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.agreement and collectability is reasonably assured.
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.
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 March 1, 2021, the Trustee filed a notice of appeal of the order granting fees and 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.
Other legal proceedings. In addition, other legal proceedings are beingwere prosecuted by the Trust and United States governmental authorities, which actions may resultresulted 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” 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.
Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Discussion of the Company’s Operations
Year ended June 30, 20202022
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
($2022 ($ 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 | |
| | Restricted For Qualifying Victims | | | | | | Total | |
| | | | | | | | | |
Net Assets in Liquidation as of beginning of year | | $ | 3,167 | | | $ | 126,373 | | | $ | 129,540 | |
| | | | | | | | | | | | |
Change in assets and liabilities: | | | | | | | | | | | | |
Restricted for Qualifying Victims - change in carrying value of assets and and liabilities, net | | | 318 | | | | - | | | | 318 | |
| | | | | | | | | | | | |
All Interestholders- | | | | | | | | | | | | |
Change in carrying value of assets and liabilities, net | | | - | | | | 47,602 | | | | 47,602 | |
Distributions (declared) reversed, net | | | - | | | | (143,065 | ) | | | (143,065 | ) |
Net change in assets and liabilities | | | - | | | | (95,463 | ) | | | (95,463 | ) |
| | | | | | | | | | | | |
Net Assets in Liquidation as of end of year | | $ | 3,485 | | | $ | 30,910 | | | $
| 34,395 | |
Net assets in liquidation decreasedLiquidation – Restricted for Qualifying Victims increased by approximately $65.45$0.32 million during the year ended June 30, 2020.2022.
Net assets in liquidation – All Interestholders decreased approximately $95.46 million during the year ended June 30, 2022. This decrease was due to changesan increase in the carrying value of assets and liabilities net of $11.33$47.60 million, net and distributions declared net of approximately $76.79$143.06 million, net (distributions declared of $78.43$145.04 million, less distributions reversed of $1.64$1.98 million for disallowed claims)claims and forfeited distributions). The components of the changes in carrying value of assets and liabilities, net are as follows ($ in thousands):
Settlement recoveries recognized, net | | $ | 5,061 | | |
| | | Restricted for Qualifying Victims | | | | Total | |
Causes of Action, net (1) : | | | | | | | | |
Comerica Bank | | | $ | - | | $ | 23,575 | | $
| 23,575 | |
Other settlement agreements | | | - | | 2,004 | | 2,004 | |
Sales proceeds in excess of carrying value | | 19,964 | | | 53 | | 20,130 | | 20,183 | |
Remeasurement of assets and liabilities, net | | (16,970 | ) | | 265 | | 1,016 | | 1,281 | |
Reduction of state, local and other taxes | | 2,890 | | |
Other | | | 389 | | | | - | | | 877 | | | 877 | |
Change in carrying value of assets and liabilities, net | | $ | 11,334 | | | $ | 318 | | $ | 47,602 | | $ | 47,920 | |
| (1) | Net of 5% payable to the Liquidation Trustee of approximately $1,241 for Comerica Bank and $105 for Other settlement agreements. |
During the year ended June 30, 2020,2022, the Company:
Declared three distributions of $4.50$3.44, $3.44 and $2.12$5.63 per Class A Liquidation Trust Interest, which totaled approximately $53.43$40.02 million, approximately $39.98 million and approximately $25.00$65.04 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, settled three secured loans and sold two other propertiesForfeited Assets for net proceeds of approximately $201.33$0.61 million.
Completed construction of two single-family homes (642 St. Cloud and 638 Siena).
Adopted a strategy to auction certain34
Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Sold six single-family homes and settled two secured loans and other properties. As a result of this change in strategy, thefor 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 valueproceeds of approximately $0.57$131.72 million.
Recorded approximately $23.57 million from the settlement of legal proceedings against Comerica Bank, net of 5% payable to Liquidation Trustee.
Recorded approximately $2.00 million from the settlement of other Causes of Action, net of 5% payable to Liquidation Trustee.
Paid construction costs of approximately $45.21$13.49 million relating to the single-family homes under development.
Paid holding costs of approximately $9.22$2.67 million.
Signed agreements to settle Causes of Action of approximately $5.32 million.
Paid general and administrative costs of approximately $24.47$16.17 million, including approximately $14.45$9.69 million professional fees, approximately $4.46$5.77 million of payroll and related costs and approximately $1.08$0.71 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 $7.90 million, net, consisting primarily of additional estimated holding and general and administrative costs as a result of the extension of the estimated timing for the completion of the Wind Down Entity’s operations. These additional costs are partially a result of the COVID-19 pandemic.
Period from February 15, 2019 (inception) throughYear ended June 30, 20192021
Contribution to the Company
Net assets recorded by the Company as of the Plan Effective Date of February 15, 2019 were comprised of the following ($ 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) throughyear ended June 30, 2019:
2021 ($ in thousands):
| | Restricted for Qualifying Victims | | | | | | Total | |
| | | | | | | | | |
Net assets in liquidation as of beginning of year
| | $ | - | | | $ | 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 end of year
| | $ | 3,167 | | | $ | 126,373 | | | $
| 129,540 | |
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$138.14 million during the period from February 15, 2019 (inception) throughyear ended June 30, 2019.2021. This decrease was due to changesa reduction in the carrying value of assets and liabilities net of $8.83$0.64 million, net and distributions declared of approximately $44.69$138.78 million, net (distributions declared of $44.70$139.95 million, less distributions reversed of $.01$1.17 million for disallowed claims)claims and cancelled interests). The components of the changes in carrying value of assets and liabilities, net are as follows ($ in millions)thousands):
Revaluation of real estate | | $ | (21.60 | ) |
Decrease in construction costs accrued | | | 12.32 | |
Other | | | .45 | |
| | $ | (8.83 | ) |
Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
| | Restricted for Qualifying Victims | | | | | | Total | |
| | | | | | | | | |
Recognition of Forfeited Assets | | $ | 3,459 | | | $ | - | | | $ | 3,459 | |
Settlement recoveries recognized, net (1) | | | - | | | | 9,339 | | | | 9,339 | |
Sales proceeds in excess of carrying value | | | - | | | | 5,180 | | | | 5,180 | |
Remeasurement of assets and liabilities, net | | | (308 | ) | | | (12,271 | ) | | | (12,579 | ) |
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 | |
(1) Net of 5% payable to the revaluationLiquidation Trustee of real estate and all of the decrease in construction costs are a result of a change in strategy for one real estate asset.approximately $491.
During the period from February 15, 2019 (inception) throughyear ended June 30, 2019,2021, the Company:
Declared a distributiondistributions of $3.75$2.56, $2.56, $4.28 and $2.58 per Class A Liquidation Trust Interest, which totaled approximately $44.70 million.
$29.97, approximately $29.95, approximately $50.01 million and approximately $30.02 million, respectively.
Completed construction of two single-family homes (1966 Carla Ridge and 25211 Jim Bridger). These homes10721 Stradella), both of which were listed for sale as ofsold prior to construction being completed during the year ended June 30, 2019.
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.
Recognized Forfeited Assets which are restricted for Qualifying Victims of approximately $3.46 million, including $1.84 million of cash.
Recorded approximately $9.34 million from the settlement of other Causes of Action, net of 5% payable to Liquidation Trustee.
Paid construction costs of approximately $22.48$27.29 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$9.84 million.
Paid general and administrative costs of approximately $6.99$18.10 million, including approximately $.49$9.83 million of professional fees, approximately $7.39 million of payroll and related costs and approximately $0.88 million of board member fees and expensesexpenses.
Part II
Item 7. Management’s Discussion and approximately $3.58 millionAnalysis of post Plan Effective Date professional fees.Financial Condition and Results of Operations (Continued)
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 credit availability, proceeds from the sale of its real estate assets, andcollection of escrow receivables, recoveries on Causes of Action.Action and from the sale of Forfeited Assets1. The Company’s primary uses of funds are and will continue to be for distributions, development costs, including accrual for warranty claims, holding costs and general and administrative costs, all of which the Company expects to be able to adequately fund over the next 12twelve months from its primary sources of capital.
Capital Resources
In addition to consolidated cash and cash equivalents atas of June 30, 2020 of approximately $91.43 million (of which approximately $5.36 million is restricted),2022, 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). 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, 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 $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 are required to comply with various covenants. As of June 30, 2020, 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 family homes which were under development as of June 30, 2020. There can be no assurance as to the amount2022. As of net proceeds thatJune 30, 2022, the Company will receive from the saleowned a total of itsfive real estate assets or whenwith a gross carrying value of approximately $30.97 million. The majority of the gross carrying value is concentrated in one single-family home. During the year ended June 30, 2022, the Company sold six single-family homes and settled two secured loans for net sales proceeds will be received.of approximately $131.72 million. The net proceeds from the sales of real estate for the year ended June 30, 2020 may2022 is not be indicative of future net proceeds. Based on the remaining assets of the Company, future net proceeds which maywill be significantly lower. In addition, it may take longer to sell the properties than the Company has estimated.less. |
| • | Escrow Receivables: As of June 30, 2022, the Wind-Down Group had escrow receivables relating to three single-family homes that had been sold and for which it was completing punch list items and/or awaiting the issuance of a certificate of occupancy. In August 2022, the certificate of occupancy was received for one of the single-family homes and $2.5 million of escrow receivable was collected. |
| • | Causes of Action Recoveries: During the year ended June 30, 2020,2022, the Company recognized approximately $5.32$26.92 million from the settlement of Causes of Action. The recoveries for the year ended June 30, 2022 include approximately $23.57 million from a settlement of litigation with Comerica Bank. 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, 2020.2022. |
| • | Forfeited Assets: Forfeited Assets consist of cash and other assets (jewelry, art, clothing, handbags, shoes, and a car). During the year ended June 30, 2022, the Trust sold some of its Forfeited Assets for net proceeds of approximately $0.61 million. |
Uses of Liquidity
The primary uses of the Company’s liquidity are to pay (a) distributions payable, (b) development costs, (b)including accrual for warranty claims, (c) holding costs, including maintenance and (c)repair costs, and (d) general and administrative costs. As of June 30, 2020,2022, the Company’s total liabilities were approximately $120.43$103.42 million, which includes distributions payable of approximately $68.77 million. The estimated costs recorded as of June 30, 20202022 may not be indicative of the costs paid in future periods, which may be significantly higher.
1The 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 as of June 30, 2022 are presented in the consolidated statement of net assets as restricted net assets in liquidation. As of June 30, 2022, 11,436,675 of the 11,515,790 Class A Interests were held by Qualifying Victims. Of the 90,793 Class A Interests relating to unresolved claims as of June 30, 2022, 3,449 would be held by Qualifying Victims.
Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Given current cash balances, projected sales, availability under the line of credit, 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, 2020,23, 2022, the Liquidation Trustee has declared fourten 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 accountfor amounts that are or may become payable (a) in respect of (a) Class A Interests that aremay be issued asin the future upon the allowance of unresolved bankruptcy claims, are resolved, (b) in respect of Class A Interests on account of recently allowed claims, that are recently resolved, (c) uncashed distributionfor holders of Class A Interests who failed to cash 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 forawaiting further beneficiary information.
37As 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 additional cash distributions on account of Class A Interests, but does not currently know the timing or amount of any such distribution(s).
Sections 7.6 and 7.18 of the Plan provide that distributions that have not been cashed within 180 calendar days of their issuance shall be null and void and the holder of the associated Liquidation Trust Interests “shall be deemed to have forfeited its rights to any reserved and future Distributions under the Plan,” with such amounts to become “Available Cash” of the Trust for all purposes. On February 1, 2022, the Trust sent letters to the holders of the Class A Interests who had failed to cash distribution checks in respect of prior distributions, which checks were issued more than 180 days prior to the date of the letter. The letter informed each recipient that, unless the Trust was contacted on or before February 28, 2022, such recipient’s reserved and future distributions would be deemed forfeited in accordance with the Plan The Trust provided this final notice simply as a one-time courtesy and reserves its rights to strictly enforce the Plan’s forfeiture provisions, and any other provision of the Plan, against any person (including any recipient of the final notice) at any time in the future, without further notice.
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, 20202022 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 | |
23, 2022:
Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
| | |
| | | During the Period from February 15, 2019 (inception) through June 30, 2022 ($ in Millions) | | | During the Period from February 15, 2019 (inception) through September 23, 2022 ($ 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 | |
Eighth | 10/8/2021 | | | 3.44 | | | | 40.02 | | | | 39.14 | | | | 0.88 | | | | 40.02 | | | | 39.14 | | | | 0.88 | |
Ninth | 2/4/2022 | | | 3.44 | | | | 39.98 | | | | 39.15 | | | | 0.83 | | | | 39.98 | | | | 39.15 | | | | 0.83 | |
Tenth (b) | 6/15/2022 | | | 5.63 | | | | 65.04 | | | | - | | | | - | | | | 65.02 | | | | 64.19 | | | | 0.83 | |
Total/Subtotal | | | $ | 34.86 | | | $ | 408.12 | | | $
| 332.43 | | |
| 10.65 | | | $ | 408.10 | | | $ | 396.62 | | |
| 11.48 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Distributions Returned / (Reversed) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Disallowed (c) | | | | | | | | | | | | | | | | (3.64 | ) | | | | | | | | | | | (6.27 | ) |
Returned (d) | | | | | | | | | | | | | | | | 0.74 | | | | | | | | | | | | 0.74 | |
Forfeited (e) | | | | | | | | | | | | | | | | (1.16 | ) | | | | | | | | | | | (1.15 | ) |
Subtotal | | | | | | | | | | | | | | | | (4.06 | ) | | | | | | | | | | | (6.68 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Distributions Paid from Reserve Account (f) | | | | | | | | | | | | | | | | (2.86 | ) | | | | | | | | | | | (3.57 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Distributions Payable: | | | | | | | | | | | as of 6/30/2022: | | | | | | | | | | | as of 9/23/2022: | | | | | |
Subtotal
| | | | | | | | | | | | | | |
| 3.73 | | | | | | | | | | |
| 1.23 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tenth distribution | | | | | | | | | | | | | | | | 65.04 | (b)
| | | | | | | | | | | - |
|
Total distributions payable | | | | | | | | | | | | | | | $ | 68.77 | | | | | | | | | | | $ | 1.23
| |
| (a) | The seventh distribution included the cash the Trust received from Fair Funds. |
| (b) | On July 15, 2022, $64.19 million was paid.
|
| (c) | As a result of claims being disallowed.disallowed or Class A Interests cancelled. |
| (b)(d) | Distribution checks returned or not cashed. |
| (c)(e) | Distributions forfeited as Interestholders did not cash checks that were over 180 days old. |
| (f) | Paid as claims are allowed or resolved. |
The
Management believes that, since its inception, the Wind-Down Entity has made substantial progress toward completion of its liquidation activities and is nearing the end of the liquidation of its real estate portfolio. Holders of Liquidation TrusteeTrust Interests are advised that future distributions from the Trust will continuebe limited. Once the Company’s remaining real property assets have been liquidated and the net proceeds resulting therefrom, net of reserves, have been distributed, further distribution(s) will be materially reliant on future recoveries from litigation, which are uncertain and the amount and timing of which are difficult 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).determine.
Contractual Obligations
As of June 30, 2020,2022, the Company has contractual commitments related to construction contracts totaling approximately $37.73$1.50 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.January 2023. 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.
Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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, potential warranty claims, general and administrative costs to be incurred until the completion of the liquidation of the Company and estimated reserves for contingent liabilities. 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 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.
|
Liquidation Basis of Accounting
| • | 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.
|
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.
| • | 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.
|
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, maintenance and repair 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, and estimated reserves for contingent liabilities.
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.
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.Company and estimated reserves for contingent liabilities. 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.
Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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 Onon 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.
On November 1, 2020, the Company was notified that its then independent registered public accounting firm 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, 2022. 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, 2022, 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, 2022 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.
Part III
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 56,58, 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 73,75, 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 2627 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 71,73, 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 in 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 67,69, 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.
Part III
Item 10. Directors, Executive Officers, and Corporate Governance (Continued)
Lynn Myrick, age 76,78, 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. 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 77,79, 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 73,75, 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)and (v) independent director of Classic Party Rentals, a special event rental company (March 2017 to August 2017); (v) independent director of Ares Dynamic Credit Allocation Fund Inc., a public investment company (March 2016 to November 2016); (vi) managing member of Variant Holding Company LLC (September 2014 to November 2016); (vii) 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’sMaster of Business Administration from City University of New York’s Baruch College.
Management of the Wind-Down Group
Frederick Chin, age 60,62, 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.
Part III
Item 10. Directors, Executive Officers, and Corporate Governance (Continued)
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 73,75, 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-heldpublicly 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’sMaster 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 73,75, 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 56,58, 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-outsworkouts 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 42,44, 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, 2022 (1) | | | Base | | | Bonus | | | | All Other Compensation (2) | | | Total | |
| | | | | | | | | | | | | | |
Michael I. Goldberg, Esq. | 2022 | | $ | 162,196 | | | $ | 1,346,093 | | | | $ | - | | | $ | 1,508,289 | |
Liquidation Trustee | 2021 | | $ | 366,949 | | | $ | 532,038 | (3) |
| | $ | - | | | $ | 898,988 | |
| | | | | | | | | | | | | | | | | | |
Frederick Chin | 2022 | | $ | 938,654 | | | $ | 450,000 | (4) |
| | $ | 120,000 | | | $ | 1,508,654 | |
Wind-Down Entity, CEO | 2021 | | $ | 861,808 | | | $ | 862,500 | (4) |
| | $ | 163,834 | | | $ | 1,888,142 | |
| | | | | | | | | | | | | | | | | | |
Marion W. Fong | 2022 | | $ | 569,631 | | | $ | 136,125 | (4) |
| | $ | - | | | $ | 705,756 | |
Wind-Down Entity, CFO | 2021 | | $ | 517,085 | | | $ | 123,750 | (4) |
| | $ | - | | | $ | 640,835 | |
| | | | | | | | | | | | | | | | | | |
David Mark Kemper II | 2022 | | $ | 443,046 | | | $ | 105,875 | (4) |
| | $ | - | | | $ | 548,921 | |
Wind-Down Entity, COO and CIO | 2021 | | $ | 402,177 | | | $ | 96,250 | (4) |
| | $ | - | | | $ | 498,427 | |
(1)
| (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)(2) | 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, 2022 and 2020,2021, 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, 20202022 and the period from February 15, 2019 (inception) through June 30, 2019, $214,3772021, $1,424,944 and $0,$490,949, 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 year 2020years 2022 and $544.50 per hour for calendar year 20192021 (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.
Part III
Item 11. Executive Compensation (Continued)
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
TheFull-Time Employment Agreement (In Effect Through August 31, 2022)
Through August 31, 2022, the Wind-Down Entity and its Chief Executive Officer Frederick Chin arewere parties to an agreement providing for Mr. Chin’s full-time employment, which agreement the terms of which were(the “Full-Time Employment Agreement”) was amended in September 2020.2020 and subsequently expired on August 31, 2022. The following summarizes the material terms of Mr. Chin’s compensation under the Full-Time Employment. The material terms of Mr. Chin’s compensation for periods following August 31, 2022 are set forth in the September 1, 2022 part-time employment agreement features an initial period expiring on August 14, 2021, subject to two additional consecutive renewalswith Mr. Chin (see “Item 11. Executive Compensation--Part-Time Employment Agreement (Effective September 1, 2022)” of one fiscal quarter each if the wind downPart III of the Wind-Down Group remains to be completed. this Annual Report, below).
Under the employment agreement,Full-Time Employment Agreement, Mr. Chin iswas entitled to an annual base salary and incentive compensation. Mr. Chin’s current annual base salary is $825,000,was $975,000, 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 iswas 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 bewere required to have been made during such period for any bonus to be earned. Any bonuses earned arewere required to behave been paid within 30 days of the end of the applicable period, however, Mr. Chin willwould not behave been entitled to any bonus regardless of the cumulative amount of distributions in any period if Mr. Chin ishis employment had been terminated by the Wind-Down Entity for “Cause” or if Mr. Chinhe had voluntarily resignsresigned 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 countedwere includible in cumulative distributions for such period so long as the Board of Managers of the Wind-Down Entity certifiescertified that such cash willwould 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 |
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 |
Part III
Mr. Chin’s employment agreementItem 11. Executive Compensation (Continued)
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 the Full-Time 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 the Full-Time 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 |
The Full-Time 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 iswas employed by the Wind-Down Entity on December 31, 2021, Mr. Chin iswould be 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 currentlythen projected extended duration of the Wind-Down Entity’s liquidation activities.
If Mr. Chin’s employment iswas terminated by the Wind-Down Entity without “Cause,” or if Mr. Chin resignsresigned for “Good Reason,” Mr. Chin willwould 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 Full-Time 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 agreementFull-Time Employment Agreement (such bonus amounts to be paid if and when otherwise due under the employment agreement)Full-Time Employment Agreement). If Mr. Chin’s employment iswas terminated by his death or disability, Mr. Chin or his estate willwould 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 agreementFull-Time 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 iswas obligated, under the employment agreement,Full-Time 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,Full-Time Employment Agreement, Mr. Chin iswas 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.
Part III
Item 11. Executive Compensation (Continued)
Part-Time Employment Agreement (Effective September 1, 2022)
On September 1, 2022, the Wind-Down Entity entered into an agreement with its chief executive officer (the “Part-Time Employment Agreement”). The Part-Time Employment Agreement provides for the continued employment of Mr. Chin as chief executive officer of the Company on a part-time basis following the expiration, on August 31, 2022, of the term of his full-time employment with the Company. Other than with respect to compensation and certain other items, the Part-Time Agreement is substantially similar in form to Mr. Chin’s now-expired Full-Time Employment Agreement.
The Part-Time Employment Agreement established an initial term of employment that begins on September 1, 2022 and, subject to any earlier termination, ends on December 31, 2022 provided that the Company’s principal remaining residential real property has been sold on or before December 1, 2022. If such asset has not been sold on or before December 1, 2022, the term of the Part-Time Employment Agreement will automatically be extended until the date that is 30 days after the sale of such property, on which date the Part-Time Employment Agreement will automatically expire unless terminated earlier in accordance with its terms.
The Part-Time Employment Agreement is terminable by the death of Mr. Chin or by either the Wind-Down Entity or Mr. Chin at any time and for any reason on at least 30 days’ advance written notice.
Under the Part-Time Employment Agreement, Mr. Chin is entitled to a monthly salary of $50,000 during the initial term and $30,000 during any extension term. Additionally, during the term of the Part-Time Employment Agreement, Mr. Chin and his eligible dependents are entitled to participation in the Wind-Down Entity’s health, dental, vision and life insurance coverages, but Mr. Chin will not accrue any paid vacation. In the Part-Time Employment Agreement, the Wind-Down Entity acknowledges that Mr. Chin is entitled to payment of accrued but unused vacation time on August 31, 2022 and to the receipt, no later than September 30, 2022, of the bonus payments prescribed by his now-expired Full-Time Employment Agreement.
Upon any termination of Mr. Chin’s employment, the Part-Time Employment Agreement entitles Mr. Chin to receive salary prorated to the effective date of termination and employee benefits through the effective date of termination. Additionally, Mr. Chin is entitled to receive continued payments of his monthly salary and employee benefits through December 31, 2022 (but not thereafter), if before December 31, 2022 Mr. Chin’s employment is terminated either by the Company without Cause or by Mr. Chin for Good Reason.
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$598,950 and Mr. Kemper’s annual base salary is $385,000,$465,850, 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$123,750 and $70,000,$96,250, respectively for calendar year 2019.2020 and $136,125 and $105,875, respectively for calendar year 2021. The 2020 bonuses were paid in January,December 2020 (fiscal year 2020)2021) and the 2021 bonuses were paid in December 2021 (fiscal year 2022).
In accordance with their respective agreements, Ms. Fong and Mr. Kemper each is entitled to consideration for discretionary bonuses for calendar years 2020 and 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 and 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. 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 of the Wind-Down Entity 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.”
Part III
Item 11. Executive Compensation (Continued)
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 members2022, there were no deliberations by the Board of Managers related to the employment agreements of Mr. Chin, Ms. Fong or Mr. Kemper. However, subsequent to the fiscal year ended June 30, 2022, on August 18, 2022 and August 26, 2022, the Supervisory Board participatedand the Board of Managers, respectively, without participation by Mr. Chin in its deliberations, regardingapproved a new Part-Time Employment Agreement with Mr. Goldberg’s andChin, which followed Mr. Chin’s previous Full-time Employment Agreement. The Part-Time Employment Agreement was determined to be appropriate in light of the continuing need for Mr. Chin’s services on a part-time basis following the August 31, 2022 expiration of the Full-Time Employment Agreement. The principal objectives of the Part-Time Employment Agreement include (i) incentivizing Mr. Chin’s continued retention through the anticipated closing date of the sale of the Company’s remaining residential real property asset, (ii) aligning Mr. Chin’s compensation without participation by any other officer and employeewith the increasingly reduced level of the Trust orCompany’s liquidation activities by means of a salary adjustment, (iii) acknowledging of the Wind-Down Entity. vesting of Mr. Chin’s incentive awards under the Full-Time Employment Agreement, and (iv) continuing of Mr. Chin’s existing employee benefits through December 31, 2022. The award of equity-based compensation was not considered, as the Company’s legal structure does not permit such compensation. The Company did not consider the results of any shareholder advisory vote on the compensation of Mr. Chin, as no such vote was required.
During the fiscal year ended June 30, 2020, all members of2022, there were no deliberations by the Supervisory Board of Managers, and Mr. Goldberg, participated in deliberations concerningregarding the compensation of the executive officers of the Wind-Down Entity.Mr. Goldberg.
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$7,500 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.
Part III
Item 11. Executive Compensation (Continued)
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.
Part III
Item 11. Executive Compensation (Continued)
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, 2020:23, 2022:
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
| Amount and Nature of
Beneficial Interest (2) | Percent of class7
|
Jay Beynon | Based on 11,514,190 Class A Interests and 675,617 Class B Interests outstanding as of September 23, 2022. |
| 6,666.678(3)
0
| Less than 1%
0 As trustee of a family trust. |
Raymond C. Blackburn, M.D.
| Class A
Class B (4) | 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. |
Part III
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (Continued)
| (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, 20202022 is $30.0$35.7 million, of which $8.1$0.4 million was unpaid as of June 30, 2020.2022. 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. On October 15, 2021, the Wind-Down Group entered into a change order increasing the estimated dollar value of the G3 Contract by approximately $2.1 million. The change order wasorders were 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, 2020,2022 and 2021, approximately $592,000$420,000 and $385,000, respectively, had been paid related to these services.
Part III
Item 13. | Certain Relationships and Related Transactions, and Supervisory Board Member Independence (Continued) |
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, athe change orderorders entered into on September 24, 2020 wasand October 15, 2021 were 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.
Part III
Item 13. | Certain Relationships and Related Transactions, and Supervisory Board Member Independence (Continued) |
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, 2022 and 2021:
| | Years Ended June 30, | |
| | 2022 | | | 2021 | |
| | | | | | |
Audit Fees | | $ | 280,800 | | | $ | 345,600 | |
Audit-related Fees | |
| - | | |
| - | |
Tax fees | |
| - | | |
| - | |
All other fees | |
| - | | |
| - | |
Total | | $ | 280,800 | | | $ | 345,600 | |
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. |
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.
| • | 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. |
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, 20202022 and the period from February 15, 2019 (inception) through June 30, 20192021 were pre-approved by the Audit Committee in accordance with the policies and procedures described above.
Part IV
Part IV
Item 15.
| Exhibits and Financial Statement Schedules |
(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 Years Ended June 30, 2022 and 2021: | |
Audited Consolidated Financial Statements
| |
For the year ended June 30, 2020 and the period from February 15, 2019 (inception) through June 30, 2019:
| |
Report of Independent Registered Public Accounting Firm (PCAOB ID 23)
| F-1F-2 |
Consolidated Statements of Net Assets in Liquidation as of June 30, 20202022 and 20192021 | F-2F-3 |
Consolidated Statements of Changes in Net Assets in Liquidation for the year endedYears Ended June 30, 20202022 and the period from February 15, 2019 (inception) through June 30, 20192021 | F-3F-4 |
Notes to Consolidated Financial Statements | F-4F-5 |
(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. |
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| 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, 2020 |
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| 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. |
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| First Amendment to Amended and Restated Employment Agreement dated September 24, 2020 between Woodbridge Wind-Down Entity LLC and Frederick Chin, incorporated herein by reference to the Form 10-K filed by the Trust on September 28, 2020. |
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| 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. |
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| Part-Time Employment Agreement dated September 1, 2022 between Woodbridge Wind-Down Entity LLC and Frederick Chin, incorporated herein by reference to the Form 8-K filed by the Trust on September 1, 2022. |
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| 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. |
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| First Amendment to Employment Agreement dated September 24, 2020 between Woodbridge Wind-Down Entity LLC and Marion W. Fong, incorporated herein by reference to the Form 10-K filed by the Trust on September 28, 2020. |
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| 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. |
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| 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. |
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| First Amendment to Employment Agreement dated September 24, 2020 between Woodbridge Wind-Down Entity LLC and David Mark Kemper, incorporated herein by reference to the Form 10-K filed by the Trust on September 28, 2020. |
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| 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. |
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| 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 herein by reference to the Form 10-K filed by the Trust on September 28, 2020.
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| 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, incorporated herein by reference to the Form 10-K filed by the Trust on September 27, 2021. |
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| Certification of Liquidation Trustee pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| Certification of Liquidation Trustee pursuant to 18 U.S.C. 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| 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. |
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101 | The following financial statements from the Woodbridge Liquidation Trust Quarterly Report on Form 10-K for the year ended June 30, 2022, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Statements of Net Assets in Liquidation as of June 30, 2022 and 2021, (ii) Consolidated Statements of Changes in Net Assets in Liquidation for the years ended June 30, 2022 and 2021, (iii) the Notes to the Consolidated Financial Statements. XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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104 | Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101). |
*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, 20202022 and the period from February 15, 2019 (inception) through June 30, 2019: 2021: |
|
Report of Independent Registered Public Accounting Firm | F-1F-2 |
Consolidated Statements of Net Assets in Liquidation as of June 30, 20202022 and 20192021 | F-2F-3 |
Consolidated Statements of Changes in Net Assets in Liquidation for the year endedYears Ended June 30, 20202022 and the period from February 15, 2019 (inception) through June 30, 20192021 | F-3F-4 |
Notes to Consolidated Financial Statements | F-4F-5 |
REPORT 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, 20202022 and 2019,2021, the related consolidated statements of changes in net assets in liquidation for the yearyears ended June 30, 20202022 and for the period from February 15, 2019 (inception) through June 30, 2019,2021, 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, 20202022 and 2019,2021, and the changes in net assets in liquidation for the yearyears ended June 30, 20202022 and for the period from February 15, 2019 (inception) through June 30, 2019,2021, 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 auditaudits 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, 202023, 2022