9, Torts (p305), fraudulent misrepresentation • Economic Duress – Coercion of the borrower by threatening to do an unlawful act that might injure the borrower’s business or property 12
    • Lender Liability (Cont’d) • Tortious Interference – Lenders interferes with normal business decisions of the firm – Chapter 9, Torts (p309), interference • Intentional Infliction of Emotional Distress – Lender publicly ridiculing a debtor – Chapter 9, Torts (p297), intentional infliction of emotional distress • Negligence and General Tort Liability – Claims that do not fall under one of the other categories • Statutory Bases of Liability – Lender violates a statutory standard of conduct, i.e. RICO Act 13
    • Chapter 24 Key Points Bankruptcy • Bankruptcy Law • Principles Applicable to All Bankruptcies • Chapter 11 Reorganization • Chapter 7 Liquidations • Chapter 13 Consumer 14
    • Bankruptcy Law • Began with the Bankruptcy Act of 1898 • Amended in 1938 by the Chandler Act • Completely Revised in 1978 by the Bankruptcy Reform Act of 1978 – Substantially lessened the requirements for filing bankruptcy • Bankruptcy Amendments and Federal Judgeship Act of 1984 – Bankruptcy courts became part of the federal district court system • Congress Passes the Bankruptcy Reform Act – Vetoed by President Clinton • Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 – Creates an income-based test to determine whether individuals who file should be required to repay some or all of their debts rather than receive a complete discharge 15
    • Bankruptcy Law (Cont’d) • Management Duties Shift When Company Enters Insolvency Zone – Fiduciary duties of directors shift from that of shareholders to the corporations creditors. • Initiation of a Bankruptcy Proceeding – Petition, Order for Relief, Administration of Claims, Bankruptcy Estate, Distribution of Property 16
    • Principles Applicable to All Bankruptcies • Good Faith Requirement – Debtor does not have to show that it is insolvent to file for Bankruptcy • Automatic Stay – Instantly suspends most litigation and collection activities • Executory Contracts and Leases – Accept or reject contracts that have not been fully performed or lease that are unexpired – Copyright, Patent, Trademark, • Sale of Property – Bankruptcy can facilitate favorable sales of assets other than contracts or leases • Avoiding Powers – Trustee has power to invalidate or reverse certain prebankruptcy transactions – Fraudulent Conveyances (one year prior, intended to hinder creditors) – Collective Bargaining Agreements (economically necessary, impasse, fairness) 17
    • Chapter 11 Reorganizations • Obtaining Credit – Customer’s Payments, Extension of Unsecured Credit, Secured Borrowings – Court Oversight, Turnover of Debtor’s Property • The Plan – Debtor has the exclusive right to file a plan of reorganization with the • Confirmation – To be confirmed, a plan must meet numerous statutory requirements such as – Feasibility, Best interest of creditors, Disclosure, Acceptance, Cramdown • Discharge – Confirmation under chapter 11 can give reorganized debtors a new start under the plan • Workouts, Prepackaged, and Prenegotiated Chapter 11 Cases – Workouts, restructures debtors financial affairs – Prepackaged, company solicits votes on its plan for reorganization before filing for bankruptcy – Prenegotiated, debtor files as soon as it can after reaching agreement with debtors, but debtors do not vote until after debtor files. Advantage is to keep some financial information confidential 18
    • http://farm4.static.flickr.com/3237/3104806590_e195d7b466_o.jpg http://i.thisislondon.co.uk/i/pix/2008/11/woolworths-mfi-355x235.jpg 19 http://business.transworld.net/files/2009/01/14/picture-5.png http://www.mymotherlode.com/upload/iblock/9c5/2008101706062048f9368c66ddb.jpg
    • 20 http://www.themotorreport.com.au/wp-content/uploads/2008/writer/GeneralMotorsPreparingForBankruptcy_98A8/gmsinking_thumb.jpg
    • Chapter 7 Liquidations • Individual Debtors – Discharged, except for nondischargeable debts such as taxes, student loans, drunk driving fines, spousal or child support, claims arising from willful and malicious injury by the debtor • Bankruptcy Abuse Prevention and Consumer Act of 2005 – Established objective income test that the judge must use to determine a debtor’s ability to pay • Nonindividual Debtors – Chapter 7 does not provide a discharge for corporations, partnerships, or similar business entities. – Once their assets are sold, they become defunct shells 21
    • Chapter 13 Consumer Bankruptcy • Deals with the adjustment of debt of an individual or a married couple with regular income. • Chapter 13 Requirements – Regular income, wage earners and individuals engaged in business, unsecured debts less than $307,657 and secured debts do not exceed $922,975 • Advantages of Chapter 13 – Stops all creditor collection activity, debtor does not surrender assets, a god faith effort to pay creditors can preserve goodwill and future credit prospects. – Unfortunately, Chapter 13 debtors are often unable to make the payments outlined in their plan and eventually convert to a Chapter 7 Liquidation 22
    • 23
    • Relationship to Other Material • Chapter 7 Contracts – Slide on Lender Liability (Bagley p224, fraud) • Chapter 8 Sales and E-Commerce – Slide on Secured Transactions (Bagley p258, contracts) • Chapter 9 Torts – Slide on Lender Liability (Bagley p305, fraud) 24