Litigation and governmental or regulatory investigations;
Changes in real estate market conditions; and
General economic, political, and financial market conditions or events.
To the extent that there is volatility in the price of Class A Liquidation Trust Interests, the Trust may also become the target of securities litigation. Securities litigation could result in substantial costs and divert the Trustee’s and the Supervisory Board’s attention and the Company’s resources as well as depress the value of Liquidation Trust Interests.
Certain holders of Class A Liquidation Trust Interests, deemed under the Bankruptcy Code to be “underwriters,” may not be able to sell or transfer their Class A Liquidation Trust Interests in reliance upon the Bankruptcy Code’s exemption from the registration requirements of federal and state securities laws. Such “statutory underwriters” may include members of the Supervisory Board and holders of ten percent (10%) or more of the Liquidation Trust Interests. Statutory underwriters may not be able to offer or sell their Class A Liquidation Trust Interests without registration under the Securities Act or applicable state securities (i.e., “blue sky”) laws unless such offer and sale is exempted from the registration requirements of such laws. The offer and sale of Class A Liquidation Trust Interests by statutory underwriters in reliance upon an exemption from registration under the Securities Act may require compliance with the requirements and conditions of Rule 144 of such law, including those regarding the holding period, the adequacy of current public information regarding the Trust, sale volume restrictions, broker transactions, and the filing of a notice.
Potential conflicts of interest exist among the classes of Liquidation Trust Interests. The existence of separate classes of Liquidation Trust Interests could give rise to occasions when the interests of the Interestholders could diverge, conflict or appear to diverge or conflict. Operational and financial decisions by the Liquidation Trustee regarding the litigation could favor one class (i.e., Class A or Class B) of Interestholders over another, adversely affecting the market value of a particular class of Liquidation Trust Interests or the distribution to that particular class of Liquidation Trust Interests.
The Class A Liquidation Trust Interests may become the subject of third-party tender offers. The Trust believes that one or more institutional investors have, or in the future may acquire, an interest in conducting a tender offer for the Class A Liquidation Trust Interests. Such tender offers may be commenced without the offeror having negotiated with the Trust to make price or other terms of the offer more attractive, and without the offeror having sought the Trust’s recommendation of the offer to its holders. As a result of thin trading of the Class A Liquidation Trust Interests on the over-the-counter market, the liquidity of such securities may be limited and it may be difficult to establish a market price for such securities. Holders of Class A Liquidation Trust Interests presented with a tender offer may be at a disadvantage in evaluating such offer.
Risks Relating to Management and Control
The Trust is controlled by the Liquidation Trustee and the Interestholders have no voting rights regarding decisions made on behalf of the Trust. All decisions concerning the conduct of theUnresolved Causes of Action and distribution of assets of the Trust are to be made by the Liquidation Trustee, in accordance with the terms of the Plan and the Trust Agreement, with approval by the Supervisory Board for certain decisions as set forth in the Trust Agreement. The Interestholders have no right to elect or remove the Liquidation Trustee. The Liquidation Trustee may be removed by Bankruptcy Court order upon the motion of the Supervisory Board and a showing of good cause; provided, however, that the proposed removal and replacement of Michael Goldberg as Liquidation Trustee will require a determination by the Bankruptcy Court that “cause” exists for such removal and replacement using the standard under Bankruptcy Code section 1104 made after notice of such proposed removal and replacement has been provided to the SEC.
Interestholders will have only limited rights against the Liquidation Trustee and the Liquidation Trustee has limited liability to the Trust. The Trust Agreement provides that the Liquidation Trustee and the Delaware Trustee (and their respective affiliates, directors, officers, employees and representatives) and any officer, employee or agent of the Trust or its affiliates will have no liability to the Trust or the Interestholders except for acts or omissions of the Liquidation Trustee or the Delaware Trustee undertaken with the deliberate intent to injure the Interestholders or with reckless disregard for the best interests of the Interestholders. Any liability of the Liquidation Trustee will be limited to actual, proximate and quantifiable damages. The Trust Agreement further provides that the Liquidation Trustee shall not incur any liability for any act or omission under the Trust Agreement unless the Liquidating Trustee has acted with gross negligence, fraud, or willful misconduct. The Trust Agreement provides that the Interestholders have no voting rights (except in connection with certain amendments to the Trust Agreement).
The Trust has limited control over the Wind-Down Entity. The business and affairs of the Wind-Down Entity are managed by its Board of Managers. The Trust, as the sole member of the Wind-Down Entity, has only limited approval rights over decisions by the Board of Managers. Under the Wind-Down Entity LLC Agreement, the Trust may remove members of the Board of Managers only for Cause, as defined in the Wind-Down Entity LLC Agreement. Furthermore, except in the case of threetwo specified properties, the Trust has approved in advance any property sale by the Wind-Down Group provided that the purchase price for such property is at or above the approved low-case price for such property in the Wind-Down Group’s current business plan. Only in the case of a sale of one or more of the threetwo specified properties, or a sale of another property at a price less than its approved low-case price, is the Wind-Down Entity required to obtain the Trust’s approval for the sale of a property. In the event of a dispute between the Trust and the Wind-Down Entity as to any matter that cannot be resolved between the Trust and the Wind-Down Entity, the Wind-Down Entity LLC Agreement requires that the matter be resolved by the Bankruptcy Court.
Being a public company is expensive and administratively burdensome. The Trust is subject to the periodic reporting requirements of the Exchange Act. The Trust’s status as a reporting company under the Exchange Act causes the Trust to incur additional legal, accounting, financial reporting and other expenses. The Trust expects these rules and regulations to increase its legal and financial compliance costs and to make some activities more time-consuming and costly. The Trust also expects that these rules and regulations may make it more difficult and more expensive for the Trust to obtain director and officer liability insurance and that the Trust may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain approximately the same or similar coverage. As a result, it may be more difficult for the Trust to attract and retain qualified individuals to serve on the Supervisory Board.
Risks Relating to Taxes
If the Trust is not treated as a liquidating trust for federal tax purposes, there may be adverse tax consequences to the Trust and the Interestholders. Pursuant to the Plan and the Trust Agreement, the Trust was organized with the intention that it conform to the requirements of a liquidating trust under applicable IRS rules. However, not all aspects of the formation of the Trust are expressly addressed in such rules, and the requirements of such rules are not always specific. No legal opinions have been requested from counsel, and no rulings have been or will be requested from the IRS, as to the tax treatment of the Trust. Accordingly, there can be no assurance that the IRS will not determine that the Liquidation Trust does not qualify as a liquidating trust. If the Trust does not qualify as a liquidating trust, there may be adverse federal income tax consequences, including taxation of the income of the Trust at the entity level, which could reduce the amount of Trust cash available for distributions to Interestholders or result in tax assessments of Interestholders upon their receipt of distributions.
As a liquidating trust, the Trust is subject to federal tax rules that limit its operations. To maintain its status as a liquidating trust, the Trust will need to comply with IRS regulations and revenue procedures applicable to the operation of liquidating trusts. The Trust will be prohibited or restricted from, among other activities, engaging in the conduct of a trade or business, unreasonably prolonging its liquidation activities, or allowing business activities to obscure the liquidating purpose of the Trust. Furthermore, the Trust will be subject to restrictions on its ability to retain net income or the net proceeds from the sale of assets from year to year, to make investments, and to use Trust funds to continue the development of the Wind-Down Entity’s real estate assets. Due to the lack of specificity and indeterminate nature of the applicable requirements, there can be no assurance that the Trust will be able to comply with the IRS rules. If the Trust fails to comply with such rules, the IRS may determine that the Trust’s status as a liquidating trust may be revoked. Revocation of such status may entail adverse federal income tax consequences to the Trust and the Interestholders.
The Trust may be restricted under applicable federal tax rules from accepting all Fair Fund Recoveriesrecoveries and Forfeited Asset Recoveries.Assets. Under applicable IRS rules, liquidating trusts are not permitted to receive or retain cash or cash equivalents in excess of a “reasonable” amount to meet claims and contingent liabilities (including disputed claims) or to maintain the value of the assets during liquidation. It is unclear whether the approximately $5 million cash contributions to the Trust under the Plan, together with any future Fair Fund Recoveriesrecoveries or Forfeited Asset Recoveries,Assets, will be determined to be an amount in excess of such limit.
An Interestholder’s tax liability could exceed distributions. If the Trust has income for a taxable year, the appropriate portion of that income may be includable in an Interestholder’s taxable income, whether or not any cash is actually distributed to the Interestholder by the Trust. The Plan and the Trust Agreement permit the Trust to reserve certain amounts to fund, among other things, operating and other expenses, and do not contain a mandatory tax distribution provision. Therefore, for any particular year, there may be no distribution or a distribution that is less than an Interestholder’s tax liability on its share of the income of the Trust.
Purchasers of Liquidation Trust Interests may be required to make special calculations to determine tax gain or loss on the sale of Liquidation Trust Interests. The Trust does not expect to maintain a separate basis account for any purchaser of a Liquidation Trust Interest in an open market transaction. However, to the extent the Trust is treated as a grantor trust, the purchaser may be treated as though such purchaser purchased the Liquidation Trust Interest deemed to have been owned by the selling Interestholder. The new purchaser may receive a new tax basis in the acquired Liquidation Trust Interests equal to such purchaser’s purchase price of the Liquidation Trust Interests. Upon the sale of assets by the Trust and its related entities, the basis of the Liquidation Trust Interest on the books and records of the Trust may be different than the new purchaser’s basis, requiring the new purchaser to make special calculations to report the correct gain or loss for federal income tax purposes. Investors are urged to consult with their tax advisors regarding the acquisition, ownership and disposition of Liquidation Trust Interests.
Expenses incurred by the Trust may not be deductible by Interestholders. Expenses incurred by the Trust generally will be deemed to have been proportionately paid by each Interestholder. As such, these expenses may not be deductible or be subject to limitations on deductibility. Interestholders are urged to consult with their tax advisors regarding the acquisition, ownership and disposition of Liquidation Trust Interests.
Before purchasing Liquidation Trust Interests, investors are urged to engage in careful tax planning with a tax professional. The federal income tax treatment of the Liquidation Trust Interests is complex and may not be clear in all cases. For example, in the case of an investor who purchases Liquidation Trust Interests in more than one transaction at different times and for different prices, and subsequently sells a portion of such Liquidation Trust Interests, there appears to be no clear guidance as to whether such purchaser can use average-cost basis in all of Liquidation Trust Interests or instead may claim a higher or lower tax basis depending on the specific price of each lot. Additionally, the federal income tax treatment of the Liquidation Trust Interests may vary depending on the investor’s particular facts and circumstances. Investors other than individual citizens or residents of the U.S., and certain other persons subject to special treatment under the Internal Revenue Code, should consider the impact of their status on the tax treatment of such an investment. Persons subject to such special treatment under the Internal Revenue Code may include foreign companies, family trusts, 401(k) or individual retirement accounts, non-citizens of the U.S., tax-exempt organizations, real estate investment trusts, small business investment companies, regulated investment companies, governmental entities, entities exercising governmental authority, banks and certain other financial institutions, broker-dealers, insurance companies, and persons that have a functional currency other than the U.S. dollar.
Risks Relating to Accounting, Financial Reporting and Information Management
The Company’s consolidated financial statements are prepared on the Liquidation Basis of Accounting, which requires the estimation of the future value of assets and the amount of projected expenses. Estimates by management may be based, among other things, on projected construction and selling periods, real estate appraisals, cost forecasts by construction engineers, and the levels of general and administrative expenses (such as payroll, insurance and rent). However, the actual realized value of the Company’s assets and the Company’s actual expenses are likely to differ from the estimated amounts reported in the Company’s consolidated financial statements, and such differences may be material and possibly adverse.
The Wind-Down Entity’s real estate assets may not be liquidated at their recorded estimated net realizable value. The estimated net realizable value is an estimate of the amount that the Wind-Down Entity expects to realize from the sale of the real estate assets. The actual sales price and closing and other costs may differ from the amounts included in the consolidated financial statements. The estimated sales price and closing and other costs are estimated based on management’s analysis of current market conditions. The actual amounts realized will be based on negotiations between management and third-party buyers. The actual amounts realized will likely be different than the amounts included in the consolidated financial statements and the differences could be material and possibly adverse.
The Wind-Down Entity’s and the Trust’s general and administrative costs that are included in accrued liquidation costs may be different than the actual costs incurred. The estimated general and administrative costs may be different than the actual costs as the amounts may be greater than the amount estimated and the length of time required to complete the liquidation process may be longer than the time that was estimated. The actual amount of general and administrative costs will likely be different than the amounts included in the consolidated financial statements and the difference could be material.
The Company’s consolidated financial statements do not include any future recoveries from Unresolved Causes of Action or anyand no future Fair Funds Recoveries or future Forfeited Asset Recoveries.Fund recoveries are expected. The Company’s consolidated financial statements are prepared using the Liquidation Basis of Accounting, under which future cash flows are recorded only if the Company has the ability to reasonably estimate them. Because the Company is unable to reasonably estimate the future recoveries, if any, from Unresolved Causes of Action, or anyand no future Fair Funds Recoveries or future Forfeited Asset Recoveries,Fund recoveries are expected, such items have not been recognized in the Company’s consolidated financial statements. Therefore, the Company’s consolidated financial statements are not expected to provide prospective investors in the Liquidation Trust Interests with meaningful information regarding such future recoveries, the amount of which may be material to the Company’s net assets in liquidation.
If the Trust is unable to maintain effective internal control over financial reporting in the future, the accuracy and timeliness of its financial reporting may be adversely affected. If the Trust identifies one or more material weaknesses in the Trust’s internal control over financial reporting and such weakness remains uncorrected at fiscal year-end, the Trust may be required to disclose that such internal control is ineffective at fiscal year-end. Were this to occur, the Trust could lose investor confidence in the accuracy and completeness of its financial reports, which could have a material adverse effect on the Trust’s reputation and the value of the Liquidation Trust Interests.
Any decision on the part of the Company, as an “emerging growth company,” to choose reduced disclosures applicable to emerging growth companies could make the Liquidation Trust Interests less attractive to investors. The Company is an “emerging growth company” as defined in the Securities Act and, for so long as it continues to be an emerging growth company, it may choose to take advantage of certain exemptions from various reporting requirements applicable to other public companies including, but not limited to, the requirement that internal control over financial reporting be audited by the Company’s independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure requirements regarding executive compensation and the extended transition period for complying with new or revised financial accounting standards. The Company may take advantage of these provisions for up to five years or such earlier time that the Company is no longer an emerging growth company. No assurance can be given that this reduced reporting will not have an impact on the price of the Class A Liquidation Trust Interests.
Information technology, data security breaches and other similar events could harm the Company. The Company relies on information technology and other computer resources to perform operational activities as well as to maintain its business records and financial data. The Company’s computer systems are subject to damage or interruption from power outages, computer attacks by hackers, viruses, catastrophes, hardware and software failures and breach of data security protocols by its personnel or third-party service providers. Although the Company has implemented administrative and technical controls and taken other actions to minimize the risk of cyber incidents and otherwise protect its information technology, computer intrusion efforts are becoming increasingly sophisticated and even the controls that the Company has installed might be breached. Further, most of these computer resources are provided to the Company or are maintained on behalf of the Company by third-party service providers pursuant to agreements that specify certain security and service level standards, but which ultimately are outside of the Company’s control. Additionally, security breaches of the Company’s information technology systems could result in the misappropriation or unauthorized disclosure of proprietary, personal and confidential information which could result in significant financial or reputational damages to the Company.
Item 1B. | Unresolved Staff Comments |
None.
As of September 25, 2020,24, 2021, the Company’s principal properties are nine single-family homes. Seven of thefive single-family homes, all of which were under development and two were held for sale.development. The Company expects most ofthat the seven homes under development will be completed during the remainder of fiscal year ending June 30, 2021 and the remaining homes will be completed during fiscal year ending June 30, 2022. Although this construction schedule is based on assumptions believed to be reasonable, residential real property construction is subject to many potential risks and delays, and no assurance can be given that the anticipated completion schedule will be realized.
The following is a summarylist of the most significant higher-value propertiesfive single-family homes held by the Company as of September 25, 2020:24, 2021:
Address | City | Area | State | | Zip | | | Sq. Ft. | | | Lot Size (Acres) | |
Development Properties3 | |
41 King Street | New York | Hudson Square | NY | | | 10014 | | | | 6,400 | | | | .30 | |
2600 Hutton | Los Angeles | Beverly Hills | CA | | | 90210 | | | | 6,500 | | | | .73 | |
10733 Stradella | Los Angeles | Bel Air | CA | | | 90077 | | | | 6,500 | | | | 2.52 | |
1520 Carla Ridge | Beverly Hills | Trousdale Estates | CA | | | 90210 | | | | 7,200 | | | | .42 | |
1484 Carla Ridge | Beverly Hills | Trousdale Estates | CA | | | 90210 | | | | 10,000 | | | | .58 | |
642 St. Cloud Road | Los Angeles | Bel Air | CA | | | 90077 | | | | 29,000 | | | | 1.07 | |
638 Siena Way | Los Angeles | Bel Air | CA | | | 90077 | | | | 17,400 | | | | .85 | |
| |
Available for Sale4 | |
1471 Forest Knoll Drive | Los Angeles | Hollywood Hills | CA | | | 90069 | | | | 11,000 | | | | .89 | |
141 S. Carolwood Drive5 | Los Angeles | Holmby Hills | CA | | | 90024 | | | | 12,200 | | | | 9.51 | |
Address2 | City | Area | State | | Zip | | | Sq. Ft. (Rounded) | | | Lot Size (Acres) | |
| |
41 King Street | New York | Hudson Square | NY | | | 10014 | | | | 6,400 | | | | .30 | |
2600 Hutton | Los Angeles | Beverly Hills | CA | | | 90210 | | | | 6,500 | | | | .73 | |
10733 Stradella | Los Angeles | Bel Air | CA | | | 90077 | | | | 6,200 | | | | 2.52 | |
638 Siena Way3 | Los Angeles | Bel Air | CA | | | 90077 | | | | 17,400 | | | | .85 | |
642 St. Cloud Road3 | Los Angeles | Bel Air | CA | | | 90077 | | | | 29,000 | | | | 1.07 | |
Below is a description of pending litigation. As the Company is the plaintiff in these legal proceedings and does not have the ability to estimate the ultimate recovery amount until they are settled, and in accordance with the Company’s accounting policy, no recoveries have been recorded in the Company’s consolidated financial statements for these legal proceedings, other than for settlements for which the Trust has entered into a signed settlement agreement.
Goldberg v. Halloran & Sage LLP, et al., Case No. 19STCV42900 (Cal. Super. Ct., L.A. Cnty., filed Dec. 2, 2019), is an action by the Trust against nine law firms (Halloran & Sage LLP; Balcomb & Green, P.C.; Rome McGuigan, P.C.; Haight Brown & Bonesteel LLP; Bailey Cavalieri LLC; Sidley Austin LLP; Davis Graham & Stubbs LLP; Robinson & Cole LLP; and Finn Dixon & Herling LLP) and ten individual attorneys (Richard Roberts, Lawrence R. Green, Jon H. Freis, Brian Courtney, Ted Handel, Thomas Geyer, Neal Sullivan, S. Lee Terry, Jr., Shant Chalian, and Reed Balmer) for conduct in connection with their representation of Robert Shapiro, the Debtors or their affiliates before the commencement of the Bankruptcy Cases, as well as against up to 100 “Doe” defendants. The conduct challenged in the complaint includes knowingly and/or negligently preparing loan documents and investment agreements with material misstatements and omissions, designing deceptive securities products, preparing incorrect legal opinion memoranda on which investors relied, and assisting in the creation of nominally third-party borrower entities that were in fact controlled by Robert Shapiro.
3 All the properties identified on this table as development properties are being constructed as single-family homes except for the New York property, which is being constructed as a townhouse.
4 All of the properties identified on this table as available for sale are newly constructed single-family homes except for the Carolwood property, which is an existing single-family home.
5 Serves as collateral for the New LOC as described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity, Capital Resources and Uses of Liquidity - Capital Resources.”
The first set of counts in the complaint are against law firm Halloran & Sage LLP, attorney Richard Roberts, and the “Doe” defendants for aiding and abetting securities fraud (First Count), aiding and abetting fraud (Second Count), aiding and abetting breach of fiduciary duty (Third Count), negligent misrepresentation (Fourth Count), professional negligence (Fifth Count), and aiding and abetting conversion (Sixth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
2All the properties identified on this table are being constructed as single-family homes except for the New York property, which is being constructed as a townhouse.
3Serves as collateral for the New LOC as described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity, Capital Resources and Uses of Liquidity - Capital Resources.”
The second set of counts in the complaint are against law firm Balcomb & Green, P.C., attorney Lawrence R. Green, and the “Doe” defendants for aiding and abetting securities fraud (Seventh Count), aiding and abetting fraud (Eighth Count), aiding and abetting breach of fiduciary duty (Ninth Count), negligent misrepresentation (Tenth Count), professional negligence (Eleventh Count), and aiding and abetting conversion (Twelfth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
The third set of counts in the complaint are against attorney Jon H. Freis and the “Doe” defendants for aiding and abetting securities fraud (Thirteenth Count), aiding and abetting fraud (Fourteenth Count), aiding and abetting breach of fiduciary duty (Fifteenth Count), negligent misrepresentation (Sixteenth Count), professional negligence (Seventeenth Count), and aiding and abetting conversion (Eighteenth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
The fourth set of counts in the complaint are against law firm Rome McGuigan, P.C., attorney Brian Courtney, and the “Doe” defendants for aiding and abetting securities fraud (Nineteenth Count), aiding and abetting fraud (Twentieth Count), aiding and abetting breach of fiduciary duty (Twenty-First Count), negligent misrepresentation (Twenty-Second Count), professional negligence (Twenty-Third Count), and aiding and abetting conversion (Twenty-Fourth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
The fifth set of counts in the complaint are against law firm Haight Brown & Bonesteel LLP, attorney Ted Handel, and the “Doe” defendants for aiding and abetting securities fraud (Twenty-Fifth Count), aiding and abetting fraud (Twenty-Sixth Count), aiding and abetting breach of fiduciary duty (Twenty-Seventh Count), negligent misrepresentation (Twenty-Eighth Count), professional negligence (Twenty-Ninth Count), and aiding and abetting conversion (Thirtieth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $20 million, as well as for punitive damages.
The sixth set of counts in the complaint are against law firm Bailey Cavalieri LLC, Thomas Geyer, and the “Doe” defendants for aiding and abetting securities fraud (Thirty-First Count), aiding and abetting fraud (Thirty-Second Count), aiding and abetting breach of fiduciary duty (Thirty-Third Count), negligent misrepresentation (Thirty-Fourth Count), professional negligence (Thirty-Fifth Count), and aiding and abetting conversion (Thirty-Sixth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
The seventh set of counts in the complaint are against law firm Sidley Austin LLP, attorney Neal Sullivan, and the “Doe” defendants for aiding and abetting securities fraud (Thirty-Seventh Count), aiding and abetting fraud (Thirty-Eighth Count), aiding and abetting breach of fiduciary duty (Thirty-Ninth Count), negligent misrepresentation (Fortieth Count), professional negligence (Forty-First Count), and aiding and abetting conversion (Forty-Second Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
The eighth set of counts in the complaint are against law firm Davis Graham & Stubbs LLP, attorney S. Lee Terry, Jr., and the “Doe” defendants for aiding and abetting securities fraud (Forty-Third Count), aiding and abetting fraud (Forty-Fourth Count), aiding and abetting breach of fiduciary duty (Forty-Fifth Count), negligent misrepresentation (Forty-Sixth Count), professional negligence (Forty-Seventh Count), and aiding and abetting conversion (Forty-Eighth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $200 million, as well as for punitive damages.
The ninth set of counts in the complaint are against law firm Robinson & Cole LLP, attorney Shant Chalian, and the “Doe” defendants for aiding and abetting securities fraud (Forty-Ninth Count), aiding and abetting fraud (Fiftieth Count), aiding and abetting breach of fiduciary duty (Fifty-First Count), negligent misrepresentation (Fifty-Second Count), professional negligence (Fifty-Third Count), and aiding and abetting conversion (Fifty-Fourth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $5 million, as well as for punitive damages.
The tenth set of counts in the complaint are against law firm Finn Dixon & Herling LLP, attorney Reed Balmer, and the “Doe” defendants for aiding and abetting securities fraud (Fifty-Fifth Count), aiding and abetting fraud (Fifty-Sixth Count), aiding and abetting breach of fiduciary duty (Fifty-Seventh Count), negligent misrepresentation (Fifty-Eighth Count), professional negligence (Fifty-Ninth Count), and aiding and abetting conversion (Sixtieth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $5 million, as well as for punitive damages.
The eleventh set of counts in the complaint are against law firms Halloran & Sage LLP; Balcomb & Green, P.C.; Rome McGuigan, P.C.; Haight Brown & Bonesteel LLP; Bailey Cavalieri LLC; Sidley Austin LLP; Davis Graham & Stubbs LLP; Robinson & Cole LLP; and Finn Dixon & Herling LLP; attorney Jon H. Freis, and the “Doe” defendants for actual-intent fraudulent transfer (Sixty-First Count) and constructive fraudulent transfer (Sixty-Second Count). These defendants are alleged to be liable for damages in an amount believed to be in excess of $5 million, as well as for provisional remedies, avoidance of the transfers, and punitive damages.
The case was designated as a complex matter on December 18, 2019, and was assigned to the Honorable Amy Hogue.
On March 20, 2020, two sets of defendants – Sidley Austin LLP and Neal Sullivan; and Davis Graham & Stubbs LLP and S. Lee Terry, Jr. – filed special motions to strike the portions of the complaint directed at them under a California statute (Civil Procedure Code section 425.16) that permits defendants to bring early challenges to causes of action against them that allegedly arise from protected litigation activity if those causes of action lack minimal merit. The defendants that filed these special motions to strike asserted that the claims against them arise from communicative conduct in the course of quasi-judicial proceedings, such as regulatory inquiries, and that the Trust cannot establish a likelihood of prevailing on its claims against them. The Trust opposed these motions, and the matters were heard on July 28, 2020, and taken under submission on that date. On August 14, 2020, the Court entered orders: (i) granting the motion to strike filed by Sidley Austin LLP and Neal Sullivan, and (ii) granting in part and denying in part the motion to strike filed by Davis Graham & Stubbs LLP and S. Lee Terry, Jr. In September 2020, the Trust filed notices of appeal of the foregoing orders, and Davis Graham & Stubbs LLP and S. Lee Terry, Jr. subsequently filed a cross-appeal. On January 27, 2021, the Court entered an order granting, in part, a motion for attorneys’ fees filed by Sidley Austin LLP and Neal Sullivan, pursuant to which the movants were awarded $282,500.00 in fees and $5,557.87 in costs.
On April 13, 2020, four sets of defendants – Rome McGuigan, P.C. and Brian Courtney; Bailey Cavalieri LLC and Thomas Geyer; Robinson & Cole LLP and Shant Chalian; and Finn Dixon & Herling LLP and Reed Balmer – filed motions to quash the service of summonses. The defendants that filed these motions asserted that they are not subject to suit in California because they do not have sufficient contacts with California to justify a California court’s exercise of jurisdiction over them. The Trust opposed these motions, and the matters were heard in part on July 15, 2020 and in part on July 20, 2020, and (with exception of the motion filed by Finn Dixon & Herling LLP and Reed Balmer) were taken under submission on July 20, 2020. The motion filed by Finn Dixon & Herling LLP and Reed Balmer was taken off calendar prior to July 20, 2020, and the parties thereafter reached a confidential settlement that is in the process of being documented.settlement. On July 21, 2020, the Court entered orders granting the motions to quash filed by Rome McGuigan, P.C. and Brian Courtney; Bailey Cavalieri LLC and Thomas Geyer; and Robinson & Cole LLP and Shant Chalian. On September 10, 2020, the Trust filed a notice of appeal of the foregoing orders.
On June 16, 2020, the Trust reached a confidential settlement with Balcomb & Green, P.C. and Lawrence R. Green. On July 6, 2020, these defendantdefendants filed a motion seeking the Court’s determination that the settlement was made in good faith under a California statute (Civil Procedure Code section 877.6) that permits settling defendants to seek a good faith settlement finding in order to bar any other defendant from seeking contribution or indemnity. The motion was unopposed, and the Court entered an order granting it on August 12, 2020.
On January 21, 2021, the Trust reached a confidential settlement with Robinson & Cole LLP and Shant Chalian. As part of that settlement, the appeal of the jurisdictional ruling as to those parties has been dismissed.
On October 28, 2020, the Trust filed a federal lawsuit against four defendants that prevailed on the motions to quash service of summons in the California state court action (Rome McGuigan, P.C.; Brian Courtney; Bailey Cavalieri LLC; and Thomas Geyer), as well as a fifth defendant (Ivan Acevedo), and certain “Doe” defendants.” The case is styled Goldberg v. Rome McGuigan, P.C., et al., Case No. 2:20-cv-09958-JFW-SK (C.D. Cal.). The complaint contains counts for (i) violations of section 10(b) of the Exchange Act and Rule 10b-5; (i) aiding and abetting fraud; (iii) aiding and abetting breach of fiduciary duty; (iv) negligent misrepresentation; (v) professional negligence; (vi) aiding and abetting conversion; (vii) actual fraudulent transfer; and (viii) constructive fraudulent transfer. The conduct challenged in the complaint includes certain of the same conduct challenged in the California state court action, and a footnote in the complaint explains: “Plaintiff filed an action in Los Angeles Superior Court against [four of these defendants] raising some of the claims asserted in this action. Those defendants filed a motion to quash service, alleging that the court did not have personal jurisdiction. The Court granted those motions, and Plaintiff appealed. Plaintiff brings this action to preserve his rights and ensure that his claims against [the defendants] are adjudicated on the merits. Should the state court appeal be successful, resulting in two cases being simultaneously litigated on the merits in two forums, [plaintiff] will consider dismissing this action and litigating the case in state court.” On January 4, 2021, the four defendants from the California state court action filed motions to dismiss this federal lawsuit, and on March 4, 2021, the court entered an order granting those motions in part by dismissing the first count (arising under the federal securities laws), without ruling on the remaining counts (arising under state law) in light of potential personal jurisdiction issues. On March 29, 2021, the same four defendants again moved to dismiss the remaining counts for lack of personal jurisdiction, and on April 23, 2021 the federal court granted those motions.
Comerica Bank litigation. There areOn August 6, 2021, the Trust agreed to the terms of a settlement of two pending actions against Comerica Bank. The terms of the settlement, reached following negotiations with Comerica Bank and the plaintiffs in a putative class action against Comerica Bank in the United States District Court for the Central District of California (the “District Court”), are the subject of a Settlement Agreement among the plaintiffs, Comerica Bank, and the Trust (“Comerica Settlement Agreement”). Comerica Bank is the institution at which the Debtors maintained all of their bank accounts, alleging various causesand these actions arise out of action:the Debtors’ former banking relationships with Comerica Bank. The Comerica Settlement Agreement is referenced hereto as Exhibit 10.16.
(1)The Comerica Settlement Agreement resolves two actions. One of the actions, captioned In re Woodbridge Investments Litigation, Case No. 2:18-cv-00103-DMG-MRW (C.D. Cal.), is a consolidated putative class action (Class Action) in the United States District Court for the Central District of California (California District Court) brought on behalf of former Noteholdersnoteholders and Unitholders against Comerica Bank. Itunitholders of the Debtors (the “California Class Action”). The California Class Action is comprised of five separate lawsuits filed between January 4, 2018 and April 26, 2018. The five lawsuits were2018 and, as consolidated, Lead Class Counsel was appointed, and Lead Class Counsel filed a Consolidated Class Action Complaint on September 19, 2019. The Consolidated Class Action Complaint asserted claims for aiding and abetting fraud, (Count 1), aiding and abetting breach of fiduciary duty, (Count 2), negligence, (Count 3), and violations of California’s unfair competition law (Count 4).
On November 1, 2019, Comerica moved to dismisslaw. The Trust believes that it is the Consolidated Class Action Complaint under Federal Rule of Civil Procedure 12(b)(6) (failure to state a claim upon which relief can be granted) and Federal Rule of Civil Procedure 12(b)(1) (lack of subject matter jurisdiction). With respect to Count 1 (aiding and abetting fraud) and Count 2 (aiding and abetting breach of fiduciary duty), Comerica argued that the Class Plaintiffs’ allegations did not demonstrate that Comerica had actual knowledge of the underlying fraud and breach of fiduciary duty that Comerica is alleged to have aided and abetted; with respect to Count 3 (negligence), Comerica argued that there is no duty of care owed to non-customers of Comerica; and with respect to Count 4 (California Unfair Competition Law), Comerica argued that a claim for unfair competition fails when there is no actual knowledge of fraud or breach of fiduciary duty and no duty owed. In addition, Comerica argued that all causes of action failed to state a claim for the additional reason that Comerica’s filing or non-filing of a Suspicious Activity Report (SAR) under federal law cannot support any of the causes of action, and that the Court lacked subject matter jurisdiction because all of the causes of action belong to the Liquidation Trust such that the Class Plaintiffs lack standing to pursue them.
On August 5, 2020, the Court entered an order granting in part and denying in part Comerica’s motion to dismiss. The Court denied Comerica’s request to dismiss Counts 1 and 2 on the ground that the allegations of the Consolidated Class Action Complaint sufficiently alleged that Comerica had the requisite knowledge of the underlying fraud and breach of fiduciary duty. The Court granted Comerica’s request to dismiss Count 3 on the ground that the allegations of the Consolidated Class Action Complaint did not sufficiently allege a duty of care owed to non-customers of Comerica. On Count 4, the Court granted the motion to dismiss to the extent it relied on a failure to file a SAR (which claim the Court found was preempted by federal law, which prohibits disclosure of a SAR), but denied the motion to dismiss to the extent the complaint relied on violations arising from non-SAR-related conduct, and the Court granted the class leave to amend the complaint. The Court also denied Comerica’s request to dismiss based on Comerica’s allegations that the class lacked standing and that the Trust cannot be a member of a class, finding instead that the class has plausibly alleged standing to sue, and that the question of whether the Trust can be a class member did not need to be answered at this stage.
On August 26, 2020, the putative class filed a First Amended Consolidated Class Action Complaint, which asserted claims for aiding and abetting fraud (Count 1), aiding and abetting breach of fiduciary duty (Count 2), and violations of California’s unfair competition law (Count 3). Comerica’s response to the First Amended Consolidated Class Action Complaint has not yet been filed.
The Trustee asserts that he is alargest member of the putative class andin the California Class Action, as holder of approximately 60.9% of all claims against Comerica disputes that assertion.based on the claims contributed to the Trust by former investors of the Debtors.
(2)The other action resolved by the settlement, captioned Michael I. Goldberg vs.as trustee for the Woodbridge Liquidation Trust v. Comerica Bank, Adv. Pro. No. 20-ap-50452-BLS (Bankr. D. Del., originally filed Apr. 26, 2019 in California and transferred on February 5, 2020 to Delaware)), is an action byadversary proceeding pending in the Bankruptcy Court, in which the Trust has asserted claims against Comerica Bank allegingfor fraudulent transfer liabilitytransfers under the California Civil Code.Code the (the “Delaware Adversary Action”). The Trust’s complaintDelaware Adversary Action also incorporates the claims asserted against Comerica Bank in the class action (referenced in paragraph (1) above)California Class Action to the extent that such claims aremay ultimately be determined to belong to the TrustDebtors’ estates rather than to individual former Noteholdersnoteholders and Unitholders.
unitholders.
On June 28, 2019, Comerica filed three motions: (i) a motion to transfer venue to
Under the Bankruptcy Court; (ii) alternatively, a motion to dismiss the action for failure to state a claim; and (iii) a motion to strike the portionterms of the Complaint that incorporatesComerica Settlement Agreement, the California Class Action is required to be settled as a class action, claims. Comerica argued that venue should be transferredsubject to the BankruptcyDistrict Court approval, on the grounds that, inter alia, that court is familiar withbasis of a class defined to consist of (i) the facts underlyingTrust, as assignee of the litigation and is best positioned to adjudicate it. Inclaims of the alternative,holders of Net Claims (as defined in the event thatSettlement Agreement) in Class 3 (Standard Note Claims, as defined in the court declines to transfer venue, Comerica argued thatPlan) and Class 5 (Unit Claims, as defined in the Complaint should be dismissed onPlan) of the grounds that, among other grounds, (i)Plan who are Contributing Claimants (as defined in the Trust’s claims are barred by the doctrine of in pari delicto,Plan) and (ii) the transfersholders of Net Claims (as defined in the Settlement Agreement) in Class 3 (Standard Note Claims, as defined in the Plan) and Class 5 (Unit Claims, as defined in the Plan) of the Plan who are not Contributing Claimants (as defined in the Plan). For purposes of distributions under the Settlement Agreement, the holders of Net Claims who are not Contributing Claimants are deemed to be the holders of such Net Claims as of February 15, 2019.
Under the Comerica Settlement Agreement, Comerica Bank has agreed to pay (including through its insurers) an aggregate of $54.5 million, consisting of $54.2 million to settle the California Class Action (the “Class Payment”) and $300,000 to settle the Delaware Adversary Action (the “FT Payment”). The Class Payment is intended to provide recoveries to members of the plaintiff class and to fund, in amounts to be determined by the District Court, the legal fees of plaintiffs’ counsel in the California Class Action, not to exceed 25% of the California Class Action settlement payment, the costs of administering the settlement, and certain incentive award for the class representatives. Under the Comerica Settlement Agreement, Comerica Bank (and certain related parties) is required to be released from all claims advanced, or that could have been advanced, related to the facts alleged in the California Class Action or the Delaware Adversary Action.
The settlement amount is to be paid within ten business days of the Settlement Effective Date (as defined in the Comerica Settlement Agreement). The Net Class Consideration (defined as the Class Payment minus Court-awarded attorneys’ fees and costs) is required to be distributed to class members as set forth in the Settlement Agreement, resulting in a distribution to the Trust seeksof approximately 60.9% of the Net Class Consideration (corresponding to recover arethe Trust’s holding of approximately 60.9% of all claims against Comerica based on the claims contributed to the Trust by former investors of the Debtors). No costs of administration or incentive award will be deducted from the Trust’s share of the Net Class Consideration. The Trust has agreed not avoidable as a matterto opt out of law because the settlement with respect to these claims. The FT Payment is required to be distributed to the Trust. The FT Payment is not subject to reduction for any reason, including attorneys’ fees, costs of administration, or incentive awards.
The proposed settlement of the California Class Action is subject to court approval, and settlement of the Delaware Adversary Action is subject to settlement of the Class Action. Court approval and payment of a secured banking obligation cannotthe proposed settlement amounts is expected by the first quarter of calendar year 2022 but could be delayed by appeals or other proceedings. Additionally, Comerica has the subjectright to terminate the settlement if class members accounting for more than an agreed amount of a fraudulent transfer claim.claims elect to opt out of the settlement.
On July 22, 2019, the Trust filed its omnibus opposition to the three Comerica motions. On February 5, 2020,September 3, 2021, the court entered an order granting Comerica’s motion to transfer the casepreliminary approval to the Bankruptcy Court in Delaware, and denying the remaining two motions (to dismiss and to strike) as moot in lightsettlement of the transfer, without prejudice to renewal by Comerica in the Bankruptcy Court. On February 6, 2020, the Bankruptcy Court opened the above-referenced docket number for the transferred case. On March 23, 2020, the Trust and Comerica filed a stipulation, which was approved by the Bankruptcy Court, agreeing to stay the action pending disposition of the motion to dismiss the class action (referenced in paragraph (1) above). On September 3, 2020, the Trust and Comerica filed a stipulation, which was also approved by the Bankruptcy Court, agreeing to further stay the action until thirty days after the California District Court enters a scheduling order in the Class Action. Within thirty days after the entry of such a scheduling order, the parties will confer and submit a joint proposed scheduling order, or (if they cannot agree) will make a joint submission with each party’s competing proposal as to any areas of disagreement for the Bankruptcy Court’s consideration.
Avoidance actions. The Trust is currently prosecuting numerous legal actions to recover preferential payments, fraudulent transfers, and other funds subject to recovery by the bankruptcy estate. These actions were filed in the United States Bankruptcy Court for the District of Delaware, are pending before the Honorable Brendan L. Shannon,J. Kate Stickles, and generally fall into the following categories:
Preferential transfers. Certain of the actions include claims arising under chapter 5 of the Bankruptcy Code, and seek to avoid or recover payments made by the Debtors during the 90 days prior to the December 4, 2017 bankruptcy filing, including payments to miscellaneous vendors and former Noteholders and Unitholders.
Fraudulent transfers (Interest to Noteholders and Unitholders). Certain of the actions include claims arising under chapter 5 of the Bankruptcy Code, and seek to avoid or recover payments made by the Debtors during the course of the Ponzi scheme (from July 2012 through the December 4, 2017 bankruptcy filing) for interest paid to former Noteholders and Unitholders.
Fraudulent transfers (Shapiro personal expenses). Certain of the actions include claims arising under chapter 5 of the Bankruptcy Code, and seek to avoid and recover payments made by the Debtors during the course of the Ponzi scheme (from July 2012 through the December 4, 2017 bankruptcy filing) for the personal expenses of Robert and Jeri Shapiro, including those identified in a forensic report prepared in connection with an SEC enforcement action in the United States District Court for the Southern District of Florida.
The Trust has filed approximately 490over 400 legal actions of this nature, many of which have been resolved, resulting in recoveries by or judgments in favor of the Trust. As of September 25, 2020, approximately 288 of these legal actions were pending, 116 of which are in default status and for each of which the Trust is seeking a default judgment. Since inception and as of September 25, 2020,August 31, 2021, the Trust has obtained judgments of approximately $5.91$8.17 million and has entered into settlements in over 200approximately 195 legal actions and with respect to another over 150approximately 245 potential avoidance claims for which litigation was not filed, resulting in an aggregate of approximately $11.94$16.25 million of cash payments made or due to the Trust and approximately $8.45$9.93 million in reductions of claims against the Trust.
In addition, other legal proceedings are being prosecuted by the Trust and United States governmental authorities, which actions may result in recoveries in favor of the Trust. Such actions currently include:
Fraudulent transfers and fraud (against former agents). These actions, which arise under chapter 5 of the Bankruptcy Code and applicable state law governing fraudulent transfers, seek to avoid and recover payments made by the Debtors during the course of the Ponzi scheme (from July 2012 through the December 4, 2017 bankruptcy filing) for commissions to former agents, as well as for fraud, aiding and abetting fraud, and the unlicensed sale of securities asserted by the Trust based on claims contributed to the Trust by defrauded investors. These actions were filed by the Trust in the United States Bankruptcy Court for the District of Delaware between November 15, 2019 and December 4, 2019. Actions of this type are also being pursued by the SEC, and it is the Trust’s understanding that any recoveries obtained by the SEC will be transmitted to the Trust pursuant to a “Fair Fund”Fair Fund established by the SEC.
Actions regarding the Shapiro’s personal assets. On December 4, 2019, the Trust filed an action in the United States Bankruptcy Court for the District of Delaware, Adv. Pro. No. 10-51076 (BLS), Woodbridge Liquidation Trust v. Robert Shapiro, Jeri Shapiro, 3X a Charm, LLC, Carbondale Basalt Owners, LLC, Davana Sherman Oaks Owners, LLC, In Trend Staging, LLC, Midland Loop Enterprises, LLC, Schwartz Media Buying Company, LLC and Stover Real Estate Partners LLC. In this action, the Trust asserts claims under chapter 5 of the Bankruptcy Code and applicable state law for avoidance of preferential and fraudulent transfers together with claims for fraud, aiding and abetting fraud, the unlicensed sale of securities, breach of fiduciary duty and unjust enrichment. The Trust seeks to recover damages and assets held in the names of Robert Shapiro, Jeri Shapiro and their family members and entities owned or controlled by them, which assets the Trust contends are beneficially owned by the Debtors or for which the Debtors are entitled to recover based on the Shapiros’ defalcations, including over $20 million in avoidable transfers.
Criminal Proceeding and Forfeiture. In connection with the United States’ criminal case against Robert Shapiro (Case No. No. 19-20178-CR-ALTONAGA (S.D. Fla. 2019)), Shapiro agreed to the forfeiture of certain assets. The Trust filed a petition in the Florida court to claim the forfeited assetsForfeited Assets as property of the Debtors’ estates, and therefore as property that had vested in the Trust pursuant to the Plan. The Trust has agreed to the terms and form ofentered into an agreement with the United States Department of Justice to resolve its claim. The agreement was approved by the Bankruptcy Court on September 17, 2020. The agreement remains subject to approval2020 and was approved by the United States District Court.Court on October 1, 2020. Among other things, the agreement provides for the release of specified forfeited assetsForfeited Assets by the United States to the Trust, and for the Trust to liquidate those assets and distribute the net sale proceeds to Qualifying Victims, which include the vast majority of Trust beneficiaries—specifically, all former holders of Class 3 and 5 claims and their permitted assigns—but do not include former holders of Class 4 claims. The Trust has taken possession of the Forfeited Assets.
Wind-Down Group Litigation. The Wind-Down Group owns a portfolio of real estate assets, which includes secured loans and other properties. As part of its recovery efforts, the Wind-Down Group, through its subsidiaries, is involved in ordinary routine litigation incidental to such assets. Among other litigation, certain Woodbridge entities (including the Trust, the Wind-Down Entity, and WB 8607 Honoapiilani, LLC) filed an action against Certain Underwriters at Lloyd’s of London in Los Angeles Superior Court, alleging that the defendant insurer breached its obligations under an insurance policy purchased to protect a property owned by WB 8607 Honoapiilani (a subsidiary of the Wind-Down Entity) in Hawaii, which property was destroyed by fire in August 2017. The Superior Court granted the defendant’s motion for summary judgment, and on March 25, 2021 entered judgment in favor of the defendant. The judgment provided that plaintiffs take nothing by way of the complaint. Further, the judgment provided that defendant refund plaintiffs for the premium payments under the insurance policy at issue in the lawsuit ($110,829.43), less all amounts paid by the defendant in respect of claims under the policy ($97,770.38) and less defendant’s costs (defendant has requested costs of $9,874.71). Plaintiffs have appealed the judgment.
Not applicable.
Part II
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market Information
The Trust has two classes of common equity: Class A Liquidation Trust Interests and Class B Liquidation Trust Interests. Neither class is listed on any national securities exchange.
Class A Liquidation Trust Interests are traded on the over-the-counter market (OTC Link® ATS) under the trading symbol WBQNL. Over-the-counter quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. As of September 25, 2020,24, 2021, there were approximately 7,1087,091 holders of record of the Class A Liquidation Trust Interests.
Since issuance, Class B Liquidation Trust Interests have not been transferable except by operation of law or by will or the laws of descent and distribution. Accordingly, there has not been any established public trading market for the Class B Liquidation Trust Interests or any available price quotations. As of September 25, 2020,24, 2021, there were approximately 1,1851,182 holders of record of the Class B Liquidation Trust Interests.
Dividends and Distributions
Liquidation Trust Interests represent a right to receive a pro rata portion of distributions by the Trust pursuant to the terms of the Plan and the Trust Agreement. Since the Plan Effective Date, the Liquidation Trustee has authorized fourseven cash distributions to the holders of Class A Liquidation Trust Interests. See “Item 1. Business – A. Overview” of this Annual Report. The Liquidation Trustee will continue to assess the adequacy of funds held and expects to make one or more additional distributions of excess Trust assets to Interestholders, but does not currently know the timing or amount of any such distributions(s). Additional cash distributions will be subject to, among other things, the establishment of reasonable reserves for contingent liabilities and future costs and expenses. Pursuant to the Plan and the Trust Agreement, all distributions are net of any costs and expenses incurred by the Trust in connection with administering, litigating or otherwise resolving the various Causes of Action of the Trust and operating the Trust. Amounts withheld and not distributed may also include fees and expenses of the Liquidation Trustee, premiums for directors and officers insurance, and other insurance and fees and expenses of attorneys and consultants.
Distributions will be made only from assets of the Trust and only to the extent that the Trust has sufficient assets (in excess of reserves for contingent liabilities and future costs and expenses, among other things) to make such payments in accordance with the Plan and the Trust Agreement. No distribution is required to be made to any Interestholder unless such Interestholder is to receive in such distribution at least $10.00 or unless such distribution is the final distribution to such Interestholder pursuant to the Plan and the Trust Agreement. Distributions will be made at the sole discretion of the Liquidation Trustee in accordance with the provisions of the Plan and the Trust Agreement.
Sales of unregistered securities
In accordance with the Plan, all Liquidation Trust Interests have been issued without registration under the Securities Act. The Liquidation Trust Interests have been issued only to holders of allowed claims in Class 3, Class 4, and Class 5 entirely in exchange for such claims. See “Item 1. Business - D. Plan Provisions Regarding the Company - 2. Treatment under the Plan of holders of claims against and equity interests in the Debtors” of this Annual Report. As of September 25, 2020,During the period from February 15, 2019 (inception) through June 30, 2021, the Trust has issued an aggregate of 11,519,45011,535,697 Class A Liquidation Trust Interests and an aggregate of 676,312677,790 Class B LiquidationInterests. As of June 30, 2021, the Trust Interests.has 11,512,855 Class A Interests and 675,784 Class B Interests outstanding. All Liquidation Trust Interests were issued on the Plan Effective Date or from time to time thereafter as soon as practicable as and when claims in Class 3, Class 4 or Class 5 have become allowed.
During the three months ended June 30, 2020,2021, the Trust issued the following Liquidation Trust Interests:
Date of Sale | | Number of Class A Interests Sold | | | Number of Class B Interests Sold | | Nature of the Transaction | | Consideration Received |
| | | | | | | | | |
May 1, 2020 April 16, 2021 | | | 2,806.29 1,600.00 | | | | - | | -Allowance of
claims | | Allowance of | Allowance of claims |
Total
| | | 1,600.00 | | | | | | - | | | | |
June 12, 2020
| | | 895.44
| | | | -
| | Settlement of claims | Settlement of claims |
| | | | | | | | | | |
Total
| | | 3,701.73
| | | | -
| | | |
The issuance of Liquidation Trust Interests without registration under the Securities Act has occurred in reliance upon the exemption from such registration afforded by Section 1145(a)(1) of the Bankruptcy Code. Section 1145(a)(1) exempts the offer and sale of securities under a plan of reorganization from registration under the Securities Act and state securities laws and regulation if (i) the securities are offered and sold under a plan of reorganization and are securities of the debtor, of an affiliate of the debtor participating in a joint plan with the debtor, or of a successor to the debtor under the plan; (ii) the recipients of the securities hold a pre-petition or administrative claim against the debtor or an interest in the debtor; and (iii) the securities are issued entirely in exchange for the recipient’s claim against or interest in the debtor, or principally in such exchange and partly for cash or property. The Trust believes that the Liquidation Trust Interests are securities of a “successor” to the Debtors within the meaning of Section 1145(a)(1), and such securities were issued under the Plan entirely in exchange for allowed claims in Class 3, Class 4, and Class 5.
Item 6. | Selected Financial Data |
Not applicable.
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion of changes in net assets and net assets in liquidation should be read in conjunction with “Item 8. Financial Statements and Supplementary Data” of Part II of this Annual Report, and other financial information appearing elsewhere in this Annual Report. This discussion contains “forward-looking statements” within the meaning of the Securities Act and the Exchange Act. All such forward-looking statements are based upon the Trust’s current expectations and involve risks and uncertainties which may cause actual results to differ materially from those expressed or implied by the forward-looking statements. See “Cautionary Note About Forward-Looking Statements” included at the beginning of this Annual Report for a description of these risks and uncertainties. The Trust, the Remaining Debtors, the Wind-Down Entity and the Wind-Down Subsidiaries are collectively referred to in this discussion as “the Company.”
Overview
Pursuant to the Plan, the Trust was formed on February 15, 2019 to hold, either directly or indirectly through the Wind-Down Group, the assets and equity interests formerly owned by the Debtors. Each of the real properties formerly owned by the Debtors was transferred, on the effective date of the Plan, to one of the Wind-Down Subsidiaries. The purpose of the Wind-Down Group is to develop (as applicable), market, and sell those properties to generate cash. Assets formerly owned by the Debtors other than real estate assets and certain cash were transferred, on the effective date of the Plan, to the Trust. The purpose of the Trust is to receive remittances of cash from the Wind-Down Entity, to resolve disputed claims, to prosecute the Causes of Action, to pay allowed Unimpaired Claims and, subject to the payment of Trust expenses and the retention of various reserves, to make distributions of cash to Interestholders in accordance with the Plan.
The Trust operates pursuant to the Plan and the Trust Agreement. The Trust was formed as a Delaware statutory trust and is administered by the Liquidation Trustee. The Wind-Down Entity, a wholly-owned subsidiary of the Trust, operates pursuant to the Plan and the Wind-Down Entity LLC Agreement. The Wind-Down Entity was formed as a Delaware limited liability company and is administered by its Board of Managers, one of which is the Chief Executive Officer.
As of September 25, 2020,24, 2021, and June 30, 2020,2021, the number of Liquidation Trust Interests outstanding in each series is as follows:
| | Number Outstanding as of | |
| | September 25, 2020 | | | June 30, 2020 | |
| | | | | | |
Class A Liquidation Trust Interests | | | 11,519,450 | | | | 11,518,232 | |
Class B Liquidation Trust Interests | | | 676,312 | | | | 675,558 | |
| Number Outstanding as of | |
| September 24, 2021 | | June 30, 2021 | |
| | | | |
Class A Interests | 11,511,765
| | | 11,512,855 | |
Class B Interests | 675,617
| | | 675,784 | |
For each of the classes of Liquidation Trust Interests, the number of Liquidation Trust Interests outstanding will increase to the extent that disputed claims become allowed claims.
Since the Plan Effective Date through June 30, 2020,2021, the Wind-Down Group has disposed of approximately 118137 properties for aggregate net sale proceeds of approximately $281.36$416.79 million. In addition, the Wind-Down Entity will no longer be pursuing recoveries related to 13 secured loans due to lack of market interest. During the period July 1, 20202021 through September 25, 2020,24, 2021, the Company sold fourtwo single-family homes and four other properties and realized proceeds of approximately $33.43$42.45 million. There can be no assurance thatAs of June 30, 2021, the Company owned thirteen real estate assets (including six single-family homes under construction and one single-family home listed for sale) with a gross carrying value of approximately $149.80 million. Therefore, the amount of net sales proceeds thatfrom the Company will receivesale of real estate assets in the future will be consistent withless than the amount received duringrealized from the period February 15, 2019 (inception)Plan Effective Date through September 25, 2020.June 30, 2021. The Company expects to complete the liquidation of its assets during the fiscal year ending June 30, 2023.2024
Discussion of the Company’s Operations
Year ended June 30, 2021
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the year ended June 30, 2021:
Consolidated Statement of Changes in Net Assets in Liquidation
For the year ended June 30, 2021
($ in thousands)
| | Qualifying Victims | | | All Interestholders | | | Total | |
| | | | | | | | | |
Net assets in liquidation as of June 30, 2020 | | $ | - | | | $ | 264,517 | | | $ | 264,517 | |
| | | | | | | | | | | | |
Change in assets and liabilities: | | | | | | | | | | | | |
Restricted for Qualifying Victims - change in carrying value of assets and liabilities, net | | | 3,167 | | | | - | | | | 3,167 | |
| | | | | | | | | | | | |
All interestholders: | | | | | | | | | | | | |
Change in carrying value of assets and liabilities, net | | | - | | | | 644 | | | | 644 | |
Distributions (declared) reversed, net | | | - | | | | (138,788 | ) | | | (138,788 | ) |
Net change in assets and liabilities | | | - | | | | (138,144 | ) | | | (138,144 | ) |
| | | | | | | | | | | | |
Net assets in liquidation, as of June 30, 2021 | | $ | 3,167 | | | $ | 126,373 | | | | 129,540 | |
Net assets in Liquidation – Restricted for Qualifying Victims increased by approximately $3.17 million during the year ended June 30, 2021.
Net assets in liquidation – All Interestholders decreased approximately $138.14 million during the year ended June 30, 2021. This decrease was due to a reduction in carrying value of assets and liabilities, net of $0.64 million and distributions declared, net of approximately $138.78 million (distributions declared of $139.95 million, less distributions reversed of $1.17 million for disallowed claims). The components of the changes in carrying value of assets and liabilities, net are as follows ($ in thousands):
| | Qualifying Victims | | | All Interestholders | | | Total | |
| | | | | | | | | |
Recognition of Forfeited Assets | | $ | 3,459 | | | $ | - | | | $ | 3,459 | |
Sales proceeds in excess of carrying value | | | - | | | | 5,180 | | | | 5,180 | |
Remeasurement of assets and liabilities, net | | | (308 | ) | | | (12,271 | ) | | | (12,579 | ) |
Settlement recoveries recognized, net | | | - | | | | 9,339 | | | | 9,339 | |
Adjustment to insurance claim receivable | | | - | | | | (1,900 | ) | | | (1,900 | ) |
Other | | | 16 | | | | 296 | | | | 312 | |
| | | | | | | | | | | | |
Change in carrying value of assets and liabilities, net | | $ | 3,167 | | | $ | 644 | | | $ | 3,811 | |
During the year ended June 30, 2021, the Company:
Declared distributions of $2.56, $2.56, $4.28 and $2.58 per Class A Interest, which totaled approximately $29.97 million, approximately $29.95 million, approximately $50.01 million and approximately $30.02 million, respectively.
| • | TableCompleted construction of Contents two single-family homes (1966 Carla Ridge and 10721 Stradella), both of which were sold prior to construction being completed during the year ended June 30, 2020. 1432 Tanager was under construction when it was sold in August 2020 and the buyer assumed the remaining obligations to complete construction of the property of approximately $10 million. |
Accrued approximately $12.95 million of additional general and administrative costs following management’s determination that an additional year would be needed to resolve the Unresolved Causes of Action and carry out the Company’s liquidating activities. The costs are primarily legal and professional fees, payroll and payroll-related, directors and officers insurance and board fees and expenses. These costs are included in accrued liquidation costs (Note 6).
Sold six single-family homes, two lots and eleven other properties for net proceeds of approximately $134.16 million.
Paid construction costs of approximately $27.29 million relating to the single-family homes under development.
Paid holding costs of approximately $4.37 million.
Signed agreements to settle Causes of Action of approximately $9.84 million.
Recognized Forfeited Assets which are restricted for Qualifying Victims of approximately $3.46 million, including $1.84 million of cash.
Paid general and administrative costs of approximately $18.10 million, including approximately $9.83 million professional fees, approximately $7.39 million of payroll and related costs and approximately $0.88 million of board member fees and expenses.
Year ended June 30, 2020
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the year ended June 30, 2020:
Consolidated Statement of Changes in Net Assets in Liquidation
For the year ended June 30, 2020
($ in thousands)In Thousands)
Net assets in liquidation, as of June 30, 2019 | | $ | 329,971 | |
Change in assets and liabilities: | | | | |
Change in carrying value of assets and liabilities, net | | | 11,334 | |
Distributions declared, net | | | (76,788 | ) |
Net change in assets and liabilities | | | (65,454 | ) |
Net assets in liquidation, as of June 30, 2020 | | $ | 264,517 | |
Net assets in liquidation decreased approximately $65.45 million during the year ended June 30, 2020. This decrease was due to changes in carrying value of assets and liabilities, net of $11.33 million and distributions declared, net of approximately $76.79 million (distributions declared of $78.43 million, less distributions reversed of $1.64 million for disallowed claims). The components of the changes in carrying value of assets and liabilities, net are as follows ($ in thousands):
Settlement recoveries recognized, net | | $ | 5,061 | |
Sales proceeds in excess of carrying value | | | 19,964 | |
Remeasurement of assets and liabilities, net | | | (16,970 | ) |
Reduction of state, local and other taxes
| | | 2,890 | |
Other | | | 389 | |
Change in carrying value of assets and liabilities, net | | $ | 11,334 | |
During the year ended June 30, 2020, the Company:
Declared distributions of $4.50 and $2.12 per Class A Liquidation Trust Interest, which totaled approximately $53.43 million and approximately $25.00 million, respectively.
Completed construction of four single-family homes (25210 Jim Bridger, 1241 Loma Vista, 24055 Hidden Ridge, 1471 Forest Knoll). The 1241 Loma Vista and 24055 Hidden Ridge single-family homes were sold during the year ended June 30, 2020. The 25210 Jim Bridger single-family home was sold in August 2020.
Sold twelve single-family homes, 33 lots, two other properties and settled three secured loans and sold two other properties for net proceeds of approximately $201.33 million.
Adopted a strategy to auction certain secured loans and other properties. As a result of this change in strategy, the net carrying value of was reduced by approximately $2.53 million. As a result of the lack of interest during the auction process, the Wind-Down Entity will no longer be pursuing recoveries related to 13 secured loans that had a total carrying value of approximately $0.57 million.
Paid construction costs of approximately $45.21 million relating to the single-family homes under development.
Paid holding costs of approximately $9.22 million.
Signed agreements to settle Causes of Action of approximately $5.32 million.
Paid general and administrative costs of approximately $24.47$23.48 million, including approximately $14.45$15.35 million of post Plan Effective Date professional fees, approximately $4.46$7.05 million of payroll and related costs and approximately $1.08 million of board member fees and expenses.
Paid professional fees incurred before the Plan Effective Date of approximately $.50 million.
Recorded additional accrued liquidation costs, of approximately $7.90 million, net, consisting primarily of additional estimated holding and general and administrative costs as a result of the extension of the estimated timing for the completion of the Wind Down Entity’s operations. These additional costs are partially a result of the COVID-19 pandemic.
Period from February 15, 2019 (inception) through June 30, 2019
Contribution to the Company
Net assets recorded by the Company as of the Plan Effective Date of February 15, 2019 were comprised of the following ($ in thousands):
Assets | | | |
Real estate assets held for sale: | | | |
Single-family homes under development | | $ | 361,000 | |
Real estate assets available for sale: | | | | |
Single-family homes | | | 186,119 | |
Lots | | | 45,910 | |
Secured loans | | | 9,707 | |
Other properties | | | 15,392 | |
Subtotal | | | 257,128 | |
Real estate assets held for sale | | | 618,128 | |
Closing and other costs | | | (35,418 | ) |
Real estate assets held for sale, net | | | 582,710 | |
Cash | | | 36,020 | |
Restricted cash | | | 317 | |
Other assets | | | 2,297 | |
Total assets | | $ | 621,344 | |
| | | | |
Liabilities | | | | |
Accounts payable and accrued expenses | | $ | 5,785 | |
Accrued liquidation costs | | | 232,067 | |
Total liabilities | | $ | 237,852 | |
| | | | |
Net Assets in Liquidation | | $ | 383,492 | |
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the period from February 15, 2019 (inception) through June 30, 2019:
Consolidated Statement of Changes in Net Assets in Liquidation
For the period from February 15, 2019 (inception) through June 30, 2019
(In Thousands)
Net assets contributed on February 15, 2019 | | $ | 383,492 | |
| | | | |
Change in assets and liabilities: | | | | |
| | | | |
Changes in carrying value of assets and liabilities | | | (8,835 | ) |
Distributions declared | | | (44,686 | ) |
Net change in assets and liabilities | | | (53,521 | ) |
| | | | |
Net assets in liquidation, as of June 30, 2019 | | $ | 329,971 | |
Net assets in liquidation decreased approximately $53.52 million during the period from February 15, 2019 (inception) through June 30, 2019. This decrease was due to changes in carrying value of assets and liabilities, net of $8.83 million and distributions declared of approximately $44.69 million (distributions declared of $44.70 million, less distributions reversed of $.01 million for disallowed claims). The components of the changes in carrying value of assets and liabilities, net are as follows ($ in millions):
Revaluation of real estate | | $ | (21.60 | ) |
Decrease in construction costs accrued | | | 12.32 | |
Other | | | .45 | |
| | $ | (8.83 | ) |
The majority of the revaluation of real estate and all of the decrease in construction costs are a result of a change in strategy for one real estate asset.
During the period from February 15, 2019 (inception) through June 30, 2019, the Company:
Declared a distribution of $3.75 per Class A Liquidation Trust Interest, which totaled approximately $44.70 million.
Completed construction of two single-family homes (1966 Carla Ridge and 25211 Jim Bridger). These homes were listed for sale as of June 30, 2019.
Paid construction costs of approximately $22.48 million relating to the single-family homes under development.
Sold five single-family homes, 58 lots, settled two secured loans and sold three other properties for net proceeds of approximately $80.30 million.
Signed agreements to settle Causes of Action of approximately $1.66 million.
Received Fair Funds Recoveries from the SEC of approximately $1.24 million.
Paid holding and financing costs of approximately $3.50 million.
Paid general and administrative costs of approximately $6.99 million, including approximately $.49 million of board member fees and expenses and approximately $3.58 million of post Plan Effective Date professional fees.
Paid professional fees incurred before the Plan Effective Date of approximately $5.43 million.
Recorded additional accrued liquidation costs, of approximately $3.17 million (net), consisting primarily of the CEO’s bonus accrual and additional state taxes for periods before the Plan Effective Date.
Liquidity, Capital Resources and Uses of Liquidity
Liquidity
The Company’s only sources for meeting its capital requirements are its cash and cash equivalents, its revolving line of creditNew LOC availability, proceeds from the sale of its real estate assets and recoveries on Causes of Action. The Company’s primary uses of funds are and will continue to be for development costs, holding costs and general and administrative costs, all of which the Company expects to be able to adequately fund over the next 12 months from its primary sources of capital.
Capital Resources
In addition to consolidated cash and cash equivalents at June 30, 20202021 of approximately $91.43$53.64 million (of which approximately $5.36$8.27 million is restricted), the capital resources available to the Company are as follows:
| • | Revolving Line of Credit: The Company’s revolving line of credit matured on May 1, 2020. On June 19, 2020, two wholly-owned subsidiaries of the Wind-Down Entity entered into a $25,000,000 revolving line of credit (New LOC). TheNew LOC. On February 11, 2021, the New LOC may be increasedwas amended. Two additional wholly owned subsidiaries of the Wind-Down Entity were joined to up to $30,000,000 with the pledge of one or more additional properties and lender approval. The New LOC matures on June 19, 2022 but may be extendedas co-borrowers and two properties were added as replacement collateral as allowed for in the original agreement. The maturity date of the New LOC was changed to January 31, 2023 with an option to extend for one additional year, thereafter.subject to the availability of collateral. The New LOC requiresrequired the borrowers to establish an interest reserve of $1,750,000, which is to be used to pay the potential monthly interest payments. Outstanding borrowings bear interest at a fixed rate of 3.50% per annum. Indebtedness under the New LOC is secured by a deed of trust on one property,two properties, the personal property associated therewith and the interest reserve. The Wind-Down Entity is the guarantor of the New LOC. The Company is required to keep a cash balance of $20,000,000 on deposit with the lender in order to avoid a non-compliance fee of 2% of the shortfall in the required deposit and areis required to comply with various covenants. As of June 30, 2020,2021, no amounts were outstanding under the New LOC. |
| • | Sales of Real Estate: The Wind-Down Group is in the process of developing, marketing and selling its real estate assets, all of which are held for sale. One single-family home was listed for sale with the exception of the eight single familyand six single-family homes which were under developmentconstruction as of June 30, 2020. There can be no assurance as to the amount2021. As of net proceeds thatJune 30, 2021, the Company will receive from the saleowned a total of itsthirteen real estate assets or whenwith a gross carrying value of approximately $149.80 million. Therefore, it is unlikely that the net sales proceeds for the year ended June 30, 2021 will be received.indicative of future net proceeds, which may be significantly lower. The net proceeds from the sales of real estate for the year ended June 30, 20202021 may not be indicative of future net proceeds whichand may be significantly lower. In addition, it may take longer to sell the properties than the Company has estimated. |
| • | Recoveries: During the year ended June 30, 2020,2021, the Company recognized approximately $5.32$9.84 million from the settlement of Causes of Action. There can be no assurance that the amounts the Company recovers from settling Causes of Action from Fair Funds Recoveries and Forfeited Asset Recoveries in the future will be consistent with the amount recovered during the year ended June 30, 2020.2021. |
| • | Forfeited Assets: Forfeited Assets consist of cash and other assets (jewelry, art, wine, purses, clothing, a car and other items). During the year ended June 30, 2021, the Trust received certain of the Forfeited Assets from the DOJ. During the year ended June 30, 2021, the Company recognized approximately $3.46 million of Forfeited Assets. The Trust may receive additional Forfeited Assets in the future. |
The Trust is required to distribute the net sale proceeds from liquidating the Forfeited Assets to the Qualifying Victims. Qualifying Victims are the former holders of Class 3 and Class 5 Claims and their permitted assigns. Former holders of Class 4 Claims are not Qualifying Victims. Because of the requirement to distribute the net sale proceeds of the Forfeited Assets to the Qualifying Victims only, the Forfeited Assets at June 30, 2021 are presented in the consolidated statement of net assets as restricted net assets in liquidation. At June 30, 2021, 11,437,377 of the 11,512,855 Class A Interests were held by Qualifying Victims. Of the 124,609 Class A Interests relating to unresolved claims at June 30, 2021, 24,916 would be held by Qualifying Victims.
Uses of Liquidity
The primary uses of the Company’s liquidity are to pay (a) distributions payable, (b) development costs, (b)(c) holding costs, and (c)(d) general and administrative costs. As of June 30, 2020,2021, the Company’s total liabilities were approximately $120.43$70.43 million. The estimated costs recorded as of June 30, 20202021 may not be indicative of the costs paid in future periods, which may be significantly higher.
Given current cash balances, projected sales, availability under the line of credit,New LOC, Causes of Action recoveries, distributions declared, and expected cash needs, the Company does not expect a deficiency in liquidity in the next 12twelve months. Due to the uncertain nature of future net sales proceeds, recoveries and costs to be incurred, it is not possible to be certain that the current liquidity will be adequate to cover all future financial needs of the Company. Creating contingent obligation agreements and/or seeking methods to reduce professional costs, including legal fees, and administrative costs are strategies that could be undertaken to address liquidity issues should they arise. These strategies could impact the Company’s ability to maximize recoveries from the settlement of Unresolved Causes of Action.
Distributions
Distributions will be made at the sole discretion of the Liquidation Trustee in accordance with the provisions of the Plan and the Trust Agreement. As of September 25, 2020,24, 2021, the Liquidation Trustee has declared fourseven distributions to the Class A Interestholders. The distributions are paidinclude a cash distribution on account of the then-allowed claims and a deposit is made into a restricted cash account on account offor amounts (a) payable for Class A Interests that aremay be issued asin the future upon the allowance of unresolved claims, are resolved, (b) in respect of Class A Interests on account of recently allowed claims, that are recently resolved, (c) uncashedfor holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions, (d) for distributions that were withheld due to pending avoidance actions and (e) distributions wherefor holders of Class A Interests for which the Trust is waiting for further beneficiary information.
The following tables summarize the distributions declared, distributions paid and the activity in the restricted cash account for the periods from February 15, 2019 (inception) through June 30, 20202021 and from February 15, 2019 through September 25, 2020:
| | | | | | During the Period from February 15, 2019 (inception) through June 30, 2020 ($ in Millions) | | | During the Period from February 15, 2019 (inception) through September 25, 2020 ($ in Millions) | |
| Date Declared | | $ per Class A Interest | | | Total Declared | | | Paid | | | Restricted Cash Account | | | Total Declared | | | Paid | | | Restricted Cash Account | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Distributions Declared | | | | | | | | | | | | | | | | | | | | | | |
| First | 3/15/2019 | | $ | 3.75 | | | $ | 44.70 | | | $ | 42.32 | | | $ | 2.38 | | | $ | 44.70 | | | $ | 42.32 | | | | 2.38 | |
| Second | 1/2/2020 | | | 4.50 | | | | 53.43 | | | | 51.19 | | | | 2.24 | | | | 53.43 | | | | 51.19 | | | | 2.24 | |
| Third | 3/31/2020 | | | 2.12 | | | | 25.00 | | | | 24.19 | | | | 0.81 | | | | 25.00 | | | | 24.19 | | | | 0.81 | |
| Fourth | 7/13/2020 | | | 2.56 | | | | - | | | | - | | | | - | | | | 29.93 | | | | 29.20 | | | | 0.73 | |
| | | | $ | 12.93 | | | $ | 123.13 | | | $ | 117.70 | | | $ | 5.43 | | | $ | 153.06 | | | $ | 146.90 | | | $ | 6.16 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions Reversed | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) | Disallowed | | | | | | | | | | | | | | | | (1.65 | ) | | | | | | | | | | | (1.75 | ) |
(b) | Returned | | | | | | | | | | | | | | | | 0.15 | | | | | | | | | | | | 0.27 | |
| Subtotal | | | | | | | | | | | | | | | | (1.50 | ) | | | | | | | | | | | (1.48 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(c) | Distributions Paid from Reserve Account | | | | | | | | | | | | | | | (1.56 | ) | | | | | | | | | | | (1.58 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Distributions Payable, Net | | | | | | | | | | as of 6/30/2020: | | | $ | 2.37 | | | | | | | as of 9/25/2020: | | | $ | 3.10 | |
24, 2021:
| | | | | | During the Period from February 15, 2019 (inception) through June 30, 2021 ($ in Millions) | | | During the Period from February 15, 2019 (inception) through September 24, 2021 ($ in Millions) | |
| Date Declared | | $ per Class A Interest | | | Total Declared | | | Paid | | | Restricted Cash Account | | | Total Declared | | | Paid | | | Restricted Cash Account | |
| | | | | | | | | | | | | | | | | | | | | | |
Distributions Declared | | | | | | | | | | | | | | | | | | | | | | |
First | 3/15/2019 | | $ | 3.75 | | | $ | 44.70 | | | $ | 42.32 | | | $ | 2.38 | | | $ | 44.70 | | | $ | 42.32 | | | $
| 2.38 | |
Second | 1/2/2020 | | | 4.50 | | | | 53.43 | | | | 51.19 | | | | 2.24 | | | | 53.43 | | | | 51.19 | | | | 2.24 | |
Third | 3/31/2020 | | | 2.12 | | | | 25.00 | | | | 24.19 | | | | 0.81 | | | | 25.00 | | | | 24.19 | | | | 0.81 | |
Fourth | 7/13/2020 | | | 2.56 | | | | 29.97 | | | | 29.24 | | | | 0.73 | | | | 29.97 | | | | 29.24 | | | | 0.73 | |
Fifth | 10/19/2020 | | | 2.56 | | | | 29.95 | | | | 29.20 | | | | 0.75 | | | | 29.95 | | | | 29.20 | | | | 0.75 | |
Sixth | 1/7/2021 | | | 4.28 | | | | 50.01 | | | | 48.67 | | | | 1.34 | | | | 50.01 | | | | 48.67 | | | | 1.34 | |
Seventh (a) | 5/13/2021 | | | 2.58 | | | | 30.02 | | | | 29.33 | | | | 0.69 | | | | 30.02 | | | | 29.33 | | | | 0.69 | |
Subtotal | | | $ | 22.35 | | | $ | 263.08 | | | $ | 254.14 | | | $ | 8.94 | | | $ | 263.08 | | | $ | 254.14 | | | $ | 8.94 | |
Distributions Reversed | | | | | | | | | | | |
Disallowed (b) | | | | (2.83 | ) | | | | | (2.93 | ) |
Returned (c) | | | | .74 | | | | | | .74 | |
Subtotal | | | | (2.09 | ) | | | | | (2.19 | ) |
| | | | | | | | | | | |
Distributions Paid from Reserve Account (d) | | | | (2.16 | ) | | | | | (2.20 | ) |
| | | | | | | | | | | |
Distributions Payable | as of 6/30/2021: | | $ | 4.69 | | | as of 9/24/2021: | | $ | 4.55 | |
| (a) | The seventh dstribution included included the cash the Trust received from Fair Funds. |
(b) | As a result of claims being disallowed. |
(c) | (b) | Distribution checks returned or not cashed. |
(d) | (c) | Paid as claims are allowed or resolved. |
As claims are resolved, additional Class A Interests may be issued or cancelled (see “Part 1, Item 1. Business, D. Plan Provisions Regarding the Company, 2. Treatment under the Plan of holders of claims against and equity interests in the Debtors and 3. Assets and liabilities of the Company”). Therefore, the total amount of a distribution declared may change between the date declared and the date paid.
The Liquidation Trustee will continue to assess the adequacy of funds held and expects to make one or more additional distributions of excess Trust assets to Interestholders, but does not currently know the timing or amount of any such distribution(s).
Contractual Obligations
As of June 30, 2020,2021, the Company has contractual commitments related to construction contracts totaling approximately $37.73$10.14 million. The Company expects to complete the construction of these single-family homes during the fiscal year ending June 30, 2022. The Company has an office lease that expires in August 2021.July 2022. The Company expects that it will lease office space until the liquidation process is completed.
Off-Balance Sheet Arrangements
As of June 30, 2020, the Company did not have off-balance sheet arrangements, other than those disclosed under contractual obligations, that have or are reasonably likely to have a material effect on its consolidated financial statements, liquidity or capital resources.
Quantitative Disclosures about Market Risk
As of June 30, 2020, the Company does not have any market risk exposure as defined by Securities and Exchange Commission Regulation 229.305. If the Company were to borrow under its line of credit, it would be exposed to the impact of interest rate changes on the line of credit.
Inflation
Until the Company completes liquidation of its assets, the Company may be exposed to inflation risks relating to increases in the costs of construction and other accrued liquidation costs.
Critical Accounting Policies and Practices
The Company’s consolidated financial statements are prepared in accordance with USU.S. GAAP. The accounting policies and practices that the Company believes are the most critical are discussed below. These accounting policies and practices require management to make decisions on subjective and/or complex matters that may inherently be uncertain. Estimates are required to prepare the consolidated financial statements in conformity with U.S. GAAP. Significant estimates, judgments and assumptions are required in a number of areas, including, but not limited to, the sales price of real estate assets, selling costs, development costs, holding costs and general and administrative costs to be incurred until the completion of the liquidation of the Company. In many instances, changes in the accounting estimates are likely to occur from period to period. Actual results may differ from the estimates. The Company believes the current assumptions and other considerations used in preparing the consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in the Company’s consolidated financial statements, the resulting changes could have a material adverse effect on the Company’s net assets in liquidation.
Liquidation Basis of Accounting
Under Liquidation Basis of Accounting, all assets are recorded at their estimated net realizable value or liquidation value, which represents the estimated amount of net cash that will be received upon the disposition of the assets (on an undiscounted basis). Liabilities are measured in accordance with U.S. GAAP that otherwise applies to those liabilities. The Company has not recorded any amount from the future settlement of Unresolved Causes of Action or Fair Fund recoveries in the accompanying consolidated financial statements because they cannot be reasonably estimated.
Valuation of Real Estate
The measurement of real estate assets held for sale is based on current contracts (if any), estimates and other indications of sales value, net of estimated selling costs. To determine the value of real estate assets held for sale, the Company considered the three traditional approaches to value (cost, income and sales comparison) commonly used by the real estate appraisal community. The applicability and relevancy of each valuation approach as applied may differ by asset. In most cases, the sales comparison approach was accorded the greatest weight. This approach compares a property to other properties with similar characteristics that have recently sold. To validate management’s estimate, the Company also considers opinions from qualified real estate professionals and local real estate brokers and, in some cases, obtained third party appraisals.
Accrued Liquidation Costs
The estimated costs associated with implementing and completing the Company’s plan of liquidation are recorded as accrued liquidation costs. The Company has also recorded the estimated development costs to be incurred to prepare the assets for sale as well as the estimated holding costs to be incurred until the projected sale date and the estimated general and administrative costs to be incurred until the completion of the liquidation of the Company.
Changes in Carrying Value
On a quarterly basis, the Company reviews the estimated net realizable values, liquidation costs and the estimated date of the completion of the liquidation of the Company and records any significant changes. The Company will also revalue an asset when it is under contract for sale and the buyer’s contingencies have been removed. During the period that this occurs, the carrying value of the asset and the estimated closing and other costs will be adjusted, if necessary. If the Company has a change in its plan for the disposition of an asset, the carrying value will be adjusted to reflect this change in the period that the change is approved. The change in value may include a change to the accrued liquidation costs related to the asset.
| • | Liquidation Basis of Accounting: Under Liquidation Basis of Accounting, all assets are recorded at their estimated net realizable value or liquidation value, which represents the estimated amount of net cash that will be received upon the disposition of the assets (on an undiscounted basis). Liabilities are measured in accordance with US GAAP that otherwise applies to those liabilities. The Company has not recorded any amount from the future settlement of Causes of Action, Fair Funds or Forfeited Asset Recoveries in the accompanying consolidated financial statements because they cannot be reasonably estimated.
|
| • | Valuation of Real Estate: The measurement of real estate assets held for sale is based on current contracts (if any), estimates and other indications of sales value, net of estimated selling costs. To determine the value of real estate assets held for sale, the Company considered the three traditional approaches to value (cost, income and sales comparison) commonly used by the real estate appraisal community. The applicability and relevancy of each valuation approach as applied may differ by asset. In most cases, the sales comparison approach was accorded the greatest weight. This approach compares a property to other properties with similar characteristics that have recently sold. To validate management’s estimate, the Company also considers opinions from qualified real estate professionals and local real estate brokers and, in some cases, obtained third party appraisals.
|
| • | Accrued Liquidation Costs: The estimated costs associated with implementing and completing the Company’s plan of liquidation are recorded as accrued liquidation costs. The Company has also recorded the estimated development costs to be incurred to prepare the assets for sale as well as the estimated holding costs to be incurred until the projected sale date and the estimated general and administrative costs to be incurred until the completion of the liquidation of the Company.
|
| • | Changes in Carrying Value: On a quarterly basis, the Company reviews the net realizable values and liquidation costs and record any significant variances. The Company will also revalue an asset when it is under contract for sale and the buyer’s contingencies have been removed. During the period that this occurs, the carrying value of the asset and the estimated closing and other costs will be adjusted, if necessary. If the Company has a change in its plan for the disposition of an asset, the carrying value will be adjusted to reflect this change in the period that the change is approved. The change in value may include a change to the accrued liquidation costs related to the asset.
|
Estimates are required to prepare the consolidated financial statements in conformity with US GAAP. Significant estimates, judgments and assumptions are required in a number of areas, including, but not limited to, the sales price of real estate assets, selling costs, development costs, holding costs and general and administrative costs to be incurred until the completion of the liquidation of the Company. In many instances changes in the accounting estimates are likely to occur from period to period. Actual results may differ from the estimates. The Company believes that the current assumptions and other considerations used in the consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in the Company’s consolidated financial statements, the resulting changes could have a material adverse effect on the Company’s net assets in liquidation.
All changes in the estimated liquidation value of the Company’s assets, real estate assets held for sale and other assets, and liabilities are reflected as a change to the Company’s net assets in liquidation.
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable.applicable, as the Company is a “smaller reporting company” within the meaning of Rule 12b-2 of the Exchange Act.
Item 8. | Financial Statements and Supplementary Data |
The information required by this Item is incorporated by reference to the consolidated financial statements set forth in Item 15 of Part IV of this Annual Report, “Exhibits and Financial Statement Schedules”.
Item 9. | Changes In and Disagreements With Accountants On Accounting and Financial Disclosure |
On July 19, 2019, the Trust engaged Squar Milner LLP (“Squar Milner”) as its first independent registered public accounting firm. Prior to such engagement, the Company did not consult with Squar Milner LLP regarding either the application of accounting principles to any specified transaction or the type of audit opinion that might be rendered on the Company’s financial statements. Thus, Squar Milner LLP did not provide any written reports or oral advice to the Company regarding such matters. There have been no disagreements between Squar Milner LLP and the Company.
39On November 1, 2020, the Company was notified that Squar Milner was combined with Baker Tilly US, LLP (“Baker Tilly”) in a transaction pursuant to which Squar Milner combined its operations with Baker Tilly and certain of the professional staff and partners of Squar Milner joined Baker Tilly either as employees or partners of Baker Tilly. On November 1, 2020, Squar Milner resigned as the auditors of the Company and, with the approval of the Audit Committee of the Supervisory Board, Baker Tilly was engaged as its independent registered public accounting firm.
Prior to engaging Baker Tilly, the Company did not consult with Baker Tilly regarding the application of accounting principles to a specific completed or contemplated transaction or regarding the type of audit opinions that might be rendered by Baker Tilly on the Company’s financial statements, and Baker Tilly did not provide any written or oral advice that was an important factor considered by the Company in reaching a decision as to any such accounting, auditing or financial reporting issue.
The report of the independent registered public accounting firm of Squar Milner regarding the Company’s consolidated financial statements for the year ended June 30, 2020 and the period from February 15, 2019 (inception) through June 30, 2019 did not contain any adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles.
During the year ended June 30, 2020 and the period from February 15, 2019 (inception) through June 30, 2019, and during the interim period from the end of the most recently completed fiscal year through November 1, 2020, the date of resignation, there were no disagreements with Squar Milner on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Squar Milner would have caused it to make reference to such disagreement in its reports. |
This annualDisclosure Controls and Procedures
As of the end of the period covered by this report, does notmanagement and the Liquidation Trustee evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, management and the Liquidation Trustee concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, a report of management’s assessmentwithout limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including the Liquidation Trustee, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) or an attestation report15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended.
In connection with the preparation of our Form 10-K, our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2021. In making that assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Company’s registered public accounting firm dueTreadway Commission (COSO) in Internal Control-Integrated Framework (2013).
Based on its assessment, our management believes that, as of June 30, 2021, our internal control over financial reporting was effective based on those criteria. There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to the transition period established by rules of the Securities and Exchange Commission for newly public companies.materially affect, our internal control over financial reporting.
None.
Item 9C. | Disclosure Regarding Foreign Jurisdictions That Prevent Inspections |
None.
Item 10. | Directors, Executive Officers, and Corporate Governance |
The Liquidation Trustee
The Trust does not have directors or executive officers. All of the management and executive authority over the Trust resides in the Liquidation Trustee, subject to the supervision of the Supervisory Board.
Michael I. Goldberg, Esq., the Liquidation Trustee, age
56,57, has served as the Liquidation Trustee since inception of the Trust on February 15, 2019. Prior to that time, Mr. Goldberg served as a member of the Debtors’ independent Board of Managers, and had been the SEC’s designee to that Board. Mr. Goldberg was unanimously selected to be the Liquidation Trustee by the Unsecured Creditors’ Committee, the Noteholder Committee, and the Unitholder Committee in the Debtors’ Bankruptcy Cases. Mr. Goldberg has been a partner in the law firm of Akerman LLP since 1997, where he is chair of the Fraud & Recovery Practice Group, a comprehensive fraud management team focusing on Ponzi schemes, receiverships, and EB-5 fraud. Mr. Goldberg has managed some of the largest Ponzi scheme liquidation recoveries in United States history and routinely testifies as a qualified expert witness on Ponzi schemes in federal and state court cases. Mr. Goldberg currently is the Receiver for Jay Peak and Q Resort, Inc., the owners and operators of a ski resort in northern
Vermont.Vermont, and for the Champlain Towers South condominium association in Surfside, Florida. For over 25 years, Mr. Goldberg has practiced law in the area of fraud and recovery and bankruptcy and reorganizations, regularly serving as a court-appointed fiduciary in unwinding Ponzi schemes. Mr. Goldberg holds Bachelor of Arts and Juris Doctor degrees from Boston University and a Master of Business Administration from New York University. He is admitted to practice law in state and federal courts in Florida and New York.
The Liquidation Trustee serves for the duration of the Trust, subject to earlier death, resignation or removal. The Liquidation Trustee may resign at any time by giving the Interestholders and the Supervisory Board at least sixty (60) days written notice of his or her intention to do so. A Liquidation Trustee may be removed and replaced by an order of the Bankruptcy Court upon the motion of the Supervisory Board and a showing of good cause, except that any proposed removal and replacement of Michael Goldberg as Liquidation Trustee will require a determination by the Bankruptcy Court that “cause” exists for such removal and replacement using the standard under Bankruptcy Code section 1104 made after notice of such proposed removal and replacement has been provided to the SEC. Under Bankruptcy Code section 1104, “cause” includes fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the Trust.
The Supervisory Board of the Trust
The Liquidation Trustee is subject to the supervision, to the extent provided in the Plan, of the Supervisory Board. The Supervisory Board consists of six members, five of whom have served as members of the Supervisory Board since inception and one of whom was elected on August 21, 2019. Except as otherwise indicated below, during the past five years none of the following named individuals has served or held a position with any company that is a parent, subsidiary or other affiliate of the Trust.
Jay Beynon, age
73,74, has been a member of the Supervisory Board since inception of the Trust and was appointed to such office in accordance with the Plan and Trust Agreement. Beginning in February 2018 and continuing until February 15, 2019, Mr. Beynon served as a member of the Ad Hoc Noteholder Group in the Bankruptcy Cases. Mr. Beynon is a real estate investor and, prior to his retirement in 2011, was a businessman with over 26 years’ experience, including as founder and chief executive officer of The Beynon Company, a graphic design agency, and the founder of Hot Rod Speed Works, the designer and fabricator of custom automobiles.
Raymond C. Blackburn, M.D., age 71,72, has been a member of the Supervisory Board since inception of the Trust and was appointed to such office in accordance with the Plan and Trust Agreement. Beginning in January 2018 and continuing until February 15, 2019, Dr. Blackburn served as a member of the Ad Hoc Unitholder Committee in the Bankruptcy Cases. Dr. Blackburn is a licensed physician in Texas and holds a Bachelor of Arts in Chemistry from Oakwood University and a Doctor of Medicine from Loma Linda University School of Medicine. Dr. Blackburn specialized and practiced dermatology in Dallas, Texas for nearly 38 years. Retired since August 2016, Dr. Blackburn maintains an active medical license in Texas. He is a retired member of the Dallas County Medical Society, the Texas State Medical Society and the American Academy of Dermatology.
Terry R. Goebel, age
67,68, has been a member of the Supervisory Board since inception of the Trust and was appointed to such office in accordance with the Plan and Trust Agreement. Mr. Goebel currently serves as Chair of the Supervisory Board. Beginning in December 2017 and continuing until February 15, 2019, Mr. Goebel served as a member of the Unsecured Creditors’ Committee in the Bankruptcy Cases, having been appointed to such position by the U.S. Trustee’s Office. Mr. Goebel is the President and a principal owner of G3 Group LA, a California-licensed general contractor specializing in the development of high-end, luxury residences. Mr. Goebel’s responsibilities at G3 Group LA include oversight of field operations.
Lynn Myrick, age 76,77, has been a member of the Supervisory Board since inception of the Trust and was appointed to such office in accordance with the Plan and Trust Agreement. Ms. Myrick was appointed to the Unsecured Creditors’ Committee in the Bankruptcy Cases on April 3, 2018 by the U.S. Trustee’s Office, succeeding to her husband Ron Myrick’s position after his death, and continued to serve on that committee until February 15, 2019. Retired since 2013, Ms. Myrick worked as an elementary school teacher and has experience in charitable fund-raising for the Boston Ballet and the Southwest Florida Symphony Society. Ms. Myrick holds an Associate of the Arts in Interior Design and a Bachelor of Science from the University of Louisville.
John J. O’Neill, age
77,78, has been a member of the Supervisory Board since inception of the Trust and was appointed to such office in accordance with the Plan and Trust Agreement. Beginning in December 2017 and continuing until February 15, 2019, Mr. O’Neill served as a member of the Unsecured Creditors’ Committee in the Bankruptcy Cases, having been appointed to such position by the U.S. Trustee’s Office. Retired since 2014, Mr. O’Neill is a former account executive at Merrill Lynch and the former president of an independently owned beverage distributor. Mr. O’Neill holds a Bachelor of Arts in Business Administration from Dickinson State University.
M. Freddie Reiss, age
73,74, has been a member of the Supervisory Board since August 21, 2019, at which time he was appointed to such office by the Supervisory Board. Mr. Reiss is the sole member of the Audit Committee of the Supervisory Board. Additionally, Mr. Reiss has been a member of the Board of Managers since its inception and was appointed to such office under the Plan. Prior to that time, Mr. Reiss served as a member of the Debtors’ Board of Managers during the Bankruptcy Cases. Mr. Reiss is the former Senior Managing Director of the Corporate Finance/Restructuring Practice at FTI Consulting, an independent global business advisory firm, a position from which he retired in 2013. Mr. Reiss has been an independent director of Eva Automation Inc. (March 2020 to current),
a privately held theatre exhibition company (August 2020 to current), and Blackrock TCP Tennenbaum Capital Corp. (August 2016
to current) and Blackrock Direct Lending Corp. (December 2020 to current). Mr. Reiss’s prior positions during the previous five years, each of which has since concluded, include the following: (i) independent director of
Arclight and Pacific Theatres (August 2020 to July 2021); (ii) independent director of JH Capital Group (August 2018 to April 2019);
(ii)(iii) independent director of Fallas Paredes, a brand name and private label clothing retailer (October 2018 to January 2019);
(iii)(iv) special advisor of Shipston Automotive Engineering Limited, an automotive company (May 2018 to July 2018);
(iv)(v) independent director of Classic Party Rentals, a special event rental company (March 2017 to August 2017);
(v)(vi) independent director of Ares Dynamic Credit Allocation Fund Inc., a public investment company (March 2016 to November 2016);
(vi)(vii) managing member of Variant Holding Company LLC (September 2014 to November 2016);
(vii)and (viii) independent director and chair of the audit committee of Contech Engineered Solutions (February 2011 to November 2016)
; (viii) independent director and chair of the audit committee of ATLS Acquisitions LLC/Liberty Medical Group (June 2013 to August 2015); and (ix) independent director of Tennenbaum Capital Partners, LLC – Special Value Opportunities Fund (December 2012 to June 2015). Mr. Reiss has over thirty years’ experience in strategic planning, cash management, liquidation analysis, covenant negotiations, forensic accounting and valuation. He specializes in advising on bankruptcies, reorganizations, business restructurings and providing expert witness testimony in respect of underperforming companies. Mr. Reiss is a certified insolvency and restructuring advisor, a certified public accountant in New York and California and a certified turnaround professional. He has been inducted into the American College of Bankruptcy and the Turnaround Management Association’s Hall of Fame. Mr. Reiss is a member of the American Institute of Certified Public Accountants and has completed the Director Education and Certification Program and the John E. Anderson School of Management of the University of California at Los Angeles. He holds a B.B.A. from City College of New York’s Bernard Baruch School of Business and a Master’s of Business Administration from City University of New York’s Baruch College.
Management of the Wind-Down Group
Frederick Chin, age
60,61, has been the Chief Executive Officer and a member of the Board of Managers since its inception and was appointed to such offices pursuant to the Plan. Mr. Chin also serves as Chief Executive Officer of each of the Wind-Down Subsidiaries. Mr. Chin served as the Chief Executive Officer of the Debtors from his appointment to that position on January 29, 2018 until the Plan Effective Date. Over the past 40 years, Mr. Chin has been engaged full time in providing real estate valuation, consulting, advisory, research, due diligence, financial structuring, ownership, restructuring, and operational turnaround services. Mr. Chin has served in executive roles as Chief Executive Officer, Chief Operating Officer, and Chief Restructuring Officer of public and private real estate companies involved in homebuilding, land development, and commercial office portfolios in Southern California and Nevada. Mr. Chin was a partner at Ernst & Young LLP from 1995 until 2004 and was a principal with Kenneth Leventhal and Company from 1993 until 1995. Mr. Chin has testified as a real estate expert in deposition or trial on over 50 occasions in federal and state courts throughout the United States. During the past five years, Mr. Chin has served as a member of the board of managers of TR Holdings, Inc., a privately held company and the owner of a ski resort in Idaho (March 2014 to March 2017), and of 1155 Island Avenue, LLC, a privately held company and the owner of a commercial office building in Southern California (December 2014 to December 2018). Mr. Chin is a member of the Appraisal Institute and was awarded the MAI Designation in 1987. Mr. Chin is also a Certified Insolvency and Restructuring Advisor
and holds the CIRA designation of the Association of Insolvency and Restructuring Advisors, and holds the CRE designation from the Counselors of Real Estate. Mr. Chin holds a B.S. in Finance and Real Estate from the University of Arizona.
The Chief Executive Officer of the Wind-Down Entity is subject to the supervision of a Board of Managers. In addition to Mr. Chin, the following individuals are members of the Board of Managers:
Richard Nevins, age
73,74, has been a member of the Board of Managers since its inception and was appointed to such office under the Plan. Prior to that time, Mr. Nevins served as a member of the Debtors’ Board of Managers during the Bankruptcy Cases. An independent financial advisor, Mr. Nevins
has beenwas a director of Cadiz, Inc., a publicly-held natural resources company
since July(July 2016
to June 2021) and Ravn Air Group Inc., an aviation company undergoing a restructuring (March 2020 to
current)October 2020). During the past five years, Mr. Nevins has been a director of Saratoga Resources, Inc., a publicly-held oil exploration and production company (May 2014 to October 2016), and several privately-owned companies, including Travel Management Company Intermediate Holdings, LLC (March 2019 to May 2019), a light aircraft charter services provider, and Harvey Gulf International Marine, an offshore oil service company (October 2017 to July 2018). Mr. Nevins has over thirty years’ experience in investment banking and financial advisory services, including as former Managing Director of Jefferies & Company, Inc., Smith Barney, and Drexel Burnham Lambert, and holds a Master’s of Business Administration from Stanford University—Graduate School of Business and a Bachelor of Arts in Economics from University of California, Riverside.
M. Freddie Reiss, age 73,74, has been a member of the Board of Managers since its inception and was appointed to such office under the Plan. See(See “Item 10. Directors, Executive Officers and Executive Officers”Corporate Governance” of this Annual Report under the caption “The Supervisory Board of the Trust”Trust.”).
In addition to Mr. Chin, the following individuals are executive officers of the Wind-Down Group:
Marion W. Fong, age 56,57, has been the Chief Financial Officer of the Wind-Down Entity since February 2019. Ms. Fong serves in the same capacity for the Wind-Down Subsidiaries. Ms. Fong is the founder and principal of Mariposa Real Estate Advisors, LLC (January 2001 to present), which provides real estate financial consulting services to public and private real estate companies, institutional investors, developers, operators and lenders. Ms. Fong has over 30 years’ experience in the real estate industry, including knowledge of many aspects of real estate development, acquisitions, dispositions, transaction structuring, work-outs and restructuring and capital access. Ms. Fong was a partner in the Real Estate Advisory Service Group of Ernst & Young LLP and was a Senior Manager at Kenneth Leventhal & Company. Ms. Fong was admitted to the Counselors of Real Estate in 2000, and earned her Bachelor of Arts in Economics from Occidental College.
David Mark Kemper II, age 42,43, has been the Chief Operating Officer and Chief Investment Officer of the Wind-Down Entity since February 2019. Mr. Kemper serves in the same capacity for the Wind-Down Subsidiaries. Prior to such appointment, Mr. Kemper served as financial advisor at Province, Inc., a nationally recognized financial advisory firm focusing on growth opportunities, restructurings and fiduciary-related services (March 2017 to February 2019), where he represented unsecured creditors in corporate bankruptcies and provided management and restructuring services to various companies. During the past five years, Mr. Kemper also has served as managing director of LandCap Advisors, a company engaged in providing real estate consulting services (October 2013 to March 2017), where Mr. Kemper provided clients with real estate management and restructuring, lease advisory, valuation and feasibility, transaction advisory, portfolio, and project management services. Mr. Kemper has over 20 years’ experience in financial advisory, real estate and accounting services. Mr. Kemper holds a B.A. in Accounting from St. Mary’s University.
Summary Compensation Table
Name and Principal Position at June 30, 2020(1) | Fiscal Year | | Base | | | Bonus | | | All Other Compensation (4) | | | Total | |
| | | | | | | | | | | | | |
Michael I. Goldberg, Esq., | 2020 |
| $ | 479,456 | | | $ | 251,593 | (5) | | $ | 0 | | | $ | 731,049 | |
Liquidation Trustee | 2019 | | $ | 193,554 | (2)
| | $
| 81,873 | (5)
| | $
| 0 | | | $ | 275,427 | |
| | | | | | | | | | | | | | | | | |
Frederick Chin, | 2020 | | $ | 787,397 | | | $ | 637,500 | (3) | | $ | 0 | | | $ | 1,424,897 | |
Wind-Down Entity CEO | 2019 | | $
| 280,220 | (2) | | $ | - | (3) | | $ | 0 | | | $ | 280,220 | |
| | | | | | | | | | | | | | | | | |
Marion W. Fong, | 2020 | | $ | 472,438 |
| | $ | 100,000 | (3) | | $ | 0 | | | $ | 572,438 | |
Wind-Down Entity CFO | 2019 | | $ | 168,132 | (2) | | $ | - | (3) | | $ | 0
| | | $ | 168,132 | |
| | | | | | | | | | | | | | | | | |
David Mark Kemper II, | 2020 | | $ | 367,452 |
| | $ | 70,000 | (3) | | $ | 0 | | | $ | 437,452 | |
Wind-Down Entity COO and CIO | 2019 | | $ | 130,769 | (2) | | $ | - | (3) | | $ | 0
| | | $ | 130,769 | |
Name and Princpal Position at June 30, 2021 (1) | Fiscal Year | | Base | | | Bonus | | | | All Other Compensation (2) | | | Total | |
| | | | | | | | | | | | | | |
Michael I. Goldberg, Esq. | 2021 | | $ | 366,949 | | | $ | 532,038 | (3) |
| | $ | - | | | $ | 898,987 | |
Liquidation Trustee | 2020 | | $ | 479,456 | | | $ | 251,593 | (3) |
| | $ | - | | | $ | 731,049 | |
| | | | | | | | | |
| | | | | | | | |
Frederick Chin | 2021 | | $ | 861,808 | | | $ | 862,500 | (4) |
| | $ | 163,834 | | | $ | 1,888,142 | |
Wind-Down Entity, CEO | 2020 | | $ | 787,397 | | | $ | 637,500 | (4) |
| | $ | - | | | $ | 1,424,897 | |
| | | | | | | | | |
| | | | | | | | |
Marion W. Fong | 2021 | | $ | 517,085 | | | $ | 123,750 | (4) |
| | $ | - | | | $ | 640,835 | |
Wind-Down Entity, CFO | 2020 | | $ | 472,438 | | | $ | 100,000 | (4) |
| | $ | - | | | $ | 572,438 | |
| | | | | | | | | |
| | | | | | | | |
David Mark Kemper II | 2021 | | $ | 402,177 | | | $ | 96,250 | (4) |
| | $ | - | | | $ | 498,427 | |
Wind-Down Entity, COO and CIO | 2020 | | $ | 367,452 | | | $ | 70,000 | (4) |
| | $ | - | | | $ | 437,452 | |
(1) | Includes all individuals who may be considered the executive officers of the Trust or the Wind-Down Entity. Each of such individuals has occupied his or her respective current position since February 15, 2019. |
(2) | For 2019, amount indicated is for the period from February 15, 2019 through June 30, 2019 based on annual salaries of $750,000, $450,000 and $350,000 per year for Mr. Chin, Ms. Fong and Mr. Kemper, respectively, in each case subject to annual increase in the discretion of the Board of Managers. For Mr. Goldberg, amount is based on time incurred during the period from February 15, 2019 through June 30, 2019.
|
(3) | Bonuses are attributed to the fiscal year in which they are earned. No bonuses were earned for fiscal year 2019. Mr. Chin, Ms. Fong and Mr. Kemper each is eligible for bonuses, as discussed below.
|
(4) | In addition to salary and bonus, the named executive officers (other than Mr. Goldberg) may receive other annual compensation in the form of health, dental, vision and life insurance coverages, paid vacation, paid time off, and other personal benefits. For fiscal years 2019ended June 30, 2021 and 2020, the total value of such perquisiteshealth, dental, vision, life insurance coverages and other personal benefits did not exceed $10,000 in the aggregate for any named executive officer. Amount indicated is for paid vacation and paid time off. |
(5)(3) | Mr. Goldberg is eligible for incentive compensation equal to 5% of total gross settlement amounts by the Trust from the pursuit of Causes of Action as further discussed below. Bonus amounts are attributed to the fiscal year in which they are settled. During fiscal yearyears ended June 30, 20202021 and the period from February 15, 2019 (inception) through June 30, 2019, $214,3772020, $490,949 and $0,$214,377, respectively, were paid. |
(4) | Bonuses are attributed to the fiscal year in which they are earned. Mr. Chin, Ms. Fong and Mr. Kemper each is eligible for bonuses, as discussed below. |
Liquidation Trustee of the Trust
As compensation in respect of service as Liquidation Trustee, Mr. Goldberg is entitled to (i) base compensation at an hourly rate of $598.95 per hour for calendar yearyears 2021 and 2020 and $544.50 per hour for calendar year 2019 (these rates are net of a negotiated 10% discount of Mr. Goldberg’s customary rates) and (ii) incentive compensation equal to 5% of total gross amounts recovered by the Trust from the pursuit of Causes of Action. Mr. Goldberg is not entitled to equity compensation, of Mr. Goldberg’s customary rates, perquisites or personal benefits.
Mr. Goldberg’s base compensation was not determined by the Supervisory Board, but instead was established by, and the amount is fixed under, the Trust Agreement. Such base compensation cannot be modified except by amendment of the Trust Agreement. Amendment of the Trust Agreement effecting a modification of the compensation of the Supervisory Board would require either (a) an order of the Bankruptcy Court or (b) a written amendment signed by the Liquidation Trustee, which amendment has received the prior written approval of a majority of the members of the Supervisory Board. It is the understanding of the Supervisory Board that the base compensation is intended to compensate Mr. Goldberg for his time spent performing services as Liquidation Trustee. The Supervisory Board believes that base compensation at an hourly rate is standard and customary for bankruptcy and insolvency trustees, and that $605.00$665.50 does not exceed Mr. Goldberg’s customary hourly rate for legal services performed by him as a partner of Akerman LLP.
Mr. Goldberg’s incentive compensation has been determined by the Supervisory Board, in the exercise of its discretion as authorized by the Trust Agreement, as five percent (5%) of the total gross proceeds recovered by the Trust from the pursuit of Causes of Action by the Trust. Such incentive compensation is intended to compensate Mr. Goldberg for services performed above and beyond the time commitment required of the Liquidation Trustee. The Supervisory Board believes that incentive compensation based on the value of recoveries on Causes of Action is standard and customary for bankruptcy and insolvency trustees, and is designed to maximize the value of recoveries on Causes of Action and appropriately align the economic interests of the Liquidation Trustee with those of the Trust.
Payment of compensation to the Liquidation Trustee or his professionals in connection with any individual request for compensation is subject to the following procedures, specified in the Trust Agreement:
the Liquidation Trustee must submit to the Supervisory Board an itemized statement or statements reflecting all fees and itemized costs to be reimbursed;
after seven (7) days after the delivery of the statements, the amount reflected in the statements may be paid by the Trust unless, prior to the expiration of such seven-day period, the Supervisory Board has objected in writing to any compensation reflected in the Statement; and
in the case of any Supervisory Board objection to payment, the undisputed amounts may be paid and the disputed amounts may only be paid by agreement of the Supervisory Board, or pursuant to order of the Bankruptcy Court, which retains jurisdiction over all disputes regarding the Liquidation Trustee’s and his or her professionals’ compensation.
Chief Executive Officer of the Wind-Down Entity
The Wind-Down Entity and its Chief Executive Officer Frederick Chin are parties to an employment agreement, the terms of which were amended in September 2020. The employment agreement features an initial period expiring on August 14, 2021, subject to two additional consecutive renewals of one fiscal quarter each if the wind down of the Wind-Down Group remains to be completed. Under the employment agreement, Mr. Chin is entitled to an annual base salary and incentive compensation. Mr. Chin’s current annual base salary is $825,000,$907,500, subject to annual increase not to exceed 10% of the prior year’s annual base salary based on a merit review by the Board of Managers.
Mr. Chin is eligible for certain potential bonuses based on the cumulative amount of distributions of cash made by the Wind-Down Entity to the Trust during certain specified periods as set forth in the table below. For each period, a threshold amount of distributions must be made during such period for any bonus to be earned. Any bonuses earned are to be paid within 30 days of the end of the applicable period, however, Mr. Chin will not be entitled to any bonus regardless of the cumulative amount of distributions in any period if Mr. Chin is terminated by the Wind-Down Entity for “Cause” or if Mr. Chin voluntarily resigns other than for “Good Reason” before (i) February 15, 2022 with respect to a category A bonus or (ii) within 30 days of the end of the applicable period with respect to a category B bonus, in each case as identified in the chart below. For purposes of determining the amount of cumulative distributions during the period for a category B bonus, cash amounts collected by the Wind-Down Group but not distributed to the Trust during any such period may be counted in cumulative distributions for such period so long as the Board of Managers of the Wind-Down Entity certifies that such cash will be distributed to the Trust in a subsequent period.
Bonus Category | | Period | Threshold Amount | Cumulative Amount Distributions During Period | Bonus Payment Amount for Period |
A | | February 15, 2019 through the earlier to occur of the expiration of the term of Mr. Chin’s employment agreement and the completion of the liquidation process for the Wind-Down Entity | $351,093,000 | $351,093,000 to $401,442,999 | $1,125,000 |
$401,443,000 to $528,584,999 | $1,500,000 |
$528,585,000 or over | $1,875,000 |
Bonus Category | | Period | Threshold Amount | Cumulative Amount Distributions During Period | Bonus Payment Amount for Period |
A | | February 15, 2019 through the earlier to occur of the expiration of the term of Mr. Chin’s employment agreement and the completion of the liquidation process for the Wind-Down Entity | $351,093,000 | $351,093,000 to $401,442,999 | $1,125,000 |
$401,443,000 to $528,584,999 | $1,500,000 |
$528,585,000 or over | $1,875,000 |
Bonus Category | | Period | Threshold Amount | Cumulative Amount Distributions During Period | Bonus Payment Amount for Period |
B | | February 15, 2019 through December 31, 2019 | $97,332,000 | $97,332,000 to $106,504,999 | $487,500 |
$106,505,000 to $125,454,999 | $637,500 |
$125,455,000 or more | $862,500 |
| February 15, 2019 through December 31, 2020 | $178,677,000 | $178,677,000 to $206,372,999 | $487,500 |
$206,373,000 to $262,744,999 | $637,500 |
$262,745,000 or more | $862,500 |
| February 15, 2019 through the expiration of the term of Mr. Chin’s employment agreement | $351,093,000 | $351,093,000 to $401,442,999 | $487,500 |
$401,443,000 to $528,584,999 | $637,500 |
$528,585,000 or more | $862,500 |
Mr. Chin’s employment agreement was amended in September 2020 to extend the initial term of his employment from August 14, 2021 to February 14, 2022 and to provide that if Mr. Chin is employed by the Wind-Down Entity on December 31, 2021, Mr. Chin is eligible for a discretionary bonus for calendar year 2021. These changes were approved by the Board of Managers and the Supervisory Board. Such changes were considered necessary and appropriate in light of the currently projected extended duration of the Wind-Down Entity’s liquidation activities.
If Mr. Chin’s employment is terminated by the Wind-Down Entity without “Cause,” or if Mr. Chin resigns for “Good Reason,” Mr. Chin will be entitled, in addition to accrued salary and earned but unpaid bonuses, to a continued base salary for the remainder of the term of the Employment Agreement plus payments of the bonus amounts as set forth in the chart above to which Mr. Chin would have been entitled if he had remained employed during the entire term of the employment agreement (such bonus amounts to be paid if and when otherwise due under the employment agreement). If Mr. Chin’s employment is terminated by his death or disability, Mr. Chin or his estate will be entitled to receive, in addition to accrued salary and earned but unpaid bonuses, payments of the bonus amounts set forth in the chart above to which Mr. Chin would have been entitled if he had remained employed during the entire term of the employment agreement (such bonus amounts to be paid if and when otherwise due under the employment agreement), prorated on the basis of the distributions actually made prior to the effective date of termination for the period(s) applicable to the bonus determination.
The Wind-Down Entity is obligated, under the employment agreement, the Wind-Down Entity LLC Agreement and an Indemnification Agreement with Mr. Chin dated February 27, 2019, to indemnify and hold harmless Mr. Chin from and against certain liabilities, losses, damages and expenses incurred by him by reason of his acts or omissions as an officer of the Wind-Down Entity.
Under the employment agreement, Mr. Chin is entitled to four weeks of paid vacation each year and Mr. Chin and his eligible dependents are entitled to participate in the Wind-Down Entity’s health, dental, vision and life insurance coverages.
Other Executive Officers of Wind-Down Entity
The Wind-Down Entity is a party to at-will employment agreements with its Chief Financial Officer Marion W. Fong and its Chief Operating Officer and Chief Investment Officer David Mark Kemper II. Unless sooner terminated, the terms of these employment agreements expire upon the dissolution of the Wind-Down Entity. Under their employment agreements, Ms. Fong and Mr. Kemper are entitled to an annual base salary and incentive compensation.
Ms. Fong’s current annual base salary is $495,000$544,500 and Mr. Kemper’s annual base salary is $385,000,$423,500, in each case subject to annual increase at the discretion of the Board of Managers. Ms. Fong and Mr. Kemper earned an incentive compensation bonus for calendar year 2019, and are eligible for up to three discretionary bonuses as described below, a one-time wind-down bonus, and a one-time retention bonus.
Ms. Fong and Mr. Kemper earned bonuses of $100,000 and $70,000, respectively for calendar year 2019.2019 and $123,750 and $96,250, respectively for calendar year 2020. The 2019 bonuses were paid in January, 2020 (fiscal year 2020) and the 2020 bonuses were paid in December 2020 (fiscal year 2021).
Ms. Fong and Mr. Kemper each is entitled to consideration for discretionary bonuses for calendar years 2020 andyear 2021 and, if the Wind-Down Entity dissolves after January 1, 2022, for the period from January 1, 2022 to the date of such dissolution. Each such officer is entitled to be considered for a discretionary bonus for calendar years 2020 andyear 2021 in an amount up to 25% of such officer’s then-current base salary, provided that such officer is still employed by the Wind-Down Entity on December 31, 2020 and December 31, 2021, respectively.2021. If the Wind-Down Entity dissolves after January 1, 2022, each such officer is entitled to be considered for a discretionary bonus for the period from January 1, 2022 to the date of the dissolution in an amount up to 25% of such officer’s 2022 base salary, provided that such officer is still employed by the Wind-Down Entity upon its dissolution.
Ms. Fong and Mr. Kemper each is eligible to earn a wind-down bonus in an amount of either 50%, 100% or 150% of such officer’s then-current base salary (less any discretionary bonuses paid), depending on whether the Wind-Down Entity achieves the low, base or high case, respectively, of the projected cumulative amount of distributions by the Wind-Down Entity to the Trust from February 15, 2019 (inception) to the date of the dissolution of the Wind-Down Entity. No wind-down bonus is payable if the amount of such distributions is less than the low case. If earned, the wind-down bonus is payable within 30 days after the dissolution of the Wind-Down Entity, provided that the officer has not been terminated for “Cause” and has not voluntarily resigned other than for “Good Reason” before such dissolution.
Neither Ms. Fong nor Mr. Kemper is entitled to severance benefits. In lieu of such benefits, each of them is eligible to earn, at the time of his or her termination of employment, a retention bonus in an amount equal to six months of such officer’s base salary at the time of such termination. The retention bonus is payable only if (a) such officer resigns for “Good Reason,” (b) such officer’s employment term expires, or (c) such officer is terminated without “Cause.”
The Wind-Down Entity is obligated, under the employment agreements with Ms. Fong and Mr. Kemper, the Wind-Down Entity LLC Agreement and indemnification agreements with each such officer, to indemnify and hold harmless each such officer from and against certain liabilities, losses, damages and expenses incurred by either of them by reason of acts or omissions as an officer of the Wind-Down Entity.
Under their employment agreements, Ms. Fong and Mr. Kemper are entitled to four weeks of annual paid vacation, as well as participation in the Wind-Down Entity’s health, dental, vision and life insurance coverages.
Ms. Fong’s and Mr. Kemper’s employment agreements were amended in September 2020 to provide for their eligibility for the discretionary bonus for 2021 and, if the Wind-Down Entity dissolves after January 1, 2022, for period from January 1, 2022 to the date of dissolution. Any such discretionary bonuses will be deducted from any wind-down bonus earned by Ms. Fong and Mr. Kemper. These changes were approved by the Board of Managers and the Supervisory Board. Such changes were considered necessary and appropriate in light of the currently projected extended duration of the Wind-Down Entity’s liquidation activities.
Compensation Committee Interlocks and Insider Participation
Neither the Trust nor the Wind-Down Entity has a compensation committee or other board committee performing equivalent functions. During the fiscal year ended June 30, 2020, all members2021, the Board of Managers (acting without Mr. Chin) approved the amendments to the employment agreement of Mr. Chin discussed above, and the Supervisory Board participated in deliberations regarding Mr. Goldberg’s and Mr. Chin’s compensation,consented to such action. Additionally, during the fiscal year ended June 30, 2021, the Board of Managers, acting without participation by any other officerMs. Fong or Mr. Kemper in its deliberations, approved the amendments to the employment agreements of Ms. Fong and employee ofMr. Kemper discussed above, and the Trust or the Wind-Down Entity.Supervisory Board consented to such action. During the fiscal year ended June 30, 2020, all members of2021, there were no deliberations by the Supervisory Board of Managers, and Mr. Goldberg, participated in deliberations concerningregarding the compensation of the executive officersMr. Goldberg.
51
Compensation of Supervisory Board and Board of Managers
Each member of the Supervisory Board that does not serve on the Audit Committee receives, as compensation in respect of service on the Supervisory Board, (i) $10,000 per month through January 31, 2020, (ii) $7,500 per month from February 1, 2020 through January 31, 2021, (iii) $5,000 per month from February 1, 2021 through January 31, 2022, and (iv) $2,500 per month for each calendar month thereafter until termination of the Trust in accordance with the Plan (prorated as appropriate if a member commences his or her service other than on the first day of a month or terminates his or her service other than on the last day of a month). The sole member of the Supervisory Board that serves on the Audit Committee receives, as compensation in respect of service, $10,000 per month. All Supervisory Board members also are entitled to reimbursement by the Trust of all actual, reasonable and documented out-of-pocket expenses incurred in connection with their service on the Supervisory Board.
The compensation of the Supervisory Board was not determined by the Supervisory Board, but instead was established by, and is fixed under, the Trust Agreement and cannot be modified except by amendment of the Trust Agreement. An amendment of the Trust Agreement effecting a modification in the compensation of the Supervisory Board would require either (a) an order of the Bankruptcy Court or (b) a written amendment signed by the Liquidation Trustee, which amendment has received the prior written approval of a majority of the members of the Supervisory Board.
Each member of the Board of Managers (other than the CEO) receives, as compensation in respect of service on the Board of Managers, (i) $20,000 per month through January 31, 2020 and (ii) $15,000 per month for each calendar month of service thereafter. The Wind-Down Entity is required to reimburse each Manager in respect of all actual, reasonable and documented out-of-pocket expenses incurred by such Manager in accordance with Wind-Down Entity policies.
Indemnification of the Liquidation Trustee
Under Delaware law, the Trust has the power to indemnify and hold harmless any person from and against any and all claims and demands whatsoever, subject to such standards and restrictions, if any, as are set forth in its governing instrument. The Trust is governed by the Trust Agreement, which states that the Liquidation Trustee, the Supervisory Board and each of their respective accountants, agents, assigns, attorneys, bankers, consultants, directors, employees, executors, financial advisors, investment bankers, real estate brokers, transfer agents, managers, members, officers, partners, predecessors, principals, professional persons, representatives, and successors (each, a “Trustee Indemnified Party”) will be indemnified for, and defended and held harmless against, any loss, liability, damage, judgment, fine, penalty, claim, demand, settlement, cost, or expense, including the reasonable fees and expenses of their respective professionals (collectively “Damages”) incurred without gross negligence, willful misconduct, or fraud on the part of the applicable Trustee Indemnified Party (which gross negligence, willful misconduct, or fraud, if any, must be determined by a final, non-appealable order of a court of competent jurisdiction) for any action taken, suffered, or omitted to be taken by the Trustee Indemnified Parties in connection with the acceptance, administration, exercise, and performance of their duties under the Plan or the Trust Agreement, as applicable. An act or omission taken with the approval of the Bankruptcy Court, and not inconsistent therewith, will be conclusively deemed not to constitute gross negligence or willful misconduct.
In addition, the Trust Agreement provides that, to the fullest extent permitted by law, each Trustee Indemnified Party shall be indemnified for, and defended and held harmless against, any and all Damages arising out of or due to their actions or omissions, or consequences of such actions or omissions, with respect to the Trust or the implementation or administration of the Plan if the applicable Trustee Indemnified Party acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interest of the Trust or its Interestholders.
The Trust Agreement also authorizes, but does not require, the Liquidation Trustee to obtain all reasonable insurance coverage for itself, its agents, representatives, employees or independent contractors, including coverage with respect to the liabilities, duties and obligations of the Liquidation Trustee and its agents, representatives, employees or independent contractors under the Trust Agreement and the Plan. The cost of any such insurance coverage will be an expense of the Trust.
Indemnification of the Board of Managers, the CEO and Executive Officers of the Wind-Down Entity
The Wind-Down Entity and the Trust are required to indemnify the members of the Board of Managers, the Chief Executive Officer, and the other officers of the Wind-Down Group, and each of their respective accountants, agents, assigns, attorneys, bankers, consultants, directors, employees, executors, financial advisors, investment bankers, brokers, managers, members, officers, partners, predecessors, principals, professional persons, representatives, and successors (each, a “WDE Indemnified Party”) for, and shall defend and hold them harmless against, Damages incurred without gross negligence or willful misconduct on the part of the applicable WDE Indemnified Party (which gross negligence or willful misconduct, if any, must be determined by a final, non-appealable order of a court of competent jurisdiction) for any action taken, suffered, or omitted to be taken by the WDE Indemnified Parties in connection with the acceptance, administration, exercise, and performance of their duties under the Plan or the Wind-Down Entity LLC Agreement, as applicable. An act or omission taken with the approval of the Bankruptcy Court, and not inconsistent therewith, will be conclusively deemed not to constitute gross negligence or willful misconduct.
In addition, the Wind-Down Entity and the Trust are required, to the fullest extent permitted by law, indemnify, defend, and hold harmless the WDE Indemnified Parties, from and against and with respect to any and all Damages arising out of or due to their actions or omissions, or consequences of such actions or omissions, with respect to the Wind-Down Entity or the implementation or administration of the Plan if the applicable WDE Indemnified Party acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interest of the Wind-Down Entity.
The Wind-Down Entity is a party to indemnification agreements with its Chief Executive Officer Frederick Chin, its Chief Financial Officer Marion W. Fong, and its Chief Operating Officer and Chief Investment Officer David Mark Kemper II. Under these agreements, the Wind-Down Entity has agreed to indemnify each of these individuals, to the fullest extent permitted by applicable law and the Wind-Down Entity’s certificate of formation and limited liability company agreement, and the Plan, if such individual becomes a party to or a witness or other participant in any proceeding (other than a derivative action) by reason of the fact that such individual is or was an officer, manager or employee of the Wind-Down Entity, or by reason of anything done or not done by him in any such capacity, against all expenses and liabilities incurred without gross negligence or willful misconduct by such individual.
Under these indemnification agreements, the Wind-Down Entity has also agreed to indemnify Ms. Fong and Mr. Kemper, with respect to any derivative action to which such individual becomes a party or a witness or in which such individual becomes a participant, against expenses actually and reasonably incurred in connection with the defense or settlement of such action, provided that such individual acted in good faith and in a manner such individual reasonably believed to be in or not opposed to the best interests of the Company. These indemnification agreements provide for proportional contribution to the Wind-Down Entity based on relative benefit and relative fault where indemnification is held by a court to be unavailable to the individual and for the advancement by the Wind-Down Entity of the individual’s expenses under certain circumstances.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
The following table sets forth certain information regarding the equity securities of the Trust beneficially owned by each member of the Supervisory Board, the Liquidation Trustee and each executive officer named in the Summary Compensation Table (see “Item 11. Executive Compensation” of this Annual Report), and all members of the Supervisory Board, the Liquidation Trustee and all executive officers of the Wind-Down Entity as a group on September 25, 2020:24, 2021:
Name of and Address of Beneficial Owner (1) | Class of Liquidation Trust Interest | | Amount and Nature of Beneficial Interest | | | Percent of class(2) | | Jay Beynon | Class A | | | 6,666.67 | (3) | | Less than 1% | | Class B | | | 0 | | | | 0 | | Raymond C. Blackburn, M.D. | Class A | | | 35,788.06 | (4) | | Less than 1% | | Class B | | | 13,574.78 | (5) | | | 2.01% |
| Terry R. Goebel | Class A | | | 0 | | | | 0 | | Class B | | | 0 | | | | 0 | | Lynn Myrick | Class A | | | 23,819.17 | (6) | | Less than 1% | | Class B | | | 1,590.81 | (7) | | Less than 1% | | John J. O’Neill | Class A | | | 8,786.60 | (8) | | Less than 1% | | Class B | | | 0 | | | | 0 | | M. Freddie Reiss | Class A | | | 0 | | | | 0 | | Class B | | | 0 | | | | 0 | | Michael I. Goldberg | Class A | | | 0 | | | | 0 | | Class B | | | 0 | | | | 0 | | Frederick Chin | Class A | | | 0 | | | | 0 | | Class B | | | 0 | | | | 0 | | Marion W. Fong | Class A | | | 0 | | | | 0 | | Class B | | | 0 | | | | 0 | | David Mark Kemper II | Class A | | | 0 | | | | 0 | | Class B | | | 0 | | | | 0 | | All Supervisory Board members and the executive officers, as a group | Class A | | | 75,060.50 | | | Less than 1% | | Class B | | | 15,165.59 | | | | 2.24% |
|
Name(1) | A business address for each of Beneficial Owner | Class ofthe named beneficial owners is c/o Woodbridge Liquidation Trust, 201 N. Brand Blvd., Suite M, Glendale, California 91203.
|
Interest
(2) | Amount and Nature of
Beneficial Interest
| Percent of class7
| Jay Beynon | Based on 11,511,765 Class A Interests and 675,617 Class B Interests outstanding as of September 24, 2021. |
(3) | 6,666.67As trustee of a family trust.
|
8(4)0
| Less than 1%
0
| Raymond C. Blackburn, M.D. | Class A
Class B
| 35,788.069
13,574.7810
| Less than 1%
2.01%
| Terry R. Goebel | Class A
Class B
| 0
0
| 0
0
| Lynn Myrick | Class A
Class B
| 23,819.1711
1,590.8112
| Less than 1%
Less than 1%
| John J. O’Neill | Class A
Class B
| 8,786.6013
0
| Less than 1%
0
| M. Freddie Reiss | Class A
Class B
| 0
0
| 0
0
| Michael I. Goldberg | Class A
Class B
| 0
0
| 0
0
| Frederick Chin | Class A
Class B
| 0
0
| 0
0
| Marion W. Fong | Class A
Class B
| 0
0
| 0
0
| David Mark Kemper II | Class A
Class B
| 0
0
| 0
0
| All Supervisory Board membersOf which 25,485.81 are held individually and the executive officers, asremainder is beneficially owned in an individual retirement account. |
(5) | Of which 9,667.03 are held individually and the remainder is beneficially owned in an individual retirement account. |
(6) | Of which 13,449.54 are held by a group | Class A
Class B
| 75,060.50
15,165.59
| Less than 1%
2.31% limited liability company of which Ms. Myrick is a member, 10,369.63 are held by a family trust of which Ms. Myrick is a beneficiary. |
(7) | Held by a limited liability company, of which Ms. Myrick is a member. |
(8) | Beneficially owned together with spouse. |
The Trust does not have any compensation plans (including individual compensation arrangements) under which equity securities of the Trust are authorized for issuance.
Item 13. | Certain Relationships and Related Transactions, and Supervisory Board Member Independence |
The Supervisory Board has chosen the director independence standards of the New York Stock Exchange (the “NYSE”) to determine the independence of the members of the Supervisory Board. The Trust is not, however, a company listed with the NYSE and does not intend to apply for listing with the NYSE. Furthermore, the Trust believes that, if it were a NYSE-listed company, the Supervisory Board would be exempt from the director independence requirements of the NYSE by reason of one or more available exemptions from such requirements, including exemptions for companies in bankruptcy proceedings, passive business organizations in the form of trusts, and the issuers of special purpose securities.
Applying the NYSE independence standard, the Supervisory Board has determined that all of its members other than Terry Goebel are independent. In making this determination, the Supervisory Board concluded that neither the fees paid by the Trust in respect of service on the Supervisory Board nor the ownership of Liquidation Trust Interests by any member of the Supervisory Board precluded a finding of independence. Furthermore, the Supervisory Board determined that the participation by Mr. Beynon, or his family trust, in a class action against Comerica Bank (see “Item 3. Legal Proceedings” of this Annual Report) does not constitute a material relationship with the Trust or any of its subsidiaries, either directly or as a partner, shareholder or officer of any organization that has a relationship with the company.
The Supervisory Board was unable to determine the absence of a material relationship between the Wind-Down Group and Supervisory Board member Terry Goebel, who is president and a principal owner of G3 Group LA, a construction firm specializing in the development of high-end, luxury residences. G3 Group LA is owned by Terry Goebel and his son Kelly Goebel. The Wind-Down Group is under contract with G3 Group LA for the development of one residential real property in the Los Angeles area (the “G3 Contract”). The approximate aggregate estimated dollar value of the transactions under the G3 Contract as of June 30, 20202021 is $30.0$33.6 million, of which $8.1$4.4 million was unpaid as of June 30, 2020.2021. On September 24, 2020, the Wind-Down Group entered into a change order increasing the estimated dollar value of the G3 Contract by approximately $3.6 million. The change order was determined to be necessary, and the amount thereof was determined to be appropriate, in light of increases in the construction costs of the project incurred and expected to be incurred.
7 Based on 11,519,450 Class A Liquidation Trust Interests and 676,312 Class B Liquidation Interests outstanding as of September 25, 2020.
8 As trustee of a family trust.
9 Of which 25,485.81 are held individually and the remainder is beneficially owned in an individual retirement account.
10 Of which 9,667.03 are held individually and the remainder is beneficially owned in an individual retirement account.
11 Of which 13,449.54 are held by a limited liability company of which Ms. Myrick is a member, 9,224.33 are held by a family trust of which Ms. Myrick is a beneficiary and 1,145.30 are held in a non-qualified account.
12 Held by a limited liability company, of which Ms. Myrick is a member.
13 Beneficially owned together with spouse.
Michael I. Goldberg, the Liquidation Trustee, is a partner of Akerman LLP, a law firm based in Miami, Florida. In November 2019, the Trust entered into an arrangement with Akerman LLP with the prior approval of the Supervisory Board, including the Audit Committee. Under the arrangement, Akerman LLP from time to time will provide, at the option of the Trust on an as-needed basis, e-discovery and related litigation support services in connection with the Trust’s prosecution of the Causes of Action. “E-discovery” (also known as electronic discovery) refers to discovery in legal proceedings, including litigation, where the information sought, such as e-mails, documents, records and files, is in electronic format. E-discovery services assist litigants to manage potentially large amounts of data in compliance with the technical requirements of court rules designed to preserve metadata and prevent spoliation.
Under the arrangement, services available to the Trust include data processing, hosting, professional services, and forensic collection and analysis. The services are provided on a “stand-alone” basis (i.e., they are made available to the Trust regardless of whether Akerman LLP is representing the Trust in connection with the subject litigation or any litigation). Currently, Akerman LLP does not represent the Trust in connection with any Causes of Action or act as counsel to the Trust in any matter.
The Trust is charged for the services at scheduled rates per task which, depending on the specific task, include flat rates, rates based on the volume of data processed, rates based on the number of data users, the hourly rates of Akerman LLP personnel, or other rates. The scheduled rates are believed to be the same as those charged by Akerman LLP to clients utilizing its legal services generally. The Supervisory Board, including the Audit Committee, approved the arrangement after determining that Akerman LLP’s rates would be more favorable to the Trust than those proposed to be charged by at least one other major alternative provider of legal support services. Due to uncertainty regarding the number, length and complexity of cases and the volume of discoverable documents, the Trust currently is unable to estimate the aggregate approximate dollar value of either Akerman LLP’s fees under this arrangement or Mr. Goldberg’s interest in this arrangement. During the yearyears ended June 30, 2021 and 2020, approximately $381,000 and $592,000, respectively, had been paid related to these services.
The Trust has a written Related Person Transaction Policy. It requires that any “Related Person Transaction” to which the Trust is a participant must be reviewed and approved in advance by the Supervisory Board and any “Related Person Transaction” to which the Wind-Down Group is a participant must be reviewed and approved in advance by the Board of Managers (the applicable board, in each instance, whether the Supervisory Board or the Board of Managers, the “Applicable Board”). Under the policy, a “Related Person Transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) that occurred since the beginning of the Trust’s most recent fiscal year in which the Trust (including any of its subsidiaries) was, is or will be a participant and the amount involved exceeds $120,000 and in which any Related Person had, has or will have a direct or indirect material interest. For purposes of this policy, a “Related Person” means:
any person who is, or at any time since the beginning of the Trust’s last fiscal year was, the Liquidation Trustee, a member of the Supervisory Board, a member of the Board of Managers, an executive officer of the Wind-Down Entity or a nominee to become a member of the Board of Managers or a more than 5% beneficial owner of the Trust;
any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the Liquidation Trustee, a member of the Board of Managers, an executive officer of the Wind-Down Entity, or a nominee to become a member of the Board of Managers, or a more than 5% beneficial owner of the Trust, and any person (other than domestic employees or tenants) sharing the household of any such person; and
any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest.
The following transactions are not considered Related Person Transactions for purposes of this policy: (a) base compensation for services rendered as the Liquidation Trustee, paid in accordance with the Liquidation Trust Agreement; (b) compensation for services rendered as a member of the Supervisory Board, paid in accordance with the Liquidation Trust Agreement; (c) in accordance with the Liquidation Trust Agreement, reimbursement of expenses incurred by the Liquidation Trustee or any member of the Supervisory Board incurred in the ordinary course of carrying out their respective responsibilities in such capacities; (d) any transaction where the rates or charges involved in the transaction are determined by competitive bids; or (e) any transaction that involves the rendering of services at rates or charges fixed in conformity with law or governmental authority. Furthermore, neither the G3 Contract nor the payment or performance by the Wind-Down Group of its obligations thereunder in accordance with the current terms thereof is considered a Related Person Transaction for purposes of the policy. The G3 Contract was entered into between the Debtors and G3 before the organization of the Trust and did not require any review, approval or ratification under the Related Person Transaction Policy. However, a change order entered into on September 24, 2020 was reviewed under the Related Person Transaction Policy.
Under the policy, the Applicable Board is to consider all of the relevant facts and circumstances available, including (if applicable), but not limited to:
The benefits to the Trust and the Wind-Down Entity;
The impact on the independence of a member of the Supervisory Board or the Board of Managers in the event the Related Person is a member of the Supervisory Board, a member of the Board of Managers, an immediate family member of any such member, or an entity in which any such member is a director, officer, manager, principal, member, partner, shareholder or executive officer;
The availability of other sources for comparable products or services;
The terms of the transaction; and
The terms available to unrelated third parties and employees generally.
The policy prohibits any member of the Applicable Board from participating in any review, consideration or approval of any Related Person Transaction with respect to which such member or any of his or her immediate family members is the Related Person. The Applicable Board may approve only those Related Person Transactions that are in, or are not inconsistent with, the best interests of the Trust and its stakeholders, as the Applicable Board determines in good faith. In addition, no immediate family member of the Liquidation Trustee or any member of the Supervisory Board, member of the Board or Managers, or executive officer of the Wind-Down Group may be hired as an employee of the Trust or the Wind-Down Group unless the employment arrangement is approved in advance by the Applicable Board. In the event a person becomes a director or executive officer of the Trust or the Wind-Down Group and an immediate family member of such person is already an employee of the Trust or the Wind-Down Group, no material change in the terms of employment, including compensation, may be made without the prior approval of the Applicable Board (except, if the immediate family member is himself or herself an executive officer of the Trust or the Wind-Down Group, any proposed change in the terms of employment must be reviewed and approved in the same manner as other executive officer compensatory arrangements).
The Audit Committee of the Supervisory Board has the authority, subject to a final review by all disinterested members of the Supervisory Board, to review and approve all Related Person Transactions in which the Trust is a participant.
Item 14. | Principal Accounting Fees and Services |
Independent Registered Public Accounting Firm
Squar Milner has served as our independent registered public accounting firm since July 19, 2019.
Principal Independent Registered Public Accounting Firm Fees
Set forth below are aggregate fees billed to us for professional accounting services for the yearyears ended June 30, 2021 and 2020:
| | Years Ended June 30, | | | | 2021 | | | 2020 | | | | | | | | | Audit Fees | | $ | 345,600 | | | $ | 403,400 | | Audit-related Fees | | $ | - | | | $ | - | | Tax fees | | $ | - | | | $ | - | | All other fees | | $ | - | | | $ | - | | Total | | $ | 345,600 | | | $ | 403,400 | |
The professional fees incurred prior to November 1, 2020 were billed by Squar Milner and the period from February 15, 2019 (inception) through June 30, 2019:professional fees incurred on or after November 1, 2020 were billed by Baker Tilly.
| | Year Ended June 30, 2020 | | | February 15, 2019 (inception) through June 30, 2019 | | | | | | | | | Audit Fees | | $ | 403,400 | | | $ | 267,600 | | Audit-related fees | | | - | | | | - | | Tax fees | | | - | | | | - | | All other fees | | | - | | | | - | | Total | | $ | 403,400 | | | $ | 267,600 | |
For purposes of the preceding table, the professional fees are classified as follows:
Audit Fees: These fees for professional services performed for the audit of our annual consolidated financial statements, the required review of quarterly consolidated financial statements, registration statements and other procedures performed by independent auditors in order for them to be able to form an opinion on our consolidated financial statements.
Audit-Related Fees: These are fees for assurance and related services that traditionally are performed by independent auditors that are reasonably related to the performance of the audit or review of the consolidated financial statements, such as due diligence related to acquisitions and dispositions, attestation services that are not required by statute or regulation, internal control reviews, and consultation concerning financial accounting and reporting standards.
Tax Fees: These are fees for all professional services performed by professional staff in our independent auditor’s tax division, except those services related to the audit of our consolidated financial statements. These include fees for tax compliance, tax planning, and tax advice, including federal, state, and local issues. Services may also include assistance with tax audits and appeals before the IRS and similar state and local agencies, as well as federal, state and local tax issues related to due diligence.
All Other Fees: These are fees for any services not included in the above-described categories, including assistance with internal audit plans and risk assessments.
Pre-Approval Policies
In order to ensure that the provision of services by our independent registered public accounting firm does not impair the auditors’ independence, the Audit Committee pre-approves all auditing services performed for the Company by our independent auditors, as well as all permitted non-audit services. In determining whether or not to pre-approve services, the Audit Committee considers whether the service is a permissible service under the rules and regulations promulgated by the SEC.
All services rendered by Baker Tilly and Squar Milner for the yearyears ended June 30, 20202021 and the period from February 15, 2019 (inception) through June 30, 20192020 were pre-approved by the Audit Committee in accordance with the policies and procedures described above.
Part IV
Item 15.
| ExhibitsExhibit and Financial Statement Schedules |
(a) (1) | (a) | (1) Consolidated Financial Statements:
|
The consolidated financial statements of the Company are included in a separate section of this Annual Report commencing on the page numbers specified below:
Woodbridge Liquidation Trust Index to Consolidated Financial Statements
| Page | Index to Consolidated Financial Statements | F-1
| Audited Consolidated Financial Statements | | As of and For the year endedYears Ended June 30, 20202021 and the period from February 15, 2019 (inception) through June 30, 2019: 2020: |
| Report of Independent Registered Public Accounting Firm | F-1F-2 | Consolidated Statements of Net Assets in Liquidation as of June 30, 20202021 and 20192020 | F-2F-3 | Consolidated Statements of Changes in Net Assets in Liquidation for the year endedYears Ended June 30, 20202021 and the period from February 15, 2019 (inception) through June 30, 20192020 | F-3F-4 | Notes to Consolidated Financial Statements | F-4F-5 |
(a) (2) | (a) | (2) Financial Statement Schedules:Schedules |
Financial statement schedules have been omitted because they are either not required or not applicable, or because the information required to be presented is included in the consolidated financial statements or the notes thereto included in this Annual Report.
| First Amended Joint Chapter 11 Plan of Liquidation of Woodbridge Group of Companies, LLC and its Affiliated Debtors dated August 22, 2018, incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on October 25, 20192019. | | | | Certificate of Trust of Woodbridge Liquidation Trust dated February 14 and effective February 15, 2019, incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on October 25, 20192019. | | | | Liquidation Trust Agreement of Woodbridge Liquidation Trust dated February 15, 2019, as amended by Amendment No. 1 dated August 21, 2019 and Amendment No. 2 dated September 13, 2019, incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on October 25, 20192019. | | | | Amendment No. 3 to Liquidation Trust Agreement dated as of November 1, 2019, incorporated herein by reference to Amendment No. 1 to Registration Statement on Form 10 filed by the Trust on December 13, 20192019. | | | | Amendment No. 4 to Liquidation Trust Agreement dated as of February 5, 2020, incorporated herein by reference to the Current Report on Form 8-K filed by the Trust on February 6, 20202020. | | | | Amended and Restated Bylaws of Woodbridge Liquidation Trust effective August 21, 2019, incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on October 25, 20192019. | | | | Limited Liability Company Agreement of Woodbridge Wind-Down Entity LLC dated February 15, 2019, incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on October 25, 20192019. | | | | Loan and Security Agreement dated June 19, 2020 by and among WB Propco, LLC and WB 141 S. Carolwood, LLC, as Borrowers, Woodbridge Wind-Down Entity LLC, as Guarantor, and City National Bank of Florida, as Lender, incorporated herein by reference to Amendment No. 1 to the Current Report on Form 8-K filed by the Trust on June 29, 20202020. | | | | Agreement and Amendment to Loan and Security Agreement dated December 18, 2020 by and among WB Propco, LLC and WB 141 S. Carolwood, LLC, as Borrowers, Woodbridge Wind-Down Entity, LLC, as Guarantor, and City National Bank of Florida, as Lender, incorporated by reference herein to the Form 10-Q filed by the Trust on May 17, 2021. | | | | Assumption Agreement and Joinder dated February 11, 2021 by and among WB Propco, LLC, WB 638 Siena, LLC and WB 642 St. Cloud, LLC, as co-borrowers, Woodbridge Wind Down Entity, LLC, as guarantor, and City National Bank of Florida, incorporated by reference herein to the Form 10-Q filed by the Trust on May 17, 2021. | | | | Amended and Restated Security Agreement dated February 11, 2021 by WB Propco, LLC, WB 638 Siena, LLC and WB 642 St. Cloud, LLC in favor of City National Bank of Florida, incorporated by reference herein to the Form 10-Q filed by the Trust on May 17, 2021. | | | | Amended and Restated Employment Agreement dated July 31, 2019 between Woodbridge Wind-Down Entity LLC and Frederick Chin, incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on October 25, 20192019. | | |
| First Amendment to Amended and Restated Employment Agreement dated September 24, 2020 between Woodbridge Wind-Down Entity LLC and Frederick Chin, incorporated by herein by reference to the Form 10-K filed by the Trust on September 20, 2020. | | | | Indemnification Agreement dated February 27, 2019 between Woodbridge Wind-Down Entity LLC and Frederick Chin, incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on October 25, 20192019. | | | | Employment Agreement dated November 12, 2019 between Woodbridge Wind-Down Entity LLC and Marion W. Fong, incorporated herein by reference to Amendment No. 1 to Registration Statement on Form 10 filed by the Trust on December 13, 20192019. | | | | First Amendment to Employment Agreement dated September 24, 2020 between Woodbridge Wind-Down Entity LLC and Marion W. Fong, incorporated by herein by reference to the Form 10-K filed by the Trust on September 28, 2020. | | | | Indemnification Agreement dated November 12, 2019 between Woodbridge Wind-Down Entity LLC and Marion W. Fong, incorporated herein by reference to Amendment No. 1 to Registration Statement on Form 10 filed by the Trust on December 13, 2019. | | | | Employment Agreement dated November 12, 2019 between Woodbridge Wind-Down Entity LLC and David Mark Kemper, incorporated herein by reference to Amendment No. 1 to Registration Statement on Form 10 filed by the Trust on December 13, 2019. | | | | First Amendment to Employment Agreement dated September 24, 2020 between Woodbridge Wind-Down Entity LLC and David Mark Kemper, incorporated by herein by reference to the Form 10-K filed by the Trust on September 28, 2020. | | | | Indemnification Agreement dated November 12, 2019 between Woodbridge Wind-Down Entity LLC and David Mark Kemper, incorporated herein by reference to Amendment No. 1 to Registration Statement on Form 10 filed by the Trust on December 13, 2019. | | | | Stipulation and Settlement Agreement between the United States and Woodbridge Liquidation Trust, as approved by order of the United States Bankruptcy Court for the District of Delaware entered September 17, 2020, incorporated by herein by reference to the Form 10-K filed by the Trust on September 28, 2020.
| | | | Settlement Agreement dated August 6, 2021 by and among Mark Baker, Jay Beynon as Trustee for the Jay Beynon Family Trust DTD 10/23/1998, Alan and Marlene Gordon, Joseph C. Hull, Lloyd and Nancy Landman, and Lilly A. Shirley on behalf of themselves and the proposed Settlement Class, Michael I. Goldberg, as Trustee for Woodbridge Liquidation Trust, and Comerica Bank. | | | | Certification of Liquidation Trustee pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | Certification of Liquidation Trustee pursuant to 18 U.S.C. 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | Findings of Fact, Conclusions of Law, and Order Confirming the First Amended Joint Chapter 11 Plan of Liquidation of Woodbridge Group of Companies, LLC and its Affiliated Debtors, entered October 26, 2018, incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on October 25, 2019. | | | XBRL | |
*Filed herewith
Woodbridge Liquidation Trust Index to Consolidated Financial Statements
| Page | Index to Consolidated Financial Statements | F-1
| Audited Consolidated Financial Statements | | As of and For the year endedYears Ended June 30, 20202021 and the period from February 15, 2019 (inception) through June 30, 2019: 2020: |
| Report of Independent Registered Public Accounting Firm | F-1F-2 | Consolidated Statements of Net Assets in Liquidation as of June 30, 20202021 and 20192020 | F-2F-3 | Consolidated Statements of Changes in Net Assets in Liquidation for the year endedYears Ended June 30, 20202021 and the period from February 15, 2019 (inception) through June 30, 20192020 | F-3F-4 | Notes to Consolidated Financial Statements | F-4F-5 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMREPORT of INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Supervisory Board and Liquidation Trustee of Woodbridge Liquidation Trust and Subsidiaries
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of net assets in liquidation of Woodbridge Liquidation Trust and subsidiaries (the “Company”)Company) as of June 30, 20202021 and 2019,2020, the related consolidated statements of changes in net assets in liquidation for the yearyears ended June 30, 20202021 and for the period from February 15, 2019 (inception) through June 30, 2019,2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the net assets in liquidation of the Company as of June 30, 20202021 and 2019,2020, and the changes in net assets in liquidation for the yearyears ended June 30, 20202021 and for the period from February 15, 2019 (inception) through June 30, 2019,2020, in conformity with U.S.accounting principles generally accepted accounting principlesin the United States of America applied on the basis described below.
As described in Note 2, these consolidated financial statements have been prepared on the liquidation basis of accounting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Squar MilnerBaker Tilly US, LLP
We have served as the Company’s auditorauditors since 2019.
Irvine, California
September 25, 202024, 2021
PART I. FINANCIAL INFORMATION Item 1. Financial Statements
Item 1. | Financial Statements |
Woodbridge Liquidation Trust and Subsidiaries
Consolidated Statements of Net Assets in Liquidation As of June 30, 20202021 and 2019 2020
| | 6/30/2020 | | | 6/30/2019 | | | | | | | | | Assets | | | | | | | Real estate held for sale, net (Note 3): | | | | | | | Single-family homes under development | | $ | 143,585 | | | $ | 265,340 | | Real estate available for sale | | | 145,752 | | | | 216,336 | | Subtotal | | | 289,337 | | | | 481,676 | | | | | | | | | | | Cash and cash equivalents | | | 86,073 | | | | 34,998 | | | | | | | | | | | Restricted cash (note 4) | | | 5,358 | | | | 3,364 | | | | | | | | | | | Other assets (note 5) | | | 4,183 | | | | 2,436 | | | | | | | | | | | Total assets | | $ | 384,951 | | | $ | 522,474 | | | | | | | | | | | Liabilities | | | | | | | | | Accounts payable and accrued expenses | | $ | 615 | | | $ | 441 | | Distribution payable | | | 2,368 | | | | 1,814 | | Accrued liquidation costs (Note 6) | | | 117,451 | | | | 190,248 | | | | | | | | | | | Total Liabilities | | $ | 120,434 | | | $ | 192,503 | | | | | | | | | | | Commitments and contingencies (Note 12) | | | | | | | | | | | | | | | | | | Net Assets in Liquidation | | $ | 264,517 | | | $ | 329,971 | |
| | 6/30/2021 | | | 6/30/2020 | | | | | | | | | Assets | | | | | | | Real estate assets held for sale, net (Note 3): | | | | | | | Single-family homes | | $ | 137,945 | | | $ | 281,296 | | Other real estate assets | | | 2,910 | | | | 8,041 | | Subtotal | | | 140,855 | | | | 289,337 | | Cash and cash equivalents | | | 45,369 | | | | 86,073 | | Restricted cash (Note 4) | | | 8,273 | | | | 5,358 | | Other assets (Note 5) | | | 5,473 | | | | 4,183 | | Total assets | | $ | 199,970 | | | $ | 384,951 | | | | | | | | | | | Liabilities | | | | | | | | | Accounts payable and accrued liabilities | | $ | 160 | | | $ | 615 | | Distributions payable | | | 4,687 | | | | 2,368 | | Accrued liquidation costs (Note 6) | | | 65,583 | | | | 117,451 | | Total liabilities | | $ | 70,430 | | | $ | 120,434 | | Commitments and Contingencies (Note 13) | | | | | | | | | | | | | | | | | | Net Assets in Liquidation: | | | | | | | | | Restricted for Qualifying Victims (Note 7) | | | 3,167 | | | | - | | All Interestholders | | | 126,373 | | | | 264,517 | | | | | | | | | | | Total net assets in liquidation | | $ | 129,540 | | | $ | 264,517 | |
See accompanying notes to consolidated financial statements.
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (Continued)
Item 1. | Financial Statements (Continued)
|
Woodbridge Liquidation Trust and Subsidiaries
Consolidated Statements of Changes in Net Assets in Liquidation For the YearYears Ended June 30, 2020 2021 and the Period from February 15, 2019 (inception) through June 30, 2019 2020
($ in Thousands)
| | Year Ended June 30, 2020 | | | Period From February 15, 2019 (inception) Through June 30, 2019 | | | | | | | | | Net Assets in Liquidation as of beginning of period | | $ | 329,971 | | | $ | - | | | | | | | | | | | Net assets contributed on February 15, 2019 (Note 1) | | | - | | | | 383,492 | | | | | | | | | | | Change in assets and liabilities (Note 7): | | | | | | | | | Change in carrying value of assets and liabilities, net | | | 11,334 | | | | (8,835 | ) | Distributions declared, net | | | (76,788 | ) | | | (44,686 | ) | Net change in assets and liabilities | | | (65,454 | ) | | | (53,521 | ) | | | | | | | | | | Net Assets in Liquidation as of end of period | | $ | 264,517 | | | $ | 329,971 | |
| | Year Ended June 30, 2021 | | | Year Ended June 30, 2020 | | | | Restricted For Qualitying Victims | | | All Interestholders | | | Total | | | Restricted For Qualifying Victims | | | All Interestholders | | | Total | | | | | | | | | | | | | | | | | | | | | Net Assets in Liquidation as of beginning of year | | $ | - | | | $ | 264,517 | | | $ | 264,517 | | | $ | - | | | $ | 329,971 | | | $ | 329,971 | | | | | | | | | | | | | | | | | | | | | | | | | | | Change in assets and liabilities (Note 8): | | | | | | | | | | | | | | | | | | | | | | | | | Restricted for Qualifying Victims - | | | | | | | | | | | | | | | | | | | | | | | | | change in carrying value of assets and liabilities, net | | | 3,167 | | | | - | | | | 3,167 | | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | All Interestholders: | | | | | | | | | | | | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | | - | | | | 644 | | | | 644 | | | | - | | | | 11,334 | | | | 11,334 | | Distributions (declared) reversed, net | | | - | | | | (138,788 | ) | | | (138,788 | ) | | | - | | | | (76,788 | ) | | | (76,788 | ) | Net change in assets and liabilities | | | - | | | | (138,144 | ) | | | (138,144 | ) | | | - | | | | (65,454 | ) | | | (65,454 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Net Assets in Liquidation as of end of year | | $ | 3,167 | | | $ | 126,373 | | | | 129,540 | | | $ | - | | | $ | 264,517 | | | $ | 264,517 | |
See accompanying notes to consolidated financial statements.
PART I.FINANCIAL INFORMATION (CONTINUED)
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2020 and 2019
|
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial StatementsAs of June 30, 2021 and 2020
| 1) | Formation, Organization and Description of Business |
Formation
Woodbridge Liquidation Trust (Trust) was established (i) for the purpose of collecting, administering, distributing and liquidating the Trust assets for the benefit of the Trust beneficiaries in accordance with the Liquidation Trust Agreement and the First Amended Joint Chapter 11 Plan of Liquidation of Woodbridge Group of Companies, LLC and Its Affiliated Debtors dated August 22, 2018 (as amended, modified, supplemented or restated from time to time; the (Plan)); (ii) to resolve disputed claims asserted against the Debtors; (iii) to litigate and/or settle causes of action (Causes of Action); and (iv) to pay certain allowed claims and statutory fees, as required by the Plan. Woodbridge Group of Companies, LLC and its affiliated debtors are individually referred to herein as a Debtor and collectively as Debtors. The Trust was formed on February 15, 2019 (Plan Effective Date) as a statutory trust under Delaware law.
On the Plan Effective Date, in accordance with the Plan, (a) the following assets automatically vested in the Trust: (i) an aggregate $5,000,000 in cash from the Debtors for the purpose of funding the Trust’s initial expenses of operation; (ii) certain claims and Causes of Action; (iii) all of the outstanding equity interests of the Wind-Down Entity (as defined below); and (iv) certain other non-real estate related assets, (b) the equity interests of Woodbridge Group of Companies, LLC and Woodbridge Mortgage Investment Fund 1, LLC (together, the Remaining Debtors) were cancelled and new equity interests representing all of the newly issued and outstanding equity interests in the Remaining Debtors were issued to the Trust, (c) all of the other Debtors other than the Remaining Debtors were dissolved and (d) the real estate-related assets of the Debtors were automatically vested in the Trust’s wholly-owned subsidiary, Woodbridge Wind-Down Entity LLC (Wind-Down Entity) or one of the Wind-Down Entity’s 43 wholly-owned single member LLCs (Wind-Down Subsidiaries) formed to own the respective real estate assets. The Trust, the Remaining Debtors, the Wind-Down Entity and the Wind-Down Subsidiaries are collectively referred to herein as the Company.
As further discussed in Note 10, the Trust has two classes of liquidation trust interests, Class A Liquidation Trust Interests (Class A Interests) and Class B Liquidation Trust Interests (Class B Interests). The holders of Class A Interests and Class B Interests are collectively referred to as All Interestholders.
On December 24, 2019, the Trust’s Registration Statement on Form 10 became effective under the Securities Exchange Act of 1934 (Exchange Act). The trading symbol for the Trust’s Class A Liquidation Trust Interests (Class A Interests) is WBQNL. The Trust’s Class A Interests are quoted on the OTC Link ATS, the SEC-registered alternative trading system. The Class A Interests are eligible for the Depository Trust Company’s Direct Registration (DRS) services. The Class B Interests are not registered with the SEC.
Organization
The Trust does not have directors or executive officers. All of the management and executive authority of the Trust resides with the liquidation trustee,Liquidation Trustee, subject to the supervision of a six-member supervisory board. The Wind-Down Entity is separately managed by its three-member board of managers, one of whom is the chief executive officer.
There are two classes of Trust beneficiaries, Class A Liquidation Trust Interests (Class A Interests) and Class B Liquidation Trust Interests (Class B Interests), collectively, the Liquidation Trust Interests. The Liquidation Trust Interests are non-voting. The holders of the Class A Interests and the Class B Interests have the same rights, except with respect to certification, transferability and payment of distributions. See Note 10 regarding the priority and manner of distribution of available cash.
The Wind-Down Entity, from time to time, will make distributions to the Trust, as available. The Trust will in turn make distributions, from time to time, to the Trust beneficiaries, as available.
PART I.FINANCIAL INFORMATION (CONTINUED)
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued)
|
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial StatementsAs of June 30, 2021 and 2020
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2020 and 2019
| The Trust will be terminated upon the first to occur of (i) the making of all distributions required to be made and a determination by the liquidation trusteeLiquidation Trustee that the pursuit of additional causes of action held by the Trust is not justified or (ii) February 15, 2024. However, the bankruptcy court may approve an extension of the term if deemed necessary to facilitate or complete the recovery on, and liquidation of, the Trust assets. ThePursuant to the Wind-Down Entity’s Limited Liability Company Agreement, the Wind-Down Entity will be dissolvedshall dissolve upon the completionfirst to occur of the liquidationfollowing: (i) the written consent of its assets.
the Trust, (ii) the entry of a decree of judicial dissolution under Section 18-802 of the Delaware LLC Act and (iii) the sale or other disposition of all of the Wind-Down Assets.Description of Business
The Trust is prosecuting various Causes of Action acquired by the Trust pursuant to the Plan and is resolving claims asserted against the Debtors.
As of June 30, 2020, the Wind-Down Subsidiaries are constructing nine single-family homes, primarily located in Los Angeles, California, including one single-family home that was sold in February 2020 that the Company has an obligation to complete but was still under construction at June 30, 2020. The Wind-Down Subsidiaries also own real estate that is available for sale, including single-family homes and lots located in Los Angeles, California, secured loans (performing and non-performing) and other properties in other states.
The Company is required to liquidate its assets and distribute available cash to the Trust beneficiaries. The liquidation activities are carried out by the Trust, the Wind-Down Entity and the Wind-Down Subsidiaries. As discussed in Note 2, the Company uses the Liquidation Basis of Accounting. The Trust currently operates as one reportable segment comprised primarily of real estate assets held for sale.
Net assets recorded by the Company as of the Plan Effective Date of February 15, 2019 were composed of the following ($ in thousands):
Assets | | | |
Real estate assets held for sale: | | | |
Single-family homes under development | | $ | 361,000 | |
Real estate assets available for sale: | | | | |
Single-family homes | | | 186,119 | |
Lots | | | 45,910 | |
Secured loans | | | 9,707 | |
Other properties | | | 15,392 | |
| | | 257,128 | |
| | | | |
Real estate assets held for sale | | | 618,128 | |
Closing and other costs | | | (35,418 | ) |
Real estate assets held for sale, net | | | 582,710 | |
Cash | | | 36,020 | |
Restricted cash | | | 317 | |
Other assets | | | 2,297 | |
Total assets | | $ | 621,344 | |
| | | | |
Liabilities | | | | |
Accounts payable and accrued expenses | | $ | 5,785 | |
Accrued liquidation costs | | | 232,067 | |
Total liabilities | | $ | 237,852 | |
| | | | |
Net Assets in Liquidation | | $ | 383,492 | |
Net assets in liquidation represent the remaining estimated aggregate value available to Trust beneficiaries upon liquidation, with no discount for the timing of proceeds (undiscounted). Due to the unpredictability of real estate market values, as well as the uncertainty in the timing of liquidation of the real estate and other assets, net liquidation proceeds, other recoveries and actual liquidation costs may differ materially from the estimated amounts. As of June 30, 2020,2021, the Company is the plaintiff in several pending lawsuits. The Company is unable to estimate the amount of recovery, if any, related to this litigation. During the yearyears ended June 30, 2021 and 2020, and the period from February 15, 2019 (inception) to June 30, 2019,Company recorded settlement recoveries of approximately $9,839,000 and $5,323,000, and $1,637,000, respectively, were recorded.from the settlement of Causes of Action. The Company has accrued an estimate of the amount of legal costs to be incurred to pursue this litigation, excluding contingent fees. As more fully discussed in Note 2, the Company’s consolidated financial statements do not include any estimate of future net recoveries from litigation and settlement, since the Company cannot reasonably estimate them.
As of June 30, 2021, the Wind-Down Subsidiaries owned seven single-family homes, all except one are located in Los Angeles, California. One single-family home was listed for sale and six single family homes were under construction as of June 30, 2021. The Wind-Down Subsidiaries also own secured loans (performing and non-performing) and other properties located in other states.
The Company is required to liquidate its assets and distribute available cash to the Trust beneficiaries. The liquidation activities are carried out by the Trust, the Wind-Down Entity and the Wind-Down Subsidiaries. As of June 30, 2021, the Company estimates that the liquidation activities will be completed by February 15, 2024. As discussed in Note 2, the Company uses the Liquidation Basis of Accounting. The Trust currently operates as one reportable segment activities comprised primarily of real estate assets held for sale.
Net assets in liquidation represent the remaining estimated aggregate value available to Trust beneficiaries upon liquidation, with no discount for the timing of proceeds (undiscounted). Due to the unpredictability of real estate selling prices, the impact of the COVID-19 virus (see below), as well as the uncertainty in the timing of liquidation of the real estate and other assets, net liquidation proceeds, other recoveries and actual liquidation costs may differ materially from the estimated amounts.
The Trust’s expectations about the amount of any additional distributions and when they will be paid are subject to risks and uncertainties and are based on certain estimates and assumptions, one or more of which may prove to be incorrect. As a result, the actual amount of any additional distributions may differ materially, perhaps in adverse ways, from the Trust estimates. Furthermore, it is not possible to predict the timing of any additional distributions and such distributions may not be made within the timing referenced in the consolidated financial statements.
No assurance can be given that total distributions will equal or exceed the estimate of net assets in liquidation presented in the consolidated statements of net assets in liquidation.
As a result of the COVID-19 outbreak, three of the Wind-Down Subsidiaries construction sites were closed for about three months.months during the summer of 2020. One construction site was closed for about two weeks in late December 2020. The Company continues to observe health and safety guidelines, including allowing its employees to work remotely. The Company will continue to evaluate the impact of the COVID-19 outbreak on its activities, including the cost of construction, and the timing of completion of the single-family homes that are under construction. The Company will also continue to evaluate the impact of these events onconstruction, the time needed to market and sell the single-family homes and the price at which these single-family homes will be sold.
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued)
|
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial StatementsAs of June 30, 2021 and 2020
The ultimate impact of the COVID-19 outbreak will depend on many factors, some of which cannot be foreseen, including the duration, severity, and geographic concentrations of the pandemic and any resurgence of the disease; the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in the markets in which our real estate assets are located; the development and availability of COVID-19 infection and antibody testing, therapeutic agents and vaccines and the prioritization of such resources among businesses and demographic groups; government financial and regulatory relief efforts that may become available to businesses and individuals; and changes in unemployment rates, consumer confidence and equity markets caused by COVID-19.disease.
| 2) | Summary of Significant Accounting Policies |
Basis of Presentation and Consolidation
The accompanying consolidated financial statements of the Company have been prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). These consolidated financial statements have been presented in accordance with Accounting Standards Codification (ASC) Subtopic 205-30, “Liquidation Basis of Accounting,” as amended by, Accounting Standards Update (ASU) No. 2013-07, “Presentation of Financial Statements (Topic 205), Liquidation Basis of Accounting.”
All material intercompany accounts and transactions have been eliminated.
Use of Estimates
U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and for the period then ended. Actual results could differ from these estimates. Estimates and assumptions are reviewed periodically, and the carrying amounts of assets and liabilities are revised in the period that available information supports a change in the carrying amount.
Liquidation Basis of Accounting
Under the Liquidation Basis of Accounting, all assets are recorded at their estimated net realizable value or liquidation value, which represents the estimated amount of net cash that will be received upon the disposition of the assets (on an undiscounted basis). The measurement of real estate assets held for sale is based on current contracts (if any), estimates and other indications of sales value, net of estimated selling costs. To determine the value of real estate assets held for sale, the Company considered the three traditional approaches to value (cost, income and sales comparison) commonly used by the real estate appraisal community. The applicability and relevancy of each valuation approach as applied may differ by asset. In most cases, the sales comparison approach was accorded the greatest weight. This approach compares a property to other properties with similar characteristics that have recently sold. To validate management’s estimate, the Company also considers opinions from qualified real estate professionals and local real estate brokers and, in some cases, obtained third party appraisals. The estimated selling costs range from 5.0% to 6.5%.
Liabilities, including estimated costs associated with implementing and completing the Plan, are measured in accordance with U.S. GAAP that otherwise applies to those liabilities. The Company has also recorded the estimated development costs to be incurred to prepare the assets for sale as well as the estimated holding costs to be incurred until the projected sale date and the estimated general and administrative costs to be incurred until the completion of the liquidation of the Company. When estimating development costs, the Company considered third party construction contracts and estimates of costs to complete based on construction status, progress and projected completion timing. Estimated development costs also include the costs of design and furnishings necessary to prepare and stage the homes for marketing. Holding cost estimates consider property taxes, insurance, utilities, maintenance and other costs to be incurred until the sale of the property is closed. Projected general and administrative cost estimates take into account operating costs through the completion of the liquidation of the Company.
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued)
|
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial StatementsAs of June 30, 2021 and 2020
These estimated amounts are presented in the accompanying consolidated statements of net assets in liquidation included in the consolidated financial statements.liquidation. All changes in the estimated liquidation value of the Company’s real estate held for sale, or other assets and liabilities are reflected as a change to the Company’s net assets in liquidation.
The Company has not recorded any amount from the future settlement of Unresolved Causes of Action fair funds or forfeited assetsrecoveries from Fair Fund or Forfeited Assets in the accompanying consolidated financial statements since they cannot be reasonably estimated. The amount recovered may be material to the Company’s net assets in liquidation.
On a quarterly basis, the Company reviews the estimated net realizable values, and liquidation costs and the estimated date of the completion of the liquidation of the Company and records any significant changes. The Company will also revalue an asset when it is under contract for sale and the buyer’s contingencies have been removed. During the period when this occurs, the carrying value of the asset and the estimated closing and other costs will be adjusted, if necessary. If the Company has a change in its plan for the disposition of an asset, the carrying value will be adjusted to reflect this change in the period that the change is approved. The change in value may include the accrued liquidation costs related to the asset.
Other Assets
The Company recognizes recoveries from the settlement of Unresolved Causes of Action when an agreement is executed and collectability is reasonably assured. An allowance for uncollectible settlement installment receivables is recorded when there is doubt about the collectability of the receivable. Insurance claims are recognized when the insurance company accepts the claim or if a claim is pending and the recoverable amount can be estimated. The Company records escrow receivables at the amount that is expected to be received when the escrow receivable is released. The Forfeited Assets (Note 7) received from the United States Department of Justice (DOJ), other than cash, have been recorded at their estimated net realizable value. In addition, the Company recognizes other amounts to be received based on contractual terms or when the amounts to be received are certain.
Accrued Liquidation Costs
The Company accrues for estimated liquidation costs to the extent they are reasonably determinable. These costs consist of (a) estimated development costs of the single-family homes under development, other project relatedproject-related costs, architectural and engineering, project management, city fees, bond payments (net of refunds), furnishings, marketing and other costs; (b) estimated holding costs, including property taxes, insurance, maintenance, utilities and other; and (c) estimated general and administrative costs including payroll, legal and other professional fees, trustee and board fees, rent and other office related expenses, interest on financing and other general and administrative costs to operate the Company.
Cash Equivalents
The Company considers short-term investments that have a maturity date of ninety days or less at the time of investment to be a cash equivalent. The Company’s cash equivalents include money market savings deposits and money market funds.
Restricted Cash
Restricted cash includes cash that can only be used for certain specified purposes.
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued)
|
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial StatementsAs of June 30, 2021 and 2020
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and restricted cash. At times, balances in any one financial institution may exceed the Federal Deposit Insurance Corporation insurance limits. The Company believes it mitigates this risk by depositing its cash, cash equivalents and restricted cash in high-credit quality financial institutions. In addition, the Company uses strategies to reduce deposits balances at any one financial institution consistent with FDIC insurance limits.
Income Taxes
The Trust is intended to be treated as a grantor trust for income tax purposes and, accordingly, is not subject to federal or state income tax on any income earned or gain recognized by the Trust. The Trust’s beneficiaries will be treated as the owner of a pro ratapro-rata portion of each asset, including cash and each liability received by and held by the Trust, and eachTrust. Each beneficiary will be required to report on his or her federal and state income tax return his or her pro ratapro-rata share of taxable income, including gains and losses recognized by the Trust. Accordingly, there is no provision for federal or state income taxes recorded in the accompanying consolidated financial statements.
The Company regularly analyzes its various federal and state filing positions and only recognizes the income tax effect in the consolidated financial statements when certain criteria regarding uncertain income tax positions have been met. The Company believes that its income tax positions would be more likely than not be sustained upon examination by all relevant taxing authorities. Therefore, no provision for uncertain income tax positions has been recorded in the consolidated financial statements.
Net Assets in Liquidation - Restricted for Qualifying Victims
The Company separately presents the portion of net assets in liquidation that are restricted for Qualifying Victims (Note 7) from the net assets in liquidation that are available to All Interestholders.
| 3) | Real Estate Assets Held for Sale, Net |
The Company’s real estate assets held for sale as of June 30, 20202021 and 2019,2020, are as follows ($ in thousands):
| | June 30, 2021
| | | June 30, 2020 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Assets | | | Gross Value | | | Closing and Other Costs | | | Net Value | | | Number of Assets | | | Gross Value | | | Closing and Other Costs | | | Net Value | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Single-family homes | | | 7 | | | $ | 146,750 | | | $ | (8,805 | ) | | $ | 137,945 | | | | 13 | | | $ | 298,368 | | | $ | (17,072 | ) | | $ | 281,296 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other real estate assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Lots | | | 0 | | | | - | | | | - | | | | - | | | | 2 | | | | 3,500 | | | | (193 | ) | | | 3,307 | |
Secured loans | | | 4 | | | | 1,945 | | | | (87 | ) | | | 1,858 | | | | 4 | | | | 1,984 | | | | (86 | ) | | | 1,898 | |
Other properties | | | 2 | | | | 1,107 | | | | (55 | ) | | | 1,052 | | | | 13 | | | | 3,018 | | | | (182 | ) | | | 2,836 | |
Subtotal | | | 6 | | | | 3,052 | | | | (142 | ) | | | 2,910 | | | | 19 | | | | 8,502 | | | | (461 | ) | | | 8,041 | |
| | | | | | | | | | | | | | | | | | | | | �� | | | | | | | | | | | |
Total | | | 13 | | | $ | 149,802 | | | $ | (8,947 | ) | | $ | 140,855 | | | | 32 | | | $ | 306,870 | | | $ | (17,533 | ) | | $ | 289,337 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | | June 30, 2019 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Assets | | | Gross Value | | | Closing and Other Costs | | | Net Value | | | Number of Assets | | | Gross Value | | | Closing and Other Costs | | | Net Value | |
Single-family homes under development | | | 8 | | | $ | 152,750 | | | $ | (9,165 | ) | | $ | 143,585 | | | | 14 | | | $ | 282,000 | | | $ | (16,660 | ) | | $ | 265,340 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate assets available for sale: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Single-family homes | | | 5 | | | | 145,618 | | | | (7,907 | ) | | | 137,711 | | | | 11 | | | | 193,701 | | | | (10,823 | ) | | | 182,878 | |
Lots | | | 2 | | | | 3,500 | | | | (193 | ) | | | 3,307 | | | | 35 | | | | 16,755 | | | | (1,097 | ) | | | 15,658 | |
Secured loans | | | 4 | | | | 1,984 | | | | (86 | ) | | | 1,898 | | | | 20 | | | | 5,581 | | | | (279 | ) | | | 5,302 | |
Other properties | | | 13
| | | | 3,018 | | | | (182 | ) | | | 2,836 | | | | 15 | | | | 13,290 | | | | (792 | ) | | | 12,498 | |
Subtotal | | | 24
| | | | 154,120 | | | | (8,368 | ) | | | 145,752 | | | | 81 | | | | 229,327 | | | | (12,991 | ) | | | 216,336 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 32
| | | $ | 306,870 | | | $ | (17,533 | ) | | $ | 289,337 | | | | 95 | | | $ | 511,327 | | | $ | (29,651 | ) | | $ | 481,676 | |
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued)
|
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial StatementsAs of June 30, 2021 and 2020
The single-family homes, under development, except one, are located in the Los Angeles, California area. Of the real estate assets available for sale, allAs of June 30, 2021, one of the single-family homes are located in the Los Angeles, California area. The lots are located in Los Angeles, California.was listed for sale and six were under construction. The loans are secured by properties located primarily in the Midwest and Easterneastern United States. The other properties are located primarily in the states of Hawaii and the Midwest United States.New York.
During the year ended June 30, 2021, the Company sold six single-family homes, two lots and eleven other properties for net proceeds of approximately $134,159,000. During the year ended June 30, 2020, the Company
sold twelve single-family homes, 33 lots,
two other properties and settled three secured loans
and sold two other properties for net proceeds of approximately $201,333,000. As a result of the lack of interest during the auction process, the Wind-Down Entity will no longer be pursuing recoveries related to 13 secured loans.
During the period from February 15, 2019 (inception) through June 30, 2019, the Company sold five single-family homes, 58 lots, three other properties and settled two secured loans for net proceeds of approximately $80,030,000.
The Company’s restricted cash as of June 30, 20202021 and 2019,2020, is as follows ($ in thousands):
| | June 30, 2020 | | | June 30, 2019 | |
| | | | | | |
Distributions restricted by the Company related to unresolved claims, uncashed distribution checks, distributions for recently allowed claims, distributions withheld due to pending avoidance actions and distributions that the Trust is waiting for further beneficiary information | | $ | 2,372 | | | $ | 1,810 | |
| | | | | | | | |
Interest reserve (note 8) | | | 1,750 | | | | - | |
| | | | | | | | |
Fair funds, legally restricted for distribution | | | 1,236 | | | | 1,237 | |
| | | | | | | | |
Other | | | - | | | | 317 | |
| | | | | | | | |
Total restricted cash | | $ | 5,358 | | | $ | 3,364 | |
| | June 30, 2021 | | | June 30, 2020 | |
| | | | | | |
Distributions restricted by the Company related to unresolved claims, distributions for recently allowed claims, uncashed distribution checks, distributions withheld due to pending avoidance actions and distributions that the Trust is waiting for further beneficiary information | | $ | 4,687 | | | $ | 2,372 | |
Forfeited Assets (Note 7) | | | 1,836 | | | | - | |
Interest reserve (Note 9) | | | 1,750 | | | | 1,750 | |
Fair Funds, legally restricted for distribution | | | - | | | | 1,236 | |
Total restricted cash | | $ | 8,273 | | | $ | 5,358 | |
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued)
|
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial StatementsAs of June 30, 2021 and 2020
The Company’s other assets as of June 30, 20202021 and 2019,2020, are as follows ($ in thousands):
| | June 30, 2020 | | | June 30, 2019 | |
| | | | | | |
Insurance claim receivable | | $ | 1,900 | | | $ | 1,900 | |
| | | | | | | | |
Escrow receivables (1) | | | 1,500 | | | | - | |
| | | | | | | | |
Settlement installment receivables | | | 575 | | | | 518 | |
| | | | | | | | |
Other | | | 208 | | | | 18 | |
| | | | | | | | |
Total other assets | | $ | 4,183 | | | $ | 2,436 | |
| | June 30, 2021 | | | June 30, 2020 | |
| | | | | | |
Escrow receivables (a) | | $ | 2,500 | | | $ | 1,500 | |
Forfeited Assets (Note 7) | | | 1,549 | | | | - | |
Settlement installment receivables, net (b) | | | 1,014 | | | | 575 | |
Insurance claim receivable (c) | | | - | | | | 1,900 | |
Other | | | 410 | | | | 208 | |
Total other assets | | $ | 5,473 | | | $ | 4,183 | |
(a) | Escrow holdbacks relating to one and two single-family homes sold prior to June 30, 2021 and 2020, respectively. Amounts are to be released upon completion of construction and obtaining a certificate of occupancy. |
(b) | The allowance for uncollectible settlement installment receivables was approximately $9,000 and $40,000 at June 30, 2021 and 2020, respectively. |
(c) | During the year ended June 30, 2021, the insurance claim receivable was adjusted as a result of a negative court ruling on March 25, 2021. |
(1) Escrow holdbacks relating to two single-family homes that were sold; amounts to be released upon completion of repairs and construction.
PART I.FINANCIAL INFORMATION (CONTINUED)
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2020 and 2019
|
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial StatementsAs of June 30, 2021 and 2020
| 6) | Accrued Liquidation Costs |
The following is a summary of accrued liquidation costs as of June 30, 20202021 and 20192020 ($ in thousands):
| | June 30, 2020 | | | June 30, 2019 | | | June 30, 2021 | | | June 30, 2020 | |
Development costs: | | | | | | | | | | | |
Construction costs | | $ | 67,204 | | $ | 115,947 | | | $ | 23,480 | | | $ | 67,204 | |
Construction warranty | | 2,870 | | 3,955 | | | | 2,870 | | | | 2,870 | |
Indirect costs | | 1,407 | | 2,112 | | | | 712 | | | | 1,407 | |
Bond refunds | | | (1,562 | ) | | | (2,152 | ) | | | (1,134 | ) | | | (1,562 | ) |
Total development costs | | | 69,919 | | | 119,862 | | | | 25,928 | | | | 69,919 | |
| | | | | | | | | | | | | |
Holding costs: | | | | | | | | | | | | | |
Property tax | | 5,918 | | 6,087 | | | | 1,901 | | | | 5,918 | |
Insurance | | 2,125 | | 6,345 | | | | 1,291 | | | | 2,125 | |
Maintenance, utilities and other | | | 1,518 | | | 2,508 | | | | 1,000 | | | | 1,518 | |
Total holding costs | | | 9,561 | | | 14,940 | | | | 4,192 | | | | 9,561 | |
| | | | | | | | | | | | | |
General and administrative costs: | | | | | | | | | | | | | |
Legal and other professional fees | | 17,588 | | 26,550 | | | | 17,697 | | | | 17,588 | |
Payroll and payroll related | | 13,425 | | 13,757 | | |
Payroll and payroll-related | | | | 10,432 | | | | 13,425 | |
State, local and other taxes | | 2,118 | | 6,062 | | | | 2,217 | | | | 2,118 | |
Board fees and expenses | | 1,725 | | 3,995 | | | | 1,558 | | | | 1,725 | |
Marketing | | 765 | | 1,583 | | |
Directors and officers insurance | | | | 2,576 | | | | 1,325 | |
Other | | | 2,350 | | | 3,499 | | | | 983 | | | | 1,790 | |
Total general and administrative costs | | | 37,971 | | | 55,446 | | | | 35,463 | | | | 37,971 | |
| | | | | | | | | | | | | |
Total accrued liquidation costs | | $ | 117,451 | | $ | 190,248 | | | $ | 65,583 | | | $ | 117,451 | |
PART I.FINANCIAL INFORMATION (CONTINUED)
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued)
|
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial StatementsAs of June 30, 2021 and 2020
In the fourth quarter of the year ended June 30, 2021, the Company determined that additional time may be needed to resolve its various Unresolved Causes of Action. An analysis was completed and the Company concluded that an additional year would be needed to carry out the Company’s liquidating activities. As a result, the Company accrued approximately $12,952,000 of additional general and administrative costs. The costs are primarily legal and administrative fees, payroll and payroll-related, directors and officers insurance and board fees and expenses.
Woodbridge Liquidation Trust and Subsidiaries7) | Forfeited Assets - Restricted for Qualifying Victims |
The Trust entered into a resolution agreement with the DOJ which provided that the Trust would receive the assets forfeited (Forfeited Assets) by Robert and Jeri Shapiro. The Bankruptcy Court approved the settlement on September 17, 2020 and the District Court approved the settlement on October 1, 2020.
The agreement provides for the release of specified Forfeited Assets by the DOJ to the Trust and for the Trust to liquidate those assets and distribute the net sale proceeds to Qualifying Victims. Qualifying Victims include the vast majority of Trust beneficiaries (specifically, all former holders of allowed Class 3 and 5 claims and their permitted assigns), but do not include former holders of Class 4 claims. Distributions to Qualifying Victims are allocated pro-rata based on their net allowed claims without considering the (i) 5% enhancement for contributing their causes of action and (ii) 72.5% Class 5 coefficient.
In March 2021, the Trust received certain Forfeited Assets from the DOJ, including cash, wine, jewelry, handbags, clothing, shoes, art, gold and other assets. The Company recorded the total estimated net realizable value of the Forfeited Assets of approximately $3,459,000. The Forfeited Assets included in the Company’s June 30, 2021 and 2020 consolidated financial statements are as follows ($ in thousands):
| | June 30, 2021 | | | June 30, 2020 | |
| | | | | | |
Restricted cash (Note 4) | | $ | 1,836 | | | $ | - | |
Other assets (Note 5) | | | 1,549 | | | | - | |
Accrued liquidation costs - legal and professional fees | | | (218 | ) | | | - | |
Net assets in liquidation - restricted for Qualifying Victims | | $ | 3,167 | | | $ | - | |
PART I.FINANCIAL INFORMATION (CONTINUED)
Notes to Consolidated Item 1. | Financial StatementsAs of June 30, 2020 and 2019
(Continued)
|
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial StatementsAs of June 30, 2021 and 2020
| 7)8) | Net Change In Assets and Liabilities |
Restricted for Qualifying Victims
The following is a summary of the change in the carrying value of assets and liabilities, net during the year ended June 30, 2021 ($ in thousands):
| | Cash Activities | | | Remeasure- ment | | | Total | |
| | | | | | | | | |
Real estate assets, net | | $ | - | | | $ | - | | | $ | - | |
Cash and cash equivalents | | | - | | | | - | | | | - | |
Restricted cash | | | 1,836 | | | | - | | | | 1,836 | |
Other assets | | | - | | | | 1,549 | | | | 1,549 | |
Total assets | | $ | 1,836 | | | $ | 1,549 | | | $ | 3,385 | |
| | | | | | | | | | | | |
Accounts payable and accrued liabilities | | $ | - | | | $ | - | | | $ | - | |
Accrued liquidation costs | | | - | | | | 218 | | | | 218 | |
Total liabilities | | $ | - | | | $ | 218 | | | $ | 218 | |
| | | | | | | | | | | | |
Change in carrying value of assets and liabilities, net | | $ | 1,836 | | | $ | 1,331 | | | $ | 3,167 | |
There was no activity relating to net assets restricted for Qualifying Victims during the year ended June 30, 2020.
All Interestholders
The following provides details of the change in carrying value of assets and liabilities, net during the year ended June 30, 2021 ($ in thousands):
| | Cash Activities | | | Remeasure- ment | | | Total | |
| | | | | | | | | |
Real estate assets, net | | $ | (134,196 | ) | | $ | (14,286 | ) | | $ | (148,482 | ) |
Cash and cash equivalents | | | 95,105 | | | | - | | | | 95,105 | |
Restricted cash | | | 1,680 | | | | - | | | | 1,680 | |
Other assets | | | (2,898 | ) | | | 2,698 | | | | (200 | ) |
Total assets | | $ | (40,309 | ) | | $ | (11,588 | ) | | $ | (51,897 | ) |
| | | | | | | | | | | | |
Accounts payable and accrued liabilities | | $ | (615 | ) | | $ | 160 | | | $ | (455 | ) |
Accrued liquidation costs | | | (49,760 | ) | | | (2,326 | ) | | | (52,086 | ) |
Total liabilities | | $ | (50,375 | ) | | $ | (2,166 | ) | | $ | (52,541 | ) |
| | | | | | | | | | | | |
Change in carrying value of assets and liabilities, net | | $ | 10,066
| | | $ | (9,422 | ) | | $ | 644 | |
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued)
|
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial StatementsAs of June 30, 2021 and 2020
The following provides details of the distributions declared, net during the year ended June 30, 2021 ($ in thousands):
Distributions declared | | $ | (139,956 | ) |
Distributions reversed | | | 1,168 | |
Distributions declared, net | | $ | (138,788 | ) |
Distributions payable increased by approximately $2,319,000 during the year ended June 30, 2021.
The following provides details of the change in carrying value of assets and liabilities, net during the year ended June 30, 2020 ($ in thousands):
| | Cash Activities | | Remeasure- ment | | Total | | | Cash Activities | | | Remeasure- ment | | | Total | |
| | | | | | | | | | | | | | | | |
Real estate assets, net | | $ | (201,576 | ) | | $ | 9,237 | | | $ | (192,339 | ) | | $ | (201,576 | ) | | $ | 9,237 | | | $ | (192,339 | ) |
| | | | | | | | | | | | | |
Cash and cash equivalents | | | 127,309 | | | | - | | | | 127,309 | | | | 127,309 | | | | - | | | | 127,309 | |
| | | | | | | | | | | | | |
Restricted cash | | | 1,994 | | | | - | | | | 1,994 | | | | 1,994 | | | | - | | | | 1,994 | |
| | | | | | | | | | | | | |
Other assets | | | (2,044 | ) | | | 3,791 | | | | 1,747 | | | | (2,044 | ) | | | 3,791 | | | | 1,747 | |
| | | | | | | | | | | | | |
Total assets | | $ | (74,317 | ) | | $ | 13,028 | | | $ | (61,289 | ) | | $ | (74,317 | ) | | $ | 13,028 | | | $ | (61,289 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable and accrued expenses | | $ | (704 | ) | | $ | 878 | | | $ | 174 | | |
| | | | | | | | | | | | | |
Accounts payable and accrued liabilities | | | $ | (704 | ) | | $ | 878 | | | $ | 174 | |
Accrued liquidation costs | | | (80,831 | ) | | | 8,034 | | | | (72,797 | ) | | | (80,831 | ) | | | 8,034 | | | | (72,797 | ) |
| | | | | | | | | | | | | |
Total liabilities | | $ | (81,535 | ) | | $ | 8,912 | | | $ | (72,623 | ) | | $ | (81,535 | ) | | $ | 8,912 | | | $ | (72,623 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Change in carrying value of assets and liabilities, net | | $ | 7,218 | | | $ | 4,116 | | | $ | 11,334 | | | $ | 7,218 | | | $ | 4,116 | | | $ | 11,334 | |
The following provides details of the distributions declared, net during the year ended June 30, 2020 ($ in thousands):
Distributions declared | | $ | (78,432 | ) |
Distributions reversed | | | 1,644 | |
Distributions declared, net | | $ | (76,788 | ) |
Distributions payable increased by approximately $554,000 during the year ended June 30, 2020.
ART I.FINANCIAL INFORMATION (CONTINUED)
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued)
|
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial StatementsAs of June 30, 2020 and 2019
The following provides details of the change in carrying value of assets and liabilities, net during the period from February 15, 2019 (inception) through June 30, 2019 ($ in thousands):
| | Cash Activities | | | Remeasure- ment | | | Total | |
| | | | | | | | | |
Real estate assets, net | | $ | (79,429 | ) | | $ | (21,605 | ) | | $ | (101,034 | ) |
| | | | | | | | | | | | |
Cash and cash equivalents | | | 41,850 | | | | - | | | | 41,850 | |
| | | | | | | | | | | | |
Restricted cash | | | 3,047 | | | | - | | | | 3,047 | |
| | | | | | | | | | | | |
Other assets | | | (59 | ) | | | 198 | | | | 139 | |
| | | | | | | | | | | | |
Total assets | | $ | (34,591 | ) | | $ | (21,407 | ) | | $ | (55,998 | ) |
| | | | | | | | | | | | |
Accounts payable and accrued expenses | | $ | (5,432 | ) | | $ | 88 | | | $ | (5,344 | ) |
| | | | | | | | | | | | |
Accrued liquidation costs | | | (32,747 | ) | | | (9,072 | ) | | | (41,819 | ) |
| | | | | | | | | | | | |
Total liabilities | | $ | (38,179 | ) | | $ | (8,984 | ) | | $ | (47,163 | ) |
| | | | | | | | | | | | |
Change in carrying value of assets and liabilities, net | | $ | 3,588 | | | $ | (12,423 | ) | | $ | (8,835 | ) |
The following provides details of the distributions declared, net during the period from February 15, 2019 (inception) through June 30, 2019 ($ in thousands):
Distributions declared | | $ | (44,697 | ) |
Distributions reversed | | | 11 | |
| | | | |
Distributions declared, net | | $ | (44,686 | ) |
Revolving Line of Credit
WB Propco, LLC, a subsidiary of the Wind-Down Entity had a revolving line of credit (LOC) with a financial institution which matured on May 1, 2020. The Wind-Down Entity was a guarantor under the LOC. Outstanding borrowings bore interest at the prime rate, provided however, that the interest rate could never be lower than 5.25% per annum. The LOC was not renewed or extended.
On June 19, 2020, two wholly-owned subsidiaries of the Wind-Down Entity entered into a $25,000,000 revolving line of credit (New LOC) with a different financial institution. The New LOC may be increased to up to $30,000,000 with the pledge of one or more additional properties and lender approval. The New LOC matures on June 19, 2022 but may be extended for one additional year thereafter. The New LOC requires the borrowers to establish an interest reserve of $1,750,000 (Note 4), which is to be used to pay the potential monthly interest payments. Outstanding borrowings bear interest at a fixed rate of 3.50% per annum. Indebtedness under the New LOC is secured by a deed of trust on one property, the personal property associated therewith and the interest reserve. The Wind-Down Entity is the guarantor of the New LOC. The Company is required to keep a cash balance of $20,000,000 on deposit with the lender in order to avoid a non-compliance fee of 2% of the shortfall in the required deposit and areis required to comply with various covenants.
The property that was collateral for the New LOC was sold in December 2020. The New LOC agreement provides that the borrower has 60 days after the sale of the collateral to add borrower(s) and additional property(ies) as collateral. During the 60-day period, the available borrowings under the New LOC were reduced to $100,000. On February 11, 2021, the New LOC was amended. Two additional wholly owned subsidiaries of the Wind-Down Entity were joined to the New LOC as co-borrowers and two properties were added as replacement collateral as allowed for in the original agreement. As a result of this amendment, the available borrowing commitment was adjusted back up to $25,000,000. The maturity date of the New LOC was changed to January 31, 2023 with an option to extend for one additional year, subject to the availability of collateral. There were no other significant changes to the New LOC.
As of June 30, 2021, the Company was in compliance with the financial covenants of the New LOC. No amounts were outstanding under the line of credit as of June 30, 2021 or 2020.
PPP Loan
On April 20, 2020, the Wind-Down Entity obtained unsecured credit in the form of a loan under the federal government’s Paycheck Protection Program (PPP) in the amount of $324,700. The loan bearsaccrued interest at a rate of 1.00% per annum. The loan matures onhad a maturity date of April 20, 2022. The Wind-Down Entity may apply for forgiveness of the amount due on the loan in an amount equal to the sum of the qualifying costs incurred by the Wind-Down Entity during the 24-week period beginning on the date of first disbursement of the loan (April 20, 2020). No payments are due on the loan for six months from the date of first disbursement of the loan (Deferment Period). Beginning on the tenth day of the first month after the expiration of the Deferment Period, the then outstanding balance of the loan must be repaid in equal monthly payments of principal and interest, to be fully amortized over the remaining term of the loan.
The Company expectsexpected to have 100% of the loan balance forgiven and therefore no amounts arewere accrued under the liquidation basis of accounting as of June 30, 2020. On February 16, 2021, the PPP loan and the related interest were forgiven.
ART I.FINANCIAL INFORMATION (CONTINUED)
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued)
|
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial StatementsAs of June 30, 2021 and 2020
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2020 and 2019
| 9)10) | Beneficial Interests |
The following table summarizes the Liquidation Trust Interests (rounded) for the
yearyears ended June 30,
20202021 and
2020:
| | Year ended June 30, 2021 | | | Year ended June 30, 2020 | |
Liquidation Trust Interests | | Class A | | | Class B | | | Class A | | | Class B | |
| | | | | | | | | | | | |
Outstanding at beginning of year | | | 11,518,232 | | | | 675,558 | | | | 11,433,623 | | | | 655,261 | |
Allowed claims | | | 11,967 | | | | 1,133 | | | | 88,549 | | | | 21,334 | |
5% enhancement for certain allowed claims | | | 182 | | | | 56 | | | | 459 | | | | 5 | |
Settlement by issuing Liquidation Trust Interests | | | - | | | | - | | | | 895 | | | | - | |
Settlement of claims by cancelling Liquidation Trust Interests | | | (17,526 | ) | | | (963 | ) | | | (5,210 | ) | | | (1,042 | ) |
Duplicate claim allowed in error | | | - | | | | - | | | | (84 | ) | | | - | |
Outstanding at end of year | | | 11,512,855 | | | | 675,784 | | | | 11,518,232 | | | | 675,558 | |
Of the period from February 15, 2019 (inception) through11,512,855 Class A Interests outstanding at June 30, 2019:2021, 11,437,377 are held by Qualifying Victims (Note 7).
| | | | | | |
| | Year ended June 30, 2020 | | | Period from February 15, 2019 (inception) through June 30, 2019 | |
| | | | | | |
Liquidation Trust Interests | | Class A | | | Class B | | | Class A | | | Class B | |
| | | | | | | | | | | | |
Outstanding at beginning of period | | | 11,433,623 | | | | 655,261 | | | | 11,284,423 | | | | 651,019 | |
| | | | | | | | | | | | | | | | |
Allowed claims | | | 88,549 | | | | 21,334 | | | | 144,654 | | | | 4,123 | |
| | | | | | | | | | | | | | | | |
5% enhancement for certain allowed claims | | | 459 | | | | 5 | | | | 4,546 | | | | 119 | |
| | | | | | | | | | | | | | | | |
Settlement by issuing Liquidation Trust Interests | | | 895 | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | |
Settlement of claims by reducing Liquidation Trust Interests | | | (5,210 | ) | | | (1,042 | ) | | | - | | | | - | |
| | | | | | | | | | | | | | | | |
Duplicate claim allowed in error | | | (84 | ) | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | |
Outstanding at end of period | | | 11,518,232 | | | | 675,558 | | | | 11,433,623 | | | | 655,261 | |
ART I.FINANCIAL INFORMATION (CONTINUED)
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued)
|
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial StatementsAs of June 30, 2021 and 2020
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2020 and 2019
At the Plan Effective Date, certain claims were disputed. As the claims are resolved, additional Class A Interests and (if applicable) Class B Interests are issued on account of allowed claims and no Class A Interests or Class B Interests are issued on account of disallowed claims. The following table summarizes the Trust’s unresolved claims against the Debtors as they relate to Liquidation Trust Interests (rounded) for the yearyears ended June 30, 20202021 and 2020:
| | Year ended June 30, 2021 | | | Year ended June 30, 2020 | |
Liquidation Trust Interests | | Class A | | | Class B | | | Class A | | | Class B | |
| | | | | | | | | | | | |
Reserved for unresolved claims at beginning of year | | | 193,559 | | | | 7,118 | | | | 482,734 | | | | 34,697 | |
Allowed claims | | | (11,967 | ) | | | (1,133 | ) | | | (88,549 | ) | | | (21,334 | ) |
5% enhancement for certain allowed claims | | | (32 | ) | | | - | | | | - | | | | - | |
Disallowed claims | | | (56,951 | ) | | | (974 | ) | | | (200,626 | ) | | | (6,245 | ) |
Reserved for unresolved claims at end of year | | | 124,609 | | | | 5,011 | | | | 193,559 | | | | 7,118 | |
Of the period from February 15, 2019 (inception) through124,609 Class A Interests relating to unresolved claims at June 30, 2019:2021, 24,916 would be held by Qualifying Victims (Note 7).
| | Year ended June 30, 2020 | | |
Period from February 15, 2019 (inception) through June 30, 2019 | |
| | | | | | |
Liquidation Trust Interests | | Class A | | | Class B | | | Class A | | | Class B | |
| | | | | | | | | | | | |
Reserved for unresolved claims at beginning of period | | | 482,734 | | | | 34,697 | | | | 634,733 | | | | 38,850 | |
| | | | | | | | | | | | | | | | |
Allowed claims | | | (88,549 | ) | | | (21,334 | ) | | | (144,654 | ) | | | (4,123 | ) |
| | | | | | | | | | | | | | | | |
Disallowed claims | | | (200,626 | ) | | | (6,245 | ) | | | (7,345 | ) | | | (30 | ) |
| | | | | | | | | | | | | | | | |
Reserved for unresolved claims at end of period | | | 193,559 | | | | 7,118 | | | | 482,734 | | | | 34,697 | |
The Plan provides for a distribution waterfall that specifies the priority and manner of distribution of available cash.cash to all Interestholders, excluding distributions of the net sales proceeds from Forfeited Assets. Distributions are to be made (a) to the Class A Interests until they have received distributions of $75.00 per Class A Interest; thereafter (b) to the Class B Interests until they have received distributions of $75.00 per Class B Interest; thereafter (c) to each Liquidation Trust Interest (whether a Class A Interest or Class B Interest) until the aggregate of all distributions made pursuant to this clause equals an amount equivalent to interest, at a per annum fixed rate of 10%, compounded annually, accrued on the aggregate principal amount of all Net Note Claims, Allowed General Unsecured Claims and Net Unit Claims, all as defined, treating each distribution pursuant to (a) and (b) above as reductions of such principal amount; and thereafter (d) to the holders of Allowed Subordinated Claims, as defined, until such claims are paid in full, including interest, at a per annum fixed rate of 10% or such higher rate as may be agreed to, as provided for in the Plan, compounded annually, accrued on the principal amount of each Allowed Subordinated Claim, as defined.
On March 15, 2019, a distribution in the amount of approximately $44,697,000 was declared which represented $3.75 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims in the amount of approximately $42,313,000 which was paid on March 26, 2019, and (ii) a deposit of approximately $2,384,000 into a restricted cash account, which was made on March 26, 2019, on account of distributionsfor amounts payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims.
On January 2, 2020, a distribution in the amount of approximately $53,426,000 was declared which represented $4.50 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims in the amount of approximately $51,188,000 which was paid on January 10, 2020, and (ii) a deposit of approximately $2,238,000 into a restricted cash account, which was made on January 10, 2020,
for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims, (b) in respect
toof Class A Interests issued on account of recently allowed claims (c)
tofor holders of Class A Interests who failed to cash distribution checks mailed in respect of the initial distribution (d)
for distributions that were withheld due to pending avoidance actions and (e)
thatfor holders of Class A Interests for which the Trust is waiting for further beneficiary information.
ART I.FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued)
|
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial StatementsAs of June 30, 2021 and 2020
On March 31, 2020, a distribution in the amount of approximately $25,000,000 was declared which represented $2.12 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims in the amount of approximately $24,193,000 which was paid on April 10, 2020, and (ii) a deposit of approximately $807,000 into a restricted cash account, which was made on April 10, 2020,
for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims, (b) in respect
toof Class A Interests issued on account of recently allowed claims (c)
tofor holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions (d)
for distributions that were withheld due to pending avoidance actions and (e)
thatfor holders of Class A Interests for which the Trust is waiting for further beneficiary information.
On July 13, 2020, a distribution of approximately $29,934,000 was declared which represented $2.56 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims of approximately $29,201,000, which was paid on July 16, 2020 and (ii) a deposit of approximately $733,000 into a restricted cash account, which was made on August 25, 2020, for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) for holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) for distributions that were withheld due to pending avoidance actions; and (e) for holders of Class A Interests for which the Trust is waiting for further beneficiary information.
On October 19, 2020, a distribution of approximately $29,957,000 was declared which represented $2.56 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims of approximately $29,204,000, which was paid on November 6, 2020 and (ii) a deposit of approximately $753,000 into a restricted cash account, which was made on November 3, 2020, for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) for holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) for distributions that were withheld due to pending avoidance actions; and (e) for holders of Class A Interests for which the Trust is waiting for further beneficiary information.
On January 7, 2021, a distribution of approximately $50,005,000 was declared which represented $4.28 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims of approximately $48,665,000, which was paid on January 27, 2021 and (ii) a deposit of approximately $1,340,000 into a restricted cash account, which was made on January 28, 2021, for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) for holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) for distributions that were withheld due to pending avoidance actions; and (e) for holders of Class A Interests for which the Trust is waiting for further beneficiary information.
On May 13, 2021, a distribution in the amount of approximately $30,014,000 was declared which represented $2.58 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims in the amount of approximately $29,328,000, which was paid on June 14, 2021 and (ii) a deposit of approximately $686,000 into a restricted cash account, which was made on June 16, 2021, for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) for holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) for distributions that were withheld due to pending avoidance actions; and (e) for holders of Class A Interests for which the Trust is waiting for further beneficiary information.
ART I.FINANCIAL INFORMATION (CONTINUED)
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued)
|
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial StatementsAs of June 30, 2021 and 2020
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2020 and 2019
Terry Goebel, a member of the Trust Supervisory Board, is president and a principal owner of G3 Group LA, a construction firm specializing in the development of high-end luxury residences. G3 Group LA is owned by Terry Goebel and his son Kelly Goebel. As of June 30, 2020,2021, the Company was under contract with G3 Group LA for the development of one single-family home in the Los Angeles area. One additional construction contract was assumed by the buyer of a single-family home in November 2019. As of June 30, 20202021 and 2019,2020, the remaining amounts payable under these contracts was approximately $8,133,000$4,391,000 and $16,689,000,$8,133,000, respectively. During the yearyears ended June 30, 2021 and 2020, approximately $7,341,000 and the period from February 15, 2019 (inception) through June 30, 2019, approximately $10,123,000, and $4,260,000, respectively, were paid by the Company to G3 Group of LA related to these contracts.
In November 2019, the Trust entered into an arrangement with Akerman LLP, a law firm based in Miami, Florida of which the liquidation trusteeLiquidation Trustee is a partner, for the provision, at the option of the Trust on an as-needed basis, of e-discovery and related litigation support services in connection with the Trust’s prosecution of the Causes of Action. Under the arrangement, the Trust is charged for the services at scheduled rates per task which, depending on specific task, include flat rates, rates based on volume of data processed, rates based on the number of data users, the hourly rates of Akerman LLP personnel, or other rates. As ofDuring the years ended June 30, 2021 and 2020, approximately $385,000 and $592,000, wasrespectively, were paid related to these services and there are no outstanding payables as of June 30, 2021 or 2020.
The Company has a lease for its office space that expires on August 31, 2021. The Company has one three-month option to extend the lease. The amount of rent paid, including common area maintenance and parking charges, during the years ended June 30, 2021 and 2020 was approximately $291,000 and $277,000, respectively. On June 4, 2021, the Company opted not to extend its existing lease and entered into a new office lease at a different location. The new lease is for the period from August 1, 2021 through July 31, 2022. The annual rent is approximately $43,000 plus common are maintenance charges. The Company has two six-month options to extend the lease. The Company paid approximately $55,000 relating to prepaid rent, common area maintenance charges and a security deposit for the new lease during the year ended June 30, 2020 and the period from February 15, 2019 (inception) through June 30, 2019 was approximately $277,000 and $90,000, respectively.2021
The Company is not presently the defendant in any material litigation nor, to the Company’s knowledge, is any material litigation threatened against the Company.
The Company is not aware of any environmental liabilities that it believes would have a material adverse effect on its net assets in liquidation.
The Company evaluates subsequent events up until the date the unaudited consolidated financial statements are issued.
The following table summarizes the Liquidation Trust Interests for the period from July 1, 2021 through September 24, 2021:
The following table summarizes unresolved claims against the Debtors as they relate to Liquidation Trust Interests (rounded) for the period from June 30, 2020July 1, 2021 through September 25, 2020:24, 2021: