Item 1. | Financial Statements (Continued) | | Woodbridge Liquidation Trust and Subsidiaries Notes to Consolidated Financial Statements For the Three and Nine Months Ended March 31, 2022 and 2021 (Unaudited) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended March 31, 2021 and 2020
(Unaudited)
The Company’s other assets as of March 31, 2021,2022, with comparative information as of June 30, 2020,2021, are as follows ($ in thousands):
| | March 31, 2021 | | June 30, 2020 | | | March 31, 2022
| | June 30, 2021
| | | | | | | | | | | | | Escrow receivables (a) | | | $
| 3,560
| | | $
| 2,500
| | Forfeited Assets (Note 7) | | $ | 3,442 | | | $ | - | | |
| 1,059 | | |
| 1,549 | | | | | | | | | | | | Settlement installment receivables, net (a)(b) | | | 838 | | | | 575 | | | | 712 | | | | 1,014
| | | | | | | | | | | | Other | | | 419 | | | | 208 | | | | 400 | | | | 410 | | | | | | | | | | | | Insurance claim receivable (b) | | | - | | | | 1,900 | | | | | | | | | | | | | Escrow receivables (c) | | | - | | | | 1,500 | | | | | | | | | | | | | Total other assets | | $ | 4,699 | | | $ | 4,183 | | | $ | 5,731 | | | $ | 5,473
| |
(a) Escrow receivables as of March 31, 2022 relate to 2 single-family homes that were sold during the nine months ended March 31, 2022. and 1 single-family home sold prior to June 30, 2021. Escrow receivables as of June 30, 2021 relate to 1 single-family home sold prior to June 30, 2021. Amounts are to be released upon completion of construction and/or obtaining a certificate of occupancy.
(b) The allowance for uncollectible settlement installment receivables was approximately $6 and $9 ($ in thousands) at March 31, 2022 and June 30, 2021, respectively.
10
(b) | During the three months ended March 31, 2021, the insurance claim receivable was adjusted as a result of a negative court ruling on March 25, 2021. |
(c) | Escrow holdbacks relating to two single-family homes sold prior to June 30, 2020, respectively; amounts were released upon completion of repairs and construction. |
PART I. | FINANCIAL INFORMATION (Continued)(CONTINUED) |
Item 1. | Financial Statements (Continued) | | Woodbridge Liquidation Trust and Subsidiaries Notes to Consolidated Financial Statements For the Three and Nine Months Ended March 31, 2022 and 2021 (Unaudited) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended March 31, 2021 and 2020
(Unaudited)
6) | Accrued Liquidation Costs |
The following is a summary of the items included in accrued liquidation costs as of March 31, 2021,2022, with comparative information as of June 30, 20202021 ($ in thousands):
| | March 31, 2021 | | | June 30, 2020 | | | March 31, 2022
| | | June 30, 2021
| | Development costs: | | | | | | | | | | | | Construction costs | | $ | 31,515 | | $ | 67,204 | | | $ | 11,564 | | | $ | 23,480 | | Construction warranty | | 2,870 | | 2,870 | | | | 2,870 | | | | 2,870 | | Indirect costs | | 774 | | 1,407 | | | | 498 | | | | 712 | | Bond refunds | | | (1,355 | ) | | | (1,562 | ) | | | (699 | ) | | | (1,134 | ) | Total development costs | | | 33,804 | | | 69,919 | | | | 14,233 | | | | 25,928 | | | | | | | | | | | | | | | | Holding costs: | | | | | | | | | | | | | | Property tax | | 1,842 | | 5,918 | | | | 836 | | | | 1,901 | | Insurance | | 1,523 | | 2,125 | | | | 462 | | | | 1,291 | | Maintenance, utilities and other | | | 817 | | | 1,518 | | | | 479 | | | | 1,000 | | Total holding costs | | | 4,182 | | | 9,561 | | | | 1,777 | | | | 4,192 | | | | | | | | | | | | | | | | General and administrative costs: | | | | | | | | | | | | | | Legal and other professional fees | | 10,786 | | 17,588 | | | | 10,475 | | | | 17,697 | | Payroll and payroll-related | | 9,364 | | 13,425 | | | | 8,546 | | | | 10,432 | | State, local and other taxes | | 2,014 | | 1,725 | | | | 2,188
| | | | 2,217
| | Directors and officers insurance
| | | | 2,024 | | | | 2,576 | | Board fees and expenses | | 1,138 | | 2,118 | | | | 698 | | | | 1,558 | | Marketing | | 666 | | 765 | | | Other | | | 1,374 | | | 2,350 | | | | 1,164 | | | | 983 | | Total general and administrative costs | | | 25,342 | | | 37,971 | | | | 25,095 | | | | 35,463 | | | | | | | | | | | | | | | | Total accrued liquidation costs | | $ | 63,328 | | $ | 117,451 | | | $ | 41,105 | | | $ | 65,583 | |
7) | Forfeited Assets - Restricted for Qualifying Victims |
The Trust entered into a resolution agreement with the United States Department of Justice (DOJ)DOJ which provided that the Trust would receive the assets forfeited (Forfeited Assets) by Robert and Jeri Shapiro.Shapiro (the “Forfeited Assets”). In March 2021, the Trust received certain Forfeited Assets from the DOJ, including cash, wine, jewelry, handbags, clothing, shoes, art, gold and other assets. The Bankruptcy Court approved the settlement on September 17, 2020wine and the District Court approvedgold were sold during the settlement on October 1, 2020.
PART I. | FINANCIAL INFORMATION (Continued) |
Item 1. | Financial Statements (Continued) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Endednine months ended March 31, 2021 and 20202022.
(Unaudited)
The agreement provides for the release of specified forfeited assets by the DOJ to the Trust andalso provided for the Trust to liquidate those assetsthe Forfeited Assets and to distribute the net sale proceeds to Qualifying Victims. Qualifying Victims include the vast majority of Trust beneficiaries (specifically, all former holders of allowed Class 3 and 5 claims and their permitted assigns), but do not include former holders of Class 4 claims. Distributions to Qualifying Victims are to be allocated pro-rata based on their net allowed claims without considering the (i) 5% enhancement for contributing their causes of action andor (ii) 72.5% Class 5 coefficient.
In March 2021, the Trust received certain Forfeited Assets from the DOJ, including cash, wine, jewelry, handbags, clothing, shoes, art, gold and other assets. The Company recorded the total estimated net realizable value of the Forfeited Assets of approximately $3,459,000, which includes a receivable for approximately $1,892,000 of additional cash that the Trust expects to receive from the DOJ (Note 14).
The Forfeited Assets included in the Company’s March 31, 20212022 and June 30, 20202021 consolidated financial statements are as follows:follows ($ in thousands):
| | March 31, 2021 | | June 30, 2020 | | | March 31, 2022
| | | June 30, 2021
| | | | | | | | | | | | | | Restricted cash (Note 4) | | $ | 28 | | $ | - | | | $ | 2,317 | | | $ | 1,836 | | Other assets (Note 5) | | 3,442 | | - | | | | 1,059 | | | | 1,549 | | Accounts payable and accrued liabilities | | | (11 | ) | | | - | | | | | | | | | | Accrued liquidation costs | | | | (173 | ) | | | (218 | ) | Net assets in liquidation - restricted for Qualifying Victims | | $ | 3,459 | | $ | - | | | $ | 3,203 | | | $ | 3,167 | |
8) | Net Change In Assets and Liabilities |
Restricted for Qualifying Victims:
The following is a summary of the change in the carrying value of assets and liabilities, net during the three and nine months ended March 31, 20212022 ($ in thousands):
| | Cash | | | Remeasure- | | | | | | | Activities | | | ment | | | Total | | | | | | | | | | | | Real estate assets held for sale, net | | $ | 0 | | | $ | 0 | | | $ | 0 | | Cash and cash equivalents | | | 0 | | | | 0 | | | | 0 | | Restricted cash | | | 111 | | | | 0 | | | | 111 | | Other assets | | | (120 | ) | | | 0 | | | | (120 | ) | Total assets | | $ | (9 | ) | | $ | 0 | | | $ | (9 | ) | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | 0 | | | $ | 0 | | | $ | 0 | | Accrued liquidation costs | | | (9 | ) | | | 0 | | | | (9 | ) | Total liabilities | | $ | (9 | ) | | $ | 0 | | | $ | (9 | ) | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Item 1. | Financial Statements (Continued) |
|
Woodbridge Liquidation Trust and Subsidiaries Notes to Consolidated Financial Statements For the Three and Nine Months Ended March 31, 2022 and 2021 and 2020 (Unaudited)
| | Cash Activities | | | Remeasure- ment | | | Total | | | | | | | | | | | | Real estate assets held for sale, net | | $ | - | | | $ | - | | | $ | - | | | | | | | | | | | | | | | Cash and cash equivalents | | | - | | | | - | | | | - | | | | | | | | | | | | | | | Restricted cash | | | 28 | | | | - | | | | 28 | | | | | | | | | | | | | | | Other assets | | | - | | | | 3,442 | | | | 3,442 | | | | | | | | | | | | | | | Total assets | | $ | 28 | | | $ | 3,442 | | | $ | 3,470 | | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | - | | | $ | 11 | | | $ | 11 | | | | | | | | | | | | | | | Accrued liquidation costs | | | - | | | | - | | | | - | | | | | | | | | | | | | | | Total liabilities | | $ | - | | | $ | 11 | | | $ | 11 | | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 28 | | | $ | 3,431 | | | $ | 3,459 | |
There was no activity relating to net assets restricted for Qualifying Victims during the three and nine months ended March 31, 2020.
PART I. | FINANCIAL INFORMATION (Continued) |
Item 1. | Financial Statements (Continued) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended March 31, 2021 and 2020
(Unaudited)
All Interestholders
The following is a summary of the change in the carrying value of assets and liabilities, net during the three months ended March 31, 2021 ($ in thousands):
| | Cash Activities | | | Remeasure- ment | | | Total | | | | | | | | | | | | Real estate assets held for sale, net | | $ | (9 | ) | | $ | - | | | $ | (9 | ) | | | | | | | | | | | | | | Cash and cash equivalents | | | (11,199 | ) | | | - | | | | (11,199 | ) | | | | | | | | | | | | | | Restricted cash | | | 1,262 | | | | - | | | | 1,262 | | | | | | | | | | | | | | | Other assets | | | (287 | ) | | | (1,091 | ) | | | (1,378 | ) | | | | | | | | | | | | | | Total assets | | $ | (10,233 | ) | | $ | (1,091 | ) | | $ | (11,324 | ) | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | 42 | | | $ | 30 | | | $ | 72 | | | | | | | | | | | | | | | Accrued liquidation costs | | | (11,238 | ) | | | (2,132 | ) | | | (13,370 | ) | | | | | | | | | | | | | | Total liabilities | | $ | (11,196 | ) | | $ | (2,102 | ) | | $ | (13,298 | ) | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 963 | | | $ | 1,011 | | | $ | 1,974 | |
The following is a summary of the distributions (declared) reversed, net during the three months ended March 31, 2021 ($ in thousands):
Distributions (declared) | | $ | (50,005 | ) | Distributions reversed | | | 47 | | Distributions (declared) reversed, net | | $ | (49,958 | ) |
| | Cash | | | Remeasure- | | | | | | | Activities | | | ment | | | Total | | | | | | | | | | | | Real estate assets held for sale, net | | $ | 0 | | | $ | 0 | | | $ | 0 | | Cash and cash equivalents | | | 0 | | | | 0 | | | | 0 | | Restricted cash | | | 28 | | | | 0 | | | | 28 | | Other assets | | | 0 | | | | 3,442 | | | | 3,442 | | Total assets | | $ | 28 | | | $ | 3,442 | | | $ | 3,470 | | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | 0 | | | $ | 11 | | | $ | 11 | | Accrued liquidation costs | | | 0 | | | | 0 | | | | 0 | | Total liabilities | | $ | 0 | | | $ | 11 | | | $ | 11 | | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 28 | | | $ | 3,431 | | | $ | 3,459 | |
PART I. | FINANCIAL INFORMATION (Continued) |
Item 1. | Financial Statements (Continued) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended March 31, 2021 and 2020
(Unaudited)
The following is a summary of the change in the carrying value of assets and liabilities, net during the threenine months ended March 31, 20202022 ($ in thousands):
| | Cash Activities | | Remeasure- ment | | Total | | | Cash | | | Remeasure- | | | | | | | | Activities | | | ment | | | Total | | | | | | | | | | | | | | | | | | | Real estate assets held for sale, net | | $ | (74,279 | ) | | $ | 14,009 | | $ | (60,270 | ) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | | | | | | | | | Cash and cash equivalents | | 55,324 | | - | | 55,324 | | | | 0 | | | | 0 | | | | 0 | | | | | | | | | | | Restricted cash | | 1,035 | | - | | 1,035 | | | | 481 | | | | 0 | | | | 481 | | | | | | | | | | | Other assets | | (717 | ) | | 1,484 | | 767 | | | | (526 | ) | | | 36 | | | | (490 | ) | | | | | | | | | | | | | Total assets | | $ | (18,637 | ) | | $ | 15,493 | | $ | (3,144 | ) | | $ | (45 | ) | | $ | 36 | | | $ | (9 | ) | | | | | | | | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | - | | $ | 820 | | $ | 820 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | | | | | | | | | Accrued liquidation costs | | (20,367 | ) | | 3,498 | | (16,869 | ) | | | (45 | ) | | | 0 | | | | (45 | ) | | | | | | | | | | | | | Total liabilities | | $ | (20,367 | ) | | $ | 4,318 | | $ | (16,049 | ) | | $ | (45 | ) | | $ | 0 | | | $ | (45 | ) | | | | | | | | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 1,730 | | $ | 11,175 | | $ | 12,905 | | | $ | 0 | | | $ | 36 | | | $ | 36 | |
The following is a summary of the distributions (declared) reversed, net during the three months ended March 31, 2020 ($ in thousands):
Distributions (declared) | | $ | (78,427 | ) | Distributions reversed | | | 749 | | Distributions (declared) reversed, net | | $ | (77,678 | ) |
Item 1. | Financial Statements (Continued) | | Woodbridge Liquidation Trust and Subsidiaries Notes to Consolidated Financial Statements For the Three and Nine Months Ended March 31, 2022 and 2021 (Unaudited) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended March 31, 2021 and 2020
(Unaudited)
The following is a summary of the change in the carrying value of assets and liabilities, net during the nine months ended March 31, 2021 ($ in thousands):
| | Cash | | | Remeasure- | | | | | | | Activities | | | ment | | | Total | | | | | | | | | | | | Real estate assets held for sale, net | | $ | (121,186 | ) | | $ | (13,184 | ) | | $ | (134,370 | ) | | | | | | | | | | | | | | Cash and cash equivalents | | | 87,650 | | | | - | | | | 87,650 | | | | | | | | | | | | | | | Restricted cash | | | 2,528 | | | | - | | | | 2,528 | | | | | | | | | | | | | | | Other assets | | | (2,164 | ) | | | (762 | ) | | | (2,926 | ) | | | | | | | | | | | | | | Total assets | | $ | (33,172 | ) | | $ | (13,946 | ) | | $ | (47,118 | ) | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | (947 | ) | | $ | 423 | | | $ | (524 | ) | | | | | | | | | | | | | | Accrued liquidation costs | | | (41,236 | ) | | | (12,887 | ) | | | (54,123 | ) | | | | | | | | | | | | | | Total liabilities | | $ | (42,183 | ) | | $ | (12,464 | ) | | $ | (54,647 | ) | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 9,011 | | | $ | (1,482 | ) | | $ | 7,529 | |
| | Cash | | | Remeasure- | | | | | | | Activities | | | ment | | | Total | | | | | | | | | | | | Real estate assets held for sale, net | | $ | 0 | | | $ | 0 | | | $ | 0 | | Cash and cash equivalents | | | 0 | | | | 0 | | | | 0 | | Restricted cash | | | 28 | | | | 0 | | | | 28 | | Other assets | | | 0 | | | | 3,442 | | | | 3,442 | | Total assets | | $ | 28 | | | $ | 3,442 | | | $ | 3,470 | | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | 0 | | | $ | 11 | | | $ | 11 | | Accrued liquidation costs | | | 0 | | | | 0 | | | | 0 | | Total liabilities | | $ | 0 | | | $ | 11 | | | $ | 11 | | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 28 | | | $ | 3,431 | | | $ | 3,459 | |
All Interestholders
The following provides details of the change in the carrying value of assets and liabilities, net during the three months ended March 31, 2022 ($ in thousands):
| | Cash | | | Remeasure- | | | | | | | Activities | | | ment | | | Total | | | | | | | | | | | | Real estate assets held for sale, net | | $ | (736 | ) | | $ | 9,870 | | | $ | 9,134 | | Cash and cash equivalents | | | 19,910
| | | | 0
| | | | 19,910
| | Restricted cash | | | 0
| | | | 0
| | | | 0
| | Other assets | | | (24,991 | ) | | | 20
| | | | (24,971 | ) | Total assets | | $ | (5,817 | ) | | $ | 9,890 | | | $ | 4,073 | | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | 0 | | | $ | 79 | | | $ | 79 | | Accrued liquidation costs | | | (6,500 | ) | | | 2,228 | | | | (4,272 | ) | Total liabilities | | $ | (6,500 | ) | | $ | 2,307 | | | $ | (4,193 | ) | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 683 | | | $ | 7,583 | | | $ | 8,266 | |
The following provides details of the distributions (declared) reversed, net during the three months ended March 31, 2022 ($ in thousands):
Distributions declared | | $ | (39,981 | ) | Distributions reversed | | | 472
| | Distributions (declared) reversed, net | | $ | (39,509 | ) |
Distributions payable decreased by approximately $(137,000) during the three months ended March 31, 2022.
The following is a summary of the change in the carrying value of assets and liabilities, net during the three months ended March 31, 2021 ($ in thousands):
| | Cash | | | Remeasure- | | | | |
| | Activities | | | ment | | | Total | | | | | | | | | | | | Real estate assets held for sale, net | | $ | (9 | ) | | $ | 0 | | | $ | (9 | ) | Cash and cash equivalents | | | (11,199 | ) | | | 0
| | | | (11,199 | ) | Restricted cash | | | 1,262
| | | | 0
| | | | 1,262
| | Other assets | | | (287 | ) | | | (1,091 | ) | | | (1,378 | ) | Total assets | | $ | (10,233 | ) | | $ | (1,091 | ) | | $ | (11,324 | ) | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | 42 | | | $ | 30 | | | $ | 72 | | Accrued liquidation costs | | | (11,238 | ) | | | (2,132 | ) | | | (13,370 | ) | Total liabilities | | $ | (11,196 | ) | | $ | (2,102 | ) | | $ | (13,298 | ) | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 963 | | | $ | 1,011 | | | $ | 1,974 | |
The following provides details of the distributions (declared) reversed, net during the three months ended March 31, 2021 ($ in thousands):
Distributions declared | | $ | (50,005 | ) | Distributions reversed | | | 47
| | Distributions (declared) reversed, net | | $ | (49,958 | ) |
Distributions payable increased by approximately $1,261,000 during the three months ended March 31, 2021.
The following provides details of the change in the carrying value of assets and liabilities, net during the nine months ended March 31, 2022 ($ in thousands):
| | Cash | | | Remeasure- | | | | | | | Activities | | | ment | | | Total | | | | | | | | | | | | Real estate assets held for sale, net | | $ | (64,437 | ) | | $ | 18,124 | | | $ | (46,313 | ) | Cash and cash equivalents | | | 68,260
| | | | 0
| | | | 68,260
| | Restricted cash | | | 0
| | | | 0
| | | | 0
| | Other assets | | | (25,998 | ) | | | 26,745
| | | | 747
| | Total assets | | $ | (22,175 | ) | | $ | 44,869 | | | $ | 22,694 | | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | (184 | ) | | $ | 1,390 | | | $ | 1,206 | | Accrued liquidation costs | | | (23,712 | ) | | | (722 | ) | | | (24,434 | ) | Total liabilities | | $ | (23,896 | ) | | $ | 668 | | | $ | (23,228 | ) | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 1,721 | | | $ | 44,201 | | | $ | 45,922 | |
The following provides details of the distributions (declared) reversed, net during the nine months ended March 31, 20212022 ($ in thousands):
Distributions (declared) | | $ | (109,932 | ) | | Distributions declared | | | $ | (79,997 | ) | Distributions reversed | | | 378 | | | | 761
| | Distributions (declared) reversed, net | | $ | (109,554 | ) | | $ | (79,236 | ) |
Distributions payable increased by approximately $344,000 during the nine months ended March 31, 2022. Item 1. | Financial Statements (Continued) | | Woodbridge Liquidation Trust and Subsidiaries Notes to Consolidated Financial Statements For the Three and Nine Months Ended March 31, 2022 and 2021 (Unaudited) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended March 31, 2021 and 2020
(Unaudited)
The following is a summary of the change in the carrying value of assets and liabilities, net during the nine months ended March 31, 20202021 ($ in thousands):
| | | Cash | | | Remeasure- | | | | | | | | | | | Total | | | Activities | | | ment | | | Total | | | | | | | | | | | | | | | | | | | Real estate assets held for sale, net | | $ | (178,207 | ) | | $ | 8,757 | | | $ | (169,450 | ) | | $ | (121,186 | ) | | $ | (13,184 | ) | | $ | (134,370 | ) | | | | | | | �� | | | | | | | | Cash and cash equivalents | | | 119,155 | | | | - | | | | 119,155 | | | | 87,650
| | | | 0
| | | | 87,650
| | | | | | | | | | | | | | | | Restricted cash | | | 642 | | | | - | | | | 642 | | | | 2,528
| | | | 0
| | | | 2,528
| | | | | | | | | | | | | | | | Other assets | | | (2,113 | ) | | | 4,040 | | | | 1,927 | | | | (2,164 | ) | | | (762 | ) | | | (2,926 | ) | | | | | | | | | | | | | | | Total assets | | $ | (60,523 | ) | | $ | 12,797 | | | $ | (47,726 | ) | | $ | (33,172 | ) | | $ | (13,946 | ) | | $ | (47,118 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | (371 | ) | | $ | 1,047 | | | $ | 676 | | | $ | (947 | ) | | $ | 423 | | | $ | (524 | ) | | | | | | | | | | | | | | | Accrued liquidation costs | | | (72,082 | ) | | | 6,240 | | | | (65,842 | ) | | | (41,236 | ) | | | (12,887 | ) | | | (54,123 | ) | | | | | | | | | | | | | | | Total liabilities | | $ | (72,453 | ) | | $ | 7,287 | | | $ | (65,166 | ) | | $ | (42,183 | ) | | $ | (12,464 | ) | | $ | (54,647 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 11,930 | | | $ | 5,510 | | | $ | 17,440 | | | $ | 9,011 | | | $ | (1,482 | ) | | $ | 7,529 | |
The following is a summaryprovides details of the distributions (declared) reversed, net during the nine months ended March 31, 20202021 ($ in thousands):
Distributions (declared) | | $ | (78,427 | ) | | Distributions declared | | | $ | (109,932 | ) | Distributions reversed | | | 826 | | | | 378
| | Distributions (declared) reversed, net | | $ | (77,601 | ) | | $ | (109,554 | ) |
PART I. | FINANCIAL INFORMATION (Continued) |
Item 1. | Financial Statements (Continued) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
ForDistributions payable increased by approximately $2,531,000 during the Three and Nine Months Ended nine months ended March 31, 2021 and 2020.
(Unaudited)9) | Credit AgreementsAgreement |
Revolving Line of Credit
On June 19, 2020, two2 wholly-owned subsidiaries of the Wind-Down Entity entered into a $25,000,000 revolving line of credit (LOC)(the “LOC”) with a financial institution. The LOC matures onhad an original maturity of June 19, 2022 but may be extended for one additional year thereafter.2022. The LOC requiredrequires the borrowers to establish an interest reserve of $1,750,000 (Note 4), which is to be used to pay the potential monthly interest payments. Outstanding borrowings bear interest at a fixed rate of 3.50% per annum. Indebtedness under the LOC was 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 LOC. The Company is required to keep a cash balance of $20,000,000 on deposit with the lender in order to avoid a non-compliance fee of 2% of the shortfall in the required deposit and is required to comply with various covenants.
The property that was collateral for the LOC was sold in December 2020. The LOC agreement provides that the borrower hashad 60 days after the sale of the collateral to add borrower(s) and additional property(ies) as collateral. During the 60-day period, the available borrowings under the LOC were reduced to $100,000. On February 11, 2021, the LOC was amended. TwoNaN additional wholly owned subsidiaries of the Wind-Down Entity were joined to the LOC as co-borrowers and two2 properties were added as replacement collateral as allowed for in the original agreement. As a result of this amendment, the available borrowing commitment was adjusted back up to $25,000,000. The maturity date of the LOC was changed to January 31, 2023 with an option to extend for one additional year.year, subject to the availability of collateral. There were no other significant changes to the LOC.
As of March 31, 2021,2022, the Company was in compliance with the financial covenants of the LOC. NoNaN amounts were outstanding under the LOC as of March 31, 20212022 or June 30, 2020.2021.
10) | BeneficialLiquidation Trust Interests
|
The following table summarizes the Liquidation Trust Interests (rounded) for the nine months ended March 31, 20212022 and 2020:2021:
| | For the Nine Months Ended March 31, | | | | 2022
| | | 2021
| | Liquidation Trust Interests | | Class A | | | Class B | | | Class A | | | Class B | | | | | | | | | | | | | | | Outstanding at beginning of period | | | 11,512,855
| | | | 675,784
| | | | 11,518,232
| | | | 675,558
| | Allowed claims | | | 4,976
| | | | 0
| | | | 10,367
| | | | 1,133
| | 5% enhancement for certain allowed claims | | | 0
| | | | 0
| | | | 182
| | | | 56
| | Settlement of claims by cancelling Liquidation | | | | | | | | | | | | | | | | | Trust Interests | | | (1,392 | ) | | | (167 | ) | | | (15,121 | ) | | | (435 | ) | Outstanding at end of period | | | 11,516,439
| | | | 675,617
| | | | 11,513,660
| | | | 676,312
| |
PART I. | FINANCIAL INFORMATION (Continued) |
Item 1. | Financial Statements (Continued) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended March 31, 2021 and 2020
(Unaudited)
| | For the Nine Months Ended March 31, | | | | 2021
| | | 2020
| | Liquidation Trust Interests | | Class A | | | Class B | | | Class A | | | Class B | | | | | | | | | | | | | | | Outstanding at beginning of period | | | 11,518,232 | | | | 675,558 | | | | 11,433,623 | | | | 655,261 | | | | | | | | | | | | | | | | | | | Allowed claims | | | 10,367 | | | | 1,133 | | | | 85,743 | | | | 21,334 | | | | | | | | | | | | | | | | | | | 5% enhancement for certain allowed claims | | | 182 | | | | 56 | | | | 459 | | | | 5 | | | | | | | | | | | | | | | | | | | Settlement of claims by cancelling Liquidation | | |
|
| | |
|
| | |
|
| | |
|
| Trust Interests | | | (15,121 | ) | | | (435 | ) | | | (3,640 | ) | | | (891 | )
| | | | | | | | | | | | | | | | | | Duplicate claim allowed in error | | | - | | | | - | | | | (84 | ) | | | - | | | | | | | | | | | | | | | | | | | Outstanding at end of period | | | 11,513,660 | | | | 676,312 | | | | 11,516,101 | | | | 675,709 | |
Of the 11,513,66011,516,439 Class A Interests outstanding at March 31, 2021, 11,439,782 are2022, 11,436,675 were held by Qualifying Victims (Note 7).
PART I. | FINANCIAL INFORMATION (Continued) |
Item 1. | Financial Statements (Continued) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended March 31, 2021 and 2020
(Unaudited)
As ofAt the Plan Effective Date, certain claims were disputed. As those disputed claims are resolved, additional Class A Interests and (if applicable) Class B Interests are issued on account of allowed claims.claims or Class A and (if applicable) Class B Interests are cancelled. No Class A Interests or Class B Interests are issued on account of disallowed claims. The following table summarizes the unresolved claims against the Debtors as they relate to Liquidation Trust Interests (rounded) for the nine months ended March 31, 20212022 and 2020:2021:
| | For the Nine Months Ended March 31, | | | For the Nine Months Ended March 31, | | | | 2021
| | 2020
| | | 2022 | | | 2021 | | Liquidation Trust Interests | | Class A | | | Class B | | | Class A | | | Class B | | | Class A | | | Class B | | | Class A | | | Class B | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding at beginning of period | | | 193,559 | | | | 7,118 | | | | 482,734 | | | | 34,697 | | | | | | | | | | | | | | | | | | | | | Reserved for unresolved claims at beginning of period | | | | 124,609
| | | | 5,011
| | | | 193,559
| | | | 7,118
| | Allowed claims | | | (10,367 | ) | | | (1,133 | ) | | | (85,743 | ) | | | (21,334 | ) | | | (4,976 | ) | | | 0 | | | | (10,367 | ) | | | (1,133 | ) | | | | | | | | | | | | | | | | | | | 5% enhancement for certain allowed claims | | | (32 | ) | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | 5% enhancement for certain allowed claims | | | | 0 | | | | 0
| | | | (32 | ) | | | 0
| | Disallowed claims | | | (44,372 | ) | | | (974 | ) | | | (122,433 | ) | | | (5,406 | ) | | | (28,840 | ) | | | (4,678) | | | | (44,372 | ) | | | (974 | ) | | | | | | | | | | | | | | | | | | | Outstanding at end of period | | | 138,788 | | | | 5,011 | | | | 274,558 | | | | 7,957 | | | Reserved for unresolved claims at end of period | | | | 90,793
| | | | 333
| | | | 138,788
| | | | 5,011
| |
Of the 138,78890,793 Class A Interests relating to unresolved claims at March 31, 2021, 24,7602022, 3,449 would be held by Qualifying Victims (Note 7).
The Plan provides for a distribution waterfall that specifies the priority and manner of distribution of available cash, to All Interestholders, excluding distributions of the net sales proceeds from Forfeited Assets. Distributions are to be made (a) to the Class A Interests until they have received distributions of $75.00 per Class A Interest; thereafter (b) to the Class B Interests until they have received distributions of $75.00 per Class B Interest; thereafter (c) to each Liquidation Trust Interest (whether a Class A Interest or Class B Interest) until the aggregate of all distributions made pursuant to this clause equals an amount equivalent to interest, at a per annum fixed rate of 10%, compounded annually, accrued on the aggregate principal amount of all Net Note Claims, Allowed General Unsecured Claims and Net Unit Claims, all as defined in the Plan, treating each distribution pursuant to (a) and (b) above as reductions of such principal amount; and thereafter (d) to the holders of Allowed Subordinated Claims, as defined in the Plan, until such claims are paid in full, including interest, at a per annum fixed rate of 10% or such higher rate as may be agreed to, as provided for in the Plan, compounded annually, accrued on the principal amount of each Allowed Subordinated Claim, as defined.Claim.
During the three months ended March 31, 2022, 1 distribution was declared. During the nine months ended March 31, 2022, 2 2020, adistributions were declared. A distribution in the amount of approximately $53,426,000$39,981,000 was declared on February 4, 2022 which represented $4.50$3.44 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims in the amount of approximately $51,188,000,$39,151,000, which was paid on January 10, 2020March 3, 2022 and (ii) a deposit of approximately $2,238,000$830,000 into a restricted cash account, which was made on March 15, 2022, for amounts, (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) for holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) for distributions that were withheld due to pending avoidance actions; and (e) for holders of Class A Interests for which the Trust is waiting for further beneficiary information. A distribution in the amount of approximately $40,017,000 was declared on October 8, 2021 which represented $3.44 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims in the amount of approximately $39,134,000, which was paid on October 29, 2021 and (ii) a deposit of approximately $883,000 into a restricted cash account, which was made on October 28, 2021, for amounts, (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) for holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) for distributions that were withheld due to pending avoidance actions; and (e) for holders of Class A Interests for which the Trust is waiting for further beneficiary information.
During the three months ended March 31, 2021, 1 distribution was declared. During the nine months ended March 31, 2021, 3 distributions were declared. A distribution in the amount of approximately $50,005,000 was declared on January 7, 2021 which represented $4.28 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims in the amount of approximately $48,665,000, which was paid on January 27, 2021 and (ii) a deposit of approximately $1,340,000 into a restricted cash account, which was made on January 10,28, 2021, for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) for holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) for distributions that were withheld due to pending avoidance actions; and (e) for holders of Class A Interests for which the Trust is waiting for further beneficiary information. A distribution in the amount of approximately $29,957,000 was declared on October 19, 2020 which represented $2.56 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims in the amount of approximately $29,204,000, which was paid on November 6, 2020 and (ii) a deposit of approximately $753,000 into a restricted cash account, which was made on November 3, 2020, for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) tofor holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) for distributions that were withheld due to pending avoidance actions; and (e) in respectfor holders of Class A Interests for which the Trust is waiting for further beneficiary information.
PART I. | FINANCIAL INFORMATION (Continued) |
Item 1. | Financial Statements (Continued) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended March 31, 2021 and 2020
(Unaudited)
On March 31, 2020, a A distribution of approximately $25,000,000 was declared which represented $2.12 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims of approximately $24,193,000, which was paid on April 10, 2020 and (ii) a deposit of approximately $807,000 into a restricted cash account, which was made on April 10, 2020, for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) to holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) that were withheld due to pending avoidance actions; and (e) in respect of which the Trust is waiting for further beneficiary information.
On July 13, 2020, a distributionamount of approximately $29,934,000 was declared on July 13, 2020 which represented $2.56 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims in the amount of approximately $29,201,000, which was paid on July 16, 2020 and (ii) a deposit of approximately $733,000 into a restricted cash account, which was made on August 25, 2020, for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) tofor holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) for distributions that were withheld due to pending avoidance actions; and (e) in respect for holders of Class A Interests for which the Trust is waiting for further beneficiary information.
On October 19 2020, a distribution
During the three months ended March 31, 2022 and 2021, approximately $495,000 and $229,000, respectively, and during the nine months ended March 31, 2022 and 2021, approximately $608,000 and $351,000, respectively, of approximately $29,957,000 was declared which represented $2.56 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims of approximately $29,204,000, which wasdistributions were paid on November 6, 2020 and (ii) a deposit of approximately $753,000 into a restricted cash account, which was made on November 3, 2020, for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) to holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) that were withheld due to pending avoidance actions; and (e) in respect of which the Trust is waiting for further beneficiary information.
On January 7, 2021, a distribution of approximately $50,005,000 was declared which represented $4.28 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims of approximately $48,665,000, which was paid on January 27, 2021 and (ii) a deposit of approximately $1,340,000 into a restricted cash account, which was made on January 28, 2021, for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) to holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) that were withheld due to pending avoidance actions; and (e) in respect of which the Trust is waiting for further beneficiary information.
During the three and nine months ended March 31, 2021 and 2020, distributions of approximately $229,000 and $495,000, and $351,000 and $606,000, respectively, were paid from the restricted cash account to holders of Class A Interestsand distributions payable were reduced by the same amount as (a) claims were resolved, (b) claims were recently allowed, (c) addresses for holders of uncashed distribution checks were obtained, (d) pending avoidance actions were resolved and (e) further beneficiary information was received.
During the three months ended March 31, 2022 and 2021, approximately $472,000 and $47,000, respectively, and during the nine months ended March 31, 2022 and 2021, and 2020, as a result of claims being disallowed or Class A Interests being cancelled, approximately $47,000 and $749,000,$761,000 and $379,000, and $826,000, respectively, were released from the restricted cash account and distributions payable were reduced by the same amount.amount as a result of claims being disallowed or Class A Interests being cancelled.
PART I. | FINANCIAL INFORMATION (Continued) |
Item 1. | Financial Statements (Continued) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended March 31, 2021 and 2020
(Unaudited)
During the three months ended March 31, 2022 and 2021, approximately $0 and $197,000, respectively, and during the nine months ended March 31, 2022 and 2021, and 2020, approximately $197,000 and $37,000,$0, and $431,000, and $149,000, respectively, were received from the Company’s transfer agent and others relating to distribution checks that were returned or not cashed. These amounts were deposited into the restricted cash account and distributions payable were increased by the same amount.
12) | Related Party Transactions |
Terry Goebel, a member of the Trust Supervisory Board, is president and a principal owner of G3 Group LA (G3), a construction firm specializing in the development of high-end luxury residences. G3 Group LA is owned by Terry Goebel and his son Kelly Goebel. As of March 31, 2021,2022, the Company was under contract with G3 Group LA for the development of one 1 single-family home in Los Angeles, California. One additional construction contract was assumed by the buyer of a single-family home in November 2019. As of March 31, 20212022 and June 30, 2020,2021 the remaining amounts payable under this contract were approximately $5,845,000 $3,045,000 and $8,133,000, $4,391,000, respectively. During the three months ended March 31, 2022 and 2021, approximately $267,000 and $1,496,000, respectively, and during the nine months ended March 31, 2022 and 2021, and 2020, approximately $1,496,000 and $2,877,000,$3,443,000 and $5,887,000, and $8,801,000, respectively, were paid by the Company to G3 Group LA.related to this contract.
The Liquidation Trustee of the Trust is entitled to receive 5% of the total gross amount recovered by the Trust from the pursuit of Trust claims andthe Causes of Action. During the three months ended March 31, 2022 and 2021, approximately $23,000 and $72,000, respectively, and during the nine months ended March 31, 2022 and 2021, and 2020, approximately $72,000 and $59,000,$1,334,000 and $462,000, and $238,000, respectively, were accrued as amounts due to the Liquidation Trustee. As of March 31 2021, 2022 and June 30, 2020,2021, approximately $90,000 $1,310,000 and $119,000, $160,000, respectively, were payable to the Liquidation Trustee. These amounts are included in accounts payable and accrued liabilities in the accompanying consolidated statements of net assets in liquidation. During the three and nine months ended March 31, 20212022 and 2020,2021, approximately $0 and $0, respectively, and during the nine months ended March 31, 2022 and 2021, approximately $184,000 and $491,000, and $0, respectively, were paid to the Liquidation Trustee. See Note 15 for additional information.
In November 2019, the Trust entered into an arrangement with Akerman LLP, a law firm based in Miami, Florida of which the Liquidation Trustee is a partner, for the provision, at the option of the Trust on an as-needed basis, of e-discovery and related litigation support services in connection with the Trust’s prosecution of the Causes of Action. Under the arrangement, the Trust is charged for the services at scheduled rates per task which, depending on specific task, include flat rates, rates based on the volume of data processed, rates based on the number of data users, the hourly rates of Akerman LLP personnel, or other rates. During the three and nine months ended March 31, 2022 and 2021, approximately $137,000 and 2020,$109,000, respectively, and during the nine months ended March 31, 2022 and 2021, approximately $109,000 and $426,000,$351,000 and $314,000, and $426,000, respectively, were paid related to these services and there are no0 outstanding payables as of March 31, 2021 or2022 and June 30, 2020.2021.
The executive officers of the Wind-Down Entity are entitled to a bonus based on the Wind-Down Entity achieving certain specified cumulative amounts of distributions to the Trust. Based on the carrying amounts of the net assets in liquidation included in the accompanying consolidated statements of net assets in liquidation, approximately $3,040,000 and $3,840,000, were accrued as of March 31, 20212022 and June 30, 2020, 2021, approximately $2,348,000 and $3,040,000, respectively, were accrued as the estimated amount of the bonus (including associated payroll taxes). These amounts are included in the payroll and payroll- relatedpayroll-related costs portion of accrued liquidation costs in the accompanying consolidated statement of net assets in liquidation. During the three months ended March 31, 2022 and 2021, approximately $692,000 and $1,025,000, respectively, and during the nine months ended March 31, 2022 and 2021, approximately $692,000 and $1,025,000, respectively, were paid related to the bonuses.
During the three and nine months ended March 31, 2022 and 2021, and 2020,the Company recorded the following amounts from the settlement of Causes of Action ($ in thousands):
| | For the Three Months Ended March 31, | | | For the Nine Months Ended March 31, | | | | 2022
| | | 2021
| | | 2022
| | | 2021
| | | | | | | | | | | | | | | Comerica Bank | | $ | 0 | | | $ | 0 | | | $ | 24,815 | | | $ | 0 | | Other settlement recoveries | | | 468 | | | | 1,278 | | | | 1,868 | | | | 8,443 | | Total | | $ | 468 | | | $ | 1,278 | | | $ | 26,683 | | | $ | 8,443 | |
On August 6, 2021, the Trust agreed to settle 2 pending actions against Comerica Bank. As a result, the Company received proceeds of approximately $1,025,000 and $831,000 and $1,025,000 and $831,000, respectively, were paid related$54,500,000 from the settlement during the three months ended March 31, 2022. The allocation of the proceeds is as follows ($ in thousands):
Trust's net portion
| | $ | 24,815 | | Payable to non-contributing claimants | | | 15,600 | | Payable for approved legal fees and litigation costs | | | 13,960 | | Payable for incentive awards | | | 100 | | Payable for administrative costs relating to non-contributing claimants | | | 25 | | Total | | $ | 54,500 | |
All of the proceeds have been distributed according to the bonuses.settlement except for approximately $13,000 payable to non-contributing claimants and approximately $25,000 payable for court approved notice and administrative costs as the Company has not received all of the necessary documentation.
13)14) | Commitments and Contingencies |
As of March 31, 2021,2022, the Company had construction contracts under which an aggregate of which approximately $15,200,000$5,200,000 was unpaid.
The Company hashad a lease for its office space that expiresexpired on August 31, 2021. The Company has onehad 1 three-month option to extend the lease. On June 4, 2021, the Company opted not to extend its existing lease and entered into a new office lease at a different location. The amount ofnew lease is for the period from August 1, 2021 through July 31, 2022. The annual rent is approximately $43,000 plus common area maintenance charges. The Company has 2 six-month options to extend the lease. The Company paid approximately $55,000 for the lease year ending July 31, 2022 relating to prepaid rent, common area maintenance charges and a security deposit for the new lease during the year ended June 30, 2021. During the three months ended March 31, 2022 and 2021, approximately $0 and $76,000, respectively, and during the nine months ended March 31, 2022 and 2021, approximately $50,000 and $221,000, respectively were paid as rent, including common area maintenance and parking charges, during the three and nine months ended March 31, 2021 and 2020 were approximately $76,000 and $74,000, and $221,000 and $208,000, respectively.charges.
PART I. | FINANCIAL INFORMATION (Continued) |
Item 1. | Financial Statements (Continued) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended March 31, 2021 and 2020
(Unaudited)
The Company is not presently the defendant in any material litigation nor, to the Company’s knowledge, is any material litigation threatened against the Company.
The Company is not aware of any environmental liabilities that it believes would have a material adverse effect on its net assets in liquidation.
The Company evaluates subsequent events up until the date the unaudited consolidated financial statements are issued.
The following table summarizes the Liquidation Trust Interests during
During the period from April 1, 20212022 through May 13, 2021:2022, as (a) claims were resolved, (b) claims were recently allowed, (c) addresses for holders of uncashed distribution checks were obtained, (d) pending avoidance actions were resolved and (e) further beneficiary information was received, distributions of approximately $92,000 were paid to holders of Class A Interests from the restricted cash account and distributions payable were reduced by the same amount.
Liquidation Trust Interests | | Class A | | | Class B | | | | | | | | | Outstanding at April 1, 2021 | | | 11,513,660 | | | | 676,312 | | | | | | | | | | | Allowed claims | | | 1,600 | | | | - | | | | | | | | | | | 5% enhancement for certain allowed claims | | | - | | | | - | | | | | | | | | | | Settlement of claims by cancelling Liquidation Trust Interests | | | (1,011 | ) | | | (416
| )
| | | | | | | | | | Outstanding at May 13, 2021 | | | 11,514,249 | | | | 675,896 | |
PART I. | FINANCIAL INFORMATION (Continued) |
Item 1. | Financial Statements (Continued) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended March 31, 2021 and 2020
(Unaudited)
The following table summarizes unresolved claims against the Debtors as they relate to Liquidation Trust Interests (rounded) during the period from April 1, 2021 through May 13, 2021:
Liquidation Trust Interests | | Class A | | | Class B | | | | | | | | | Outstanding at April 1, 2021 | | | 138,788 | | | | 5,011 | | | | | | | | | | | Allowed claims | | | (1,600 | ) | | | - | | | | | | | | | | | Disallowed claims | | | (12,579 | )
| | | - | | | | | | | | | | | Outstanding at May 13, 2021 | | | 124,609 | | | | 5,011 | |
During the period from April 1, 20212022 through May 13, 2021, distributions of approximately $230,000 were paid from the restricted cash account.
During the period from April 1, 2021 through May 13, 2021,2022, as a result of claims being disallowed or Class A Interests being cancelled, approximately $789,000$52,000 was released from the restricted cash account and distributions payable were reduced by the same amount.
Sales of Real Estate Assets During the period from April 1, 20212022 through May 13, 2021,2022, approximately $1,800,000 relating to a pending sale was released from escrow. During the period from April 1, 2022 through May 13, 2022, the Company increased construction contracts by approximately $106,000. During the period from April 1, 2022 through May 13, 2022, the Trust recorded approximately $769,000$23,000 from the settlement of certain Causes of Action. The Company recorded approximately $38,000$1,000 as the amount due to the Liquidation Trustee on account of such settlement.settlements.
On April 29, 2021, the Company received approximately $1,883,000 of cash from the DOJ relating to Forfeited Assets (Note 7).Related Party Transactions
During the period from April 1, 20212022 through May 13, 2021, the Company sold one single-family home and realized net proceeds of approximately $12,950,000. The Company also has an escrow receivable of approximately $2,500,000 related to this sale, which is to be released upon the Company's completion of construction and obtaining a certificate of occupancy.
As of May 13, 2021, the Company has one single-family home under contract. Although the contingencies relating to this pending sale have been removed, no assurance can be given that the sale will close.
On May 13, 2021, a distribution in the amount of approximately $30,000,000 was approved which represented $2.58 per Class A Interest. The distribution is payable on or about June 15, 2021. The distribution included (i) a cash distribution on account of then-allowed claims in the amount of approximately $29,400,000, and (ii) a deposit of approximately $600,000 into a restricted cash account, for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) to holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) that were withheld due to pending avoidance actions; and (e) in respect of which2022, the Trust is waiting for further beneficiary information.
paid approximately $1,241,000 to the Liquidation Trustee.
2423
PART I. | FINANCIAL INFORMATION (CONTINUED) |
PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion and analysis of changes in net assets and net assets in liquidation should be read in conjunction with the accompanying unaudited consolidated financial statements of Woodbridge Liquidation Trust and the related notes thereto. The Trust, the Remaining Debtors, the Wind-Down Entity and the Wind-Down Subsidiaries, as used herein, are defined in Note 1 to the consolidated financial statements and are collectively referred to herein as the Company.“the Company”.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include, without limitation, financial guidance, and projections and statements with respect to expectation of future financial condition, changes in net assets in liquidation, cash flows, plans, targets, goals, objectives and performance of the Trust. Such forward-looking statements also include statements that are preceded by, followed by, or that include the words “believes”, “estimates”, “plans”, “expects”, “intends”, “is anticipated”, “will continue”, “project”, “outlook”, “evaluate”, “may”, “could”, “would”, “should” and similar expressions, and all other statements that are not historical facts. All such forward-looking statements are based on the Trust’s current expectations and involve risks and uncertainties which may cause actual results to differ materially from those set forth in such statements. Such risks and uncertainties include the amount of sales proceeds, timing of sales of real estate assets, timing and amount of funds needed to complete construction of single-family homes, amount of general and administrative costs, the number and amount of successful litigationslitigation and/or settlements and the ability to recover thereon, the amount of funding required to continue litigations,litigation, the continuing impact of the COVID-19 pandemic, interest rates, adverse weather conditions in the regions in which properties to be sold are located, economic and political conditions, changes in tax and other governmental rules and regulations applicable to the Trust and its subsidiaries and other risks and uncertainties identified in Part I. Financial Information, Item 1A. Risk Factors of the Company’s Annual Report on Form 10-K, or contained in any of the Trust’s subsequent filings with the SEC.SEC including in Part II. Other Information, Item 1A. Risk Factors of this Form 10-Q. These risks and uncertainties are beyond the ability of the Trust to control, and in many cases, the Trust cannot predict the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements.
In connection with the “safe harbor” provisions of the Securities Act of 1933 and the Exchange Act, the Trust has identified and is disclosing important factors, risks and uncertainties that could cause its actual results to differ materially from those projected in forward-looking statements made by the Trust, or on the Trust’s behalf. (See “Part II. Other Information, Item 1A. Risk Factors” of this Form 10-Q.) These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of the Trust’s subsequent filings with the SEC. Because of these factors, risks and uncertainties, the Trust cautions against placing undue reliance on forward-looking statements. Although the Trust believes that the assumptions underlying forward-looking statements are currently reasonable, any of the assumptions could be incorrect or incomplete, and there can be no assurance that forward-looking statements will prove to be accurate. Forward-looking statements speak only as of the date on which they are made. Except as may be required by law, the Trust does not undertake any obligations to modify, update or revise any forward-looking statement to take into account or otherwise reflect subsequent events, corrections in or revisions of underlying assumptions, or changes in circumstances arising after the date that the forward-looking statement was made.
Overview
Pursuant to the Plan, the Trust was formed on February 15, 2019 to hold, either directly or indirectly through the Wind-Down Entity and the Wind-Down Subsidiaries, the assets and equity interests formerly owned by the Debtors. Each of the real properties formerly owned by the Debtors was, as of February 15, 2019, owned by one of the Wind-Down Subsidiaries. The purpose of the Wind-Down Entity and the Wind-Down Subsidiaries is to develop (as applicable), market and sell those properties to generate cash. Assets formerly owned by the Debtors other than real estate assets and certain cash were transferred to the Trust. The purpose of the Trust is to receive remittances of cash from the Wind-Down Entity, to resolve disputed claims, to prosecute the Causes of Action, to pay allowed unimpairedadministrative and priority claims, as defined in the Plan, and, subject to the payment of Trust expenses and the retention of various reserves, to make distributions of cash to All Interestholders in accordance with the Plan.
PART I. | FINANCIAL INFORMATION (CONTINUED) |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
|
The Trust operates pursuant to the Plan and the Trust Agreement. The Trust was formed as a Delaware statutory trust and is administered by the Liquidation Trustee under the supervision of its Supervisory Board. The Wind-Down Entity, a wholly-owned subsidiary of the Trust, operates pursuant to the Plan and the Wind-Down Entity LLC Agreement. The Wind-Down Entity was formed as a Delaware limited liability company and is administered by its Board of Managers, one of which is the chief executive officer. One member of the Board of Managers is also a member of the Supervisory Board of the Trust.
The Bankruptcy Court has retained certain jurisdictions regarding the Trust, the Liquidation Trustee, the Supervisory Board, the Wind-Down Entity, the Board of Managers, and assets of the Trust and the Wind-Down Entity, including the determination of all disputes arising out of or related to administration of the Trust and the Wind-Down Entity and its subsidiaries.
As of March 31, 2021,2022, the number of Liquidation Trust Interests outstanding in each class is as follows:
Class of Interest | | Number Outstanding | | | | | | Class A Liquidation Trust Interests | | | 11,513,66011,516,439 | | | | | | | Class B Liquidation Trust Interests | | | 676,312675,617 | |
For each of the classes of Liquidation Trust Interests, the number of Liquidation Trust Interests outstanding will increase to the extent that the disputed claims become allowed claims. In addition, the number of Liquidation Trust Interests outstanding will decrease to the extent that disputed claims are settled by cancelling previously issued Liquidation Trust Interests.
On December 24, 2019, the Trust’s Registration Statement on Form 10 became effective under the Exchange Act.The trading symbol for the Trust’s Class A Interests is WBQNL. The Trust’s Class A Interests are quoted on OTC Link ATS, the SEC-registered alternative trading system, and are eligible for the Depository Trust Company’s DRS services.
PART I. | FINANCIAL INFORMATION (CONTINUED) |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
|
Since the Plan Effective Date through March 31, 2021,2022, the Wind-Down Subsidiaries have disposed of approximately 131143 properties for aggregate net sales proceeds of approximately $403.73$481.73 million. During the period from April 1, 2022 through May 13, 2022, the Company did not sell any real estate assets. As of March 31, 2021,2022, the Company owned fourteenseven real estate assets (including two single-family homes under construction) with a gross carrying value of approximately $164.81$100.54 million. Therefore, it is unlikely that the amount of net sales proceeds that the Company will receive in the future will be consistent with the amount received from the Plan Effective Date through March 31, 2021. Duringfor the three months ended March 31, 2021 and 2020, the Company completed the construction of zero and one single-family home, respectively. During theor nine months ended March 31, 2021,2022 will be indicative of future net proceeds, which are likely to be significantly lower. In addition, it may take longer to sell the properties than the Company sold one single-family home that was under construction. The buyer assumed the remaining obligations to complete the construction of the property.has estimated. The Company expects to complete the liquidation of its assets during the fiscal year ending June 30, 2023.2024.
Discussion of the Company’s Operations
Three months ended March 31, 20212022
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the three months ended March 31, 2022 ($ in thousands):
| | Restricted for Qualifying Victims | | | All Interestholders | | | Total | | | | | | | | | | | | | | Net assets in liquidation as of December 31, 2021 | | $ | 3,203 | | | $ | 124,302 | | | $ | 127,505 | | | | | | | | | | | | | | | Change in assets and liabilities: | | | | | | | | | | | | | Restricted for Qualifying Victims - change in carrying | | | | | | | | | | | | | value of assets and liabilities, net | | | - | | | | - | | | | - | | | | | | | | | | | | | | | All Interestholders: | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | | - | | | | 8,266 | | | | 8,266 | | Distributions (declared) reversed, net | | | - | | | | (39,509 | ) | | | (39,509 | ) | Net change in assets and liabilities | | | - | | | | (31,243 | ) | | | (31,243 | ) | | | | | | | | | | | | | | Net assets in liquidation, as of March 31, 2022 | | $ | 3,203 | | | $ | 93,059 | | | $ | 96,262 | |
There was no change to Net assets in liquidation – Restricted for Qualifying Victims during the three months ended March 31, 2022.
Net assets in liquidation – All Interestholders decreased by approximately $31.24 million during the three months ended March 31, 2022. This decrease was due to an increase in the carrying value of assets and liabilities, net of approximately $8.27 million and distributions (declared) reversed, net of approximately $39.51 million.
The components of the approximately $8.27 million net change in the carrying value of assets and liabilities are as follows ($ in thousands):
| | Restricted for Qualifying Victims | | | All Interestholders | | | Total | | | | | | | | | | | | Other settlement recoveries recognized, net (1)
| | $
| - | | | $
| 445 | | | $
| 445 | | Remeasurement of assets and liabilities, net | |
| - | | | | 7,627 | | | | 7,627 | | Other | | | - | | | | 194 | | | | 194 | | Change in carrying value of assets and liabilities, net | | $ | - | | | $ | 8,266 | | | $ | 8,266 | |
(1) | Net of the 5% payable to the Liquidation Trustee of approximately $22 ($ in thousands). |
During the three months ended March 31, 2022, the Company:
| o | Declared a distribution of $3.44 per Class A Interest, which totaled approximately $39.98 million. |
| o | Sold the rest of the gold Forfeited Assets for net proceeds of approximately $0.12 million. |
| o | Completed construction of one single-family home (642 St. Cloud). |
| o | Settled one secured loan for net proceeds of approximately $0.72 million. |
| o | Signed agreements to settle other Causes of Action for payment to the Trust of approximately $0.47 million. |
| o | Paid construction costs of approximately $1.80 million relating to single-family homes under development. |
| o | Paid holding costs of approximately $0.66 million. |
| o | Paid general and administrative costs of approximately $4.04 million, including approximately $0.17 million of board member fees and expenses, approximately $1.84 million of payroll and other general and administrative costs and approximately $2.03 million of professional fees. |
For the three months ended March 31, 2021 ($
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the three months ended March 31, 2021 ($ in thousands):
| | Restricted for Qualifying Victims | | All Interestholders | | Total | | | Restricted for Qualifying Victims | | All Interestholders | | Total | | | | | | | | | | | | | | | | | Net assets in liquidation as of December 31, 2020 | | $ | - | | $ | 210,476 | | $ | 210,476 | | | Net assets in liquidation as of December 31, 2021 | | | $ | - | | | $ | 210,476 | | | $ | 210,476 | | | | | | | | | | | | | | | | | | | | | | Change in assets and liabilities: | | | | | | | | | | | | | | | | | | | | Restricted for Qualifying Victims - change in carrying value of assets and liabilities, net | | | 3,459 | | | - | | | 3,459 | | | | 3,459 | | | | - | | | | 3,459 | | | | | | | | | | | | | | | | | | | | | | All Interestholders: | | | | | | | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net
| | - | | 1,974
|
| | 1,974
|
| | | - | | | | 1,974 | | | | 1,974 | | Distributions (declared) reversed, net | | | - | | | (49,958 | ) | | | (49,958 | ) | | | - | | | | (49,958 | ) | | | (49,958 | ) | Net change in assets and liabilities | | | - | | | (47,984 | ) | | | (47,984 | ) | | | - | | | | (47,984 | ) | | | (47,984 | ) | | | | | | | | | | | | | | | | | | | | | Net assets in Liquidation, as of March 31, 2021 | | $ | 3,459 | | $ | 162,492 | | | 165,951 | | | Net assets in liquidation, as of March 31, 2021 | | | $ | 3,459 | | | $ | 162,492 | | | $ | 165,951 | |
Net assets in liquidation – Restricted for Qualifying Victims increased by approximately $3.46 million during the three months ended March 31, 2021. The increase was the result of receiving the Forfeited Assets from the DOJ during the three months ended March 31, 2021.
Net assets in liquidation – All Interestholders decreased by approximately $47.98 million during the three months ended March 31, 2021. This decrease was due to: (a) an increaseto changes in the carrying value of assets and liabilities, net of approximately $1.97 million and (b)distributions (declared) reversed, net distributions of approximately $49.95 million.
The components of the approximately $3.46 million and $1.97 million net change in the carrying value of assets and liabilities, net are as follows ($ in thousands):
| | Restricted for Qualifying Victims | | | | Total | | | Restricted for Qualifying Victims | | All Interestholders | | Total | | | | | | | | | | | | | | | | | Recognition of Forfeited Assets | | $ | 3,459 | | $ | - | | $ | 3,459 | | | $ | 3,459 | | $ | - | | $ | 3,459 | | Remeasurement of assets and liabilities, net | | - | | 2,473 | | 2,473 | | | - | | 2,473 | | 2,473 | | Settlement recoveries recognized, net | | - | | 1,326 | | 1,326 | | | Adjustment to insurance claim receivable | | - | | (1,900 | ) | | (1,900 | ) | | Other settlement recoveries recognized, net (1) | | | - | | 1,326 | | 1,326 | | Carrying value in excess of sales proceeds | | | - | | (1,900 | ) | | (1,900 | ) | Other | | | - | | | 75 | | | 75 | | | | - | | | 75 | | | 75 | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 3,459 | | $ | 1,974 | | $ | 5,433 | | | $ | 3,459 | | $ | 1,974 | | $ | 5,433 | |
(1) | Net of the 5% payable to the Liquidation Trustee of approximately $72 ($ in thousands). |
During the three months ended March 31, 2021, the Company:
| o | Declared a distribution of $4.28 per Class A Interest, which totaled approximately $50.01 million. |
| o | Signed agreements to settle other Causes of Action for payment to the Trust of approximately $1.28 million. |
| o | Recorded Forfeited Assets with an estimated net realizable value of approximately $3.46 million. |
Declared a distribution of $4.28 per Class A Liquidation Trust Interest, which totaled approximately $50.01 million.
Signed agreements to settle certain Causes of Action for payment to the Trust of approximately $1.28 million.
Recorded Forfeited Assets with an estimated net realizable value of approximately $3.46 million.
Paid construction costs of approximately $5.77 million relating to single-family homes under development.
27
PART I. | FINANCIAL INFORMATION (CONTINUED) |
Item 2. |
PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
| o | Paid construction costs of approximately $5.77 million relating to single-family homes under development. |
| o | Paid holding costs of approximately $0.77 million. |
| o | Paid general and administrative costs of approximately $4.29 million, including approximately $0.21 million of board member fees and expenses, approximately $1.90 million of payroll and other general and administrative costs and approximately $2.18 million of professional fees. |
Paid holding costs of approximately $0.77 million.
Paid general and administrative costs of approximately $4.29 million, including approximately $0.21 million of board member fees and expenses, approximately $1.90 million of payroll and other general and administrative costs and approximately $2.18 million of post Plan Effective Date professional fees.
ThreeNine months ended March 31, 20202022
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation For for the threenine months ended March 31, 2020
($2022 ($ in thousands):
Net assets in liquidation, as of December 30, 2019 | | $ | 334,583 | | | | | | Restricted for Qualifying Victims | | All Interestholders | | Total | | | | | | | | | | | Net assets in liquidation as of June 30, 2021 | | | $ | 3,167 | | $ | 126,373 | | $ | 129,540 | | | | | | | | | | | Change in assets and liabilities: | | | | | | | | | | | Restricted for Qualifying Victims - change in carrying value of assets and liabilities, net | | | | 36 | | | - | | | 36 | | | | | | | | | | | All Interestholders: | | | | | | | | | Change in carrying value of assets and liabilities, net | | 12,905 | | | - | | 45,922 | | 45,922 | | Distributions (declared) reversed, net | | | (77,678 | ) | | | - | | | (79,236 | ) | | | (79,236 | ) | Net change in assets and liabilities | | | (64,773 | ) | | | - | | | (33,314 | ) | | | (33,314 | ) | Net assets in liquidation, as of March 31, 2020 | | $ | 269,810 | | | | | | | | | | | | Net assets in liquidation, as of March 31, 2022 | | | $ | 3,203 | | $ | 93,059 | | $ | 96,262 | |
Net assets in liquidation decreased– Restricted for Qualifying Victims increased by approximately $64.77$0.04 million during the threenine months ended March 31, 2020.2022.
Net assets in liquidation – All Interestholders decreased by approximately $33.31 million during the nine months ended March 31, 2022. This increasedecrease was due to: (a)to an increase in the carrying value of assets and liabilities, net of approximately $12.91$45.92 million and (b)distributions (declared) reversed, net distributions of approximately $77.68$79.23 million.
The components of the approximately $12.91$0.04 million and $45.92 million of the net change in the carrying value of assets and liabilities net are as follows ($ in thousands):
Settlement recoveries recognized, net | | $ | 1,120 | | | | | | Restricted for Qualifying Victims | | All Interestholders | | Total | | Causes of Action, net(1) : | | | | | | | | | Comerica Bank | | | $ | - | | $ | 23,575 | | 23,575 | | Other settlement agreements | | | - | | 1,777 | | 1,777 | | Sales proceeds in excess of carrying value | | 16,873 | | | - | | 6,460 | | 6,460 | | Remeasurement of assets and liabilities, net | | (5,345 | ) | | 36 | | 13,428 | | 13,464 | | Other | | | 257 | | | | - | | | 682 | | | 682 | | Change in carrying value of assets and liabilities, net | | $ | 12,905 | | | $ | 36 | | $ | 45,922 | | $ | 45,958 | |
(1) | Net of the 5% payable to the Liquidation Trustee of approximately $1,241 for Comerica Bank and $93 for other settlement agreements ($ in thousands). |
During the threenine months ended March 31, 2020,2022, the Company:
Declared distributions of $4.50 and $2.12 per Class A Liquidation Trust Interest, which totaled approximately $78.43 million.
Completed construction of one single-family home (1241 Loma Vista).
Sold two single-family homes, two lots and settled one secured loan for net proceeds of approximately $74.27 million.
Adopted a strategy to auction certain secured loans and other properties. As a result of this change in strategy, the net carrying value of these real estate assets was reduced by approximately $1.86 million.
Signed agreements to settle certain Causes of Action of approximately $1.18 million.
Paid construction costs of approximately $11.79 million relating to single-family homes under development.
Paid holding costs of approximately $2.11 million.
PART I.
| FINANCIAL INFORMATION (CONTINUED) |
Item 2.o | Management’s Discussion and AnalysisDeclared two distributions, both of Financial Condition and Results of Operations (Continued) $3.44 per Class A Interest, which totaled approximately $80.00 million. |
| o | Sold the wine and the gold Forfeited Assets for net proceeds of approximately $0.49 million. |
| o | Completed construction of one single-family home (642 St. Cloud). |
| o | Sold four single-family homes and settled two secured loans for net proceeds of approximately $64.40 million. One of the single-family homes was under construction. |
| o | Recorded approximately $24.81 million from the settlement of the two pending actions against Comerica Bank, the California Class Action and the Delaware Adversary Action. |
Paid general and administrative costs of approximately $5.52 million, including approximately $0.26 million of board member fees and expenses, approximately $2.23 million of payroll and other general and administrative costs and approximately $3.03 million of post Plan Effective Date professional fees.
| o | Signed agreements to settle other Causes of Action for payment to the Trust of approximately $1.87 million. |
| o | Paid construction costs of approximately $9.47 million relating to single-family homes under development. |
| o | Paid holding costs of approximately $1.90 million. |
| o | Paid general and administrative costs of approximately $12.56 million, including approximately $0.56 million of board member fees and expenses, approximately $4.68 million of payroll and other general and administrative costs and approximately $7.32 million of professional fees. |
Nine months ended March 31, 2021
Consolidated Statement of Changes in Net Assets in Liquidation
For the nine months ended March 31, 2021 ($
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the nine months ended March 31, 2021 ($ in thousands):
| | Restricted for Qualifying Victims | | | | Total | | | Restricted for Qualifying Victims | | All Interestholders | | Total | | | | | | | | | | | | | | | | | Net assets in liquidation as of June 30, 2020 | | $ | - | | $ | 264,517 | | $ | 264,517 | | | $ | - | | $ | 264,517 | | $ | 264,517 | | | | | | | | | | | | | | | | | Change in assets and liabilities: | | | | | | | | | | | | | | | Restricted for Qualifying Victims - change in carrying value of assets and liabilities, net | | | 3,459 | | | - | | | 3,459 | | | | 3,459 | | | - | | | 3,459 | | | | | | | | | | | | | | | | | All Interestholders: | | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | - | | 7,529 | | 7,529 | | | - | | 7,529 | | 7,529 | | Distributions (declared) reversed, net | | | - | | | (109,554 | ) | | | (109,554 | ) | | | - | | | (109,554 | ) | | | (109,554 | ) | Net change in assets and liabilities | | | - | | | (102,025 | ) | | | (102,025 | ) | | | - | | | (102,025 | ) | | | (102,025 | ) | | | | | | | | | | | | | | | | Net assets in Liquidation, as of March 31, 2021 | | $ | 3,459 | | $ | 162,492 | | | 165,951 | | | Net assets in liquidation, as of March 31, 2021 | | | $ | 3,459 | | $ | 162,492 | | $ | 165,951 | |
Net assets in liquidation – Restricted for Qualifying Victims increased by approximately $3.46 million during the nine months ended March 31, 2021.2022.
Net assets in liquidation – All Interestholders decreased by approximately $102.02 million during the nine months ended March 31, 2021. This decrease was due to: (a) an increase in the carrying value of assets and liabilities of approximately $7.53 million and (b) net distributions of approximately $109.55 million.
The components of the change in the carrying value of assets and liabilities, net are as follows ($ in thousands):
| | Restricted for | | | All | | | | | | | Qualifying Victims | | | Interestholders | | | Total | | | | | | | | | | | | Recognition of Forfeited Assets | | $ | 3,459 | | | $ | - | | | $ | 3,459 | | Settlement recoveries recognized, net | | | - | | | | 8,013 | | | | 8,013 | | Carrying value in excess of sales proceeds | | | - | | | | (1,540 | ) | | | (1,540 | ) | Remeasurement of assets and liabilities, net | | | - | | | | 2,775 | | | | 2,775 | | Adjustment to insurance claim receivable | | | - | | | | (1,900 | ) | | | (1,900 | ) | Other | | | | | | | 181 | | | | 181 | | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 3,459 | | | $ | 7,529 | | | $ | 10,988 | |
During the nine months ended March 31, 2021, the Company:
Declared three distributions, two each of $2.56 and one of $4.28 per Class A Liquidation Trust Interest, which totaled approximately $109.93 million.
PART I. | FINANCIAL INFORMATION (CONTINUED) |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
|
Sold five single-family homes, two lots and eleven other properties for net proceeds of approximately $121.16 million.
Signed agreements to settle certain Causes of Action for payment to the Trust of approximately $8.44 million.
Recorded forfeited assets with an estimated net realizable value of approximately $3.46 million.
Paid construction costs of approximately $22.04 million relating to single-family homes under development.
Paid holding costs of approximately $4.13 million.
Paid general and administrative costs of approximately $14.39 million, including approximately $0.68 million of board member fees and expenses, approximately $6.35 million of payroll and other general and administrative costs and approximately $7.36 million of post Plan Effective Date professional fees.
Nine months ended March 31, 2020
Consolidated Statement of Changes in Net Assets in Liquidation
For the nine months ended March 31, 2020
($ 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 | | | 17,440 | | Distributions (declared) reversed, net | | | (77,601 | ) | Net change in assets and liabilities | | | (60,161 | ) | Net assets in liquidation, as of March 31, 2020 | | $ | 269,810 | |
Net assets in liquidation decreased by approximately $60.16 million during the nine months ended March 31, 2020. This increase was due to: (a) changes in the carrying value of assets and liabilities, net of approximately $17.44$7.53 million and (b)distributions (declared) reversed, net distributions of approximately $77.60$109.55 million.
The components of the approximately $17.44$3.46 million and $7.53 million change in the carrying value of assets and liabilities, net are as follows ($ in thousands):
Reduction of state, local and other taxes | | $ | 2,890 | | | Settlement recoveries recognized, net | | 4,596 | | | Sales proceeds in excess of carrying value | | 20,164 | | | | | | Restricted for Qualifying Victims | | All Interestholders | | Total | | | | | | | | | | | Recognition of Forfeited Assets | | | $ | 3,459 | | $ | - | | $ | 3,459 | | Settlement recoveries recognized, net (1) | | | - | | 8,013 | | 8,013 | | Carrying value in excess of sales proceeds | | | - | | (1,540 | ) | | (1,540 | ) | Remeasurement of assets and liabilities, net | | (10,660 | ) | | - | | 2,775 | | 2,775 | | Adjustment to insurance claim receivable | | | - | | (1,900 | ) | | (1,900 | ) | Other | | | 450 | | | $ | - | | $ | 181 | | $ | 181 | | Change in carrying value of assets and liabilities, net | | $ | 17,440 | | | $ | 3,459 | | $ | 7,529 | | $ | 10,988 | |
(1) | Net of the 5% payable to the Liquidation Trustee of approximately $462 ($ in thousands). |
During the nine months ended March 31, 2020,2021, the Company:
Declared distributions of $4.50 and $2.12 per Class A Liquidation Trust Interest, which totaled approximately $78.43 million.
PART I.
| FINANCIAL INFORMATION (CONTINUED) |
Item 2.o | Management’s DiscussionDeclared three distributions, two each of $2.56 and Analysisone of Financial Condition and Results of Operations (Continued) $4.28 per Class A Interest, which totaled approximately $109.93 million. |
| o | Sold five single-family home, two lots and eleven other properties for net proceeds of approximately $121.16 million. One of the single-family homes was under construction and the buyer assumed the remaining obligations to complete the construction of the property of approximately $11.25 million. |
| o | Signed agreements to settle Causes of Action for payment to the Trust of approximately $8.44 million. |
| o | Recorded Forfeited Assets with an estimated net realizable value of approximately $3.46 million. |
| o | Paid construction costs of approximately $22.04 million relating to single-family homes under development. |
| o | Paid holding costs of approximately $4.13 million. |
| o | Paid general and administrative costs of approximately $14.39 million, including approximately $0.68 million of board member fees and expenses, approximately $6.35 million of payroll and other general and administrative costs and approximately $7.36 million of professional fees. |
Completed construction of three single-family homes (25210 Jim Bridger, 1241 Loma Vista and 24055 Hidden Ridge).
Sold ten single-family homes, 18 lots, two other properties and settled three secured loans for net proceeds of approximately $177.97 million.
Adopted a strategy to auction certain secured loans and other properties. As a result of this change in strategy, the net carrying value of these real estate assets were reduced by approximately $1.86 million.
Signed agreements to settle certain Causes of Action of approximately $4.84 million.
Paid construction costs of approximately $37.33 million relating to single-family homes under development.
Paid holding costs of approximately $8.69 million.
Paid general and administrative costs of approximately $17.09 million, including approximately $0.85 million of board member fees and expenses, approximately $5.37 million of payroll and other general and administrative costs and approximately $10.87 million of post Plan Effective Date professional fees.
Paid professional fees incurred before the Plan Effective Date of approximately $0.36 million.
Liquidity and Capital Resources
Liquidity
The Company’s primary sources for meeting its capital requirements are its cash and cash equivalents, availability under the LOC, proceeds from the sale of its real estate assets and recoveries from certain Causes of Action. The Company’s primary uses of funds are and will continue to be for distributions, development costs, holding costs and general and administrative costs, all of which the Company expects to be able to adequately fund over the next twelve months from its primary sources of capital.
Capital Resources
In addition to consolidated cash and cash equivalents at March 31, 20212022 of approximately $74.61$43.49 million (of which approximately $7.91$9.10 million is restricted), the capital resources available to the Company and its uses of liquidity are as follows:
Revolving Line of Credit
On June 19, 2020, two wholly-owned subsidiaries of the Wind-Down Entity entered into a $25,000,000 revolving LOC. On February 11, 2021, the LOC was amended. Two additional wholly owned subsidiaries of the Wind-Down Entity were joined to the LOC as co-borrowers and two properties were added as replacement collateral as allowed for in the original agreement. The maturity date of the LOC was changed to January 31, 2023 with an option to extend for one additional year. The LOC required 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 LOC is secured by a deed of trust on two properties, the personal property associated therewith and the interest reserve. The Wind-Down Entity is the guarantor of the LOC. The Company is required to keep a cash balance of $20,000,000 on deposit with the lender in order to avoid a non-compliance fee of 2% of the shortfall in the required deposit and is required to comply with various covenants.
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PART I. | FINANCIAL INFORMATION (CONTINUED) |
Item 2. |
PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
| o | Revolving Line of Credit: On June 19, 2020, two wholly-owned subsidiaries of the Wind-Down Entity entered into a $25.00 million LOC. On February 11, 2021, the LOC was amended. Two additional wholly owned subsidiaries of the Wind-Down Entity were joined to the LOC as co-borrowers and two properties were added as replacement collateral. The maturity date of the LOC was changed to January 31, 2023 with an option to extend for one additional year, subject to the availability of collateral. The LOC required the borrowers to establish an interest reserve of $1.75 million, 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 LOC is secured by a deed of trust on two properties, the personal property associated therewith and the interest reserve. The Wind-Down Entity is the guarantor of the LOC. The Company is required to keep a cash balance of $20.00 million on deposit with the lender in order to avoid a non-compliance fee of 2% of the shortfall in the required deposit and is required to comply with various covenants. No amounts were outstanding under the LOC as of March 31, 2022 or May 13, 2022. |
No amounts were outstanding under the LOC as of March 31, 2021 or
| o | Sales of Real Estate Assets: The Wind-Down Entity and the Wind-Down Subsidiaries are in the process of developing, marketing and selling their real estate assets, all of which are held for sale. As of March 31, 2022, the Company owned a total of seven real estate assets with a gross carrying value of approximately $100.54 million. The majority of the gross carrying value is concentrated in the three single-family homes. Four single-family homes were under construction; two that are owned as of March 31, 2022, one that was sold in December 2021 and one that was sold in May 13, 2021. During the three months ended March 31, 2022, the Company settled one secured loan for net proceeds of approximately $725,000. During the nine months ended March 31, 2022, the Company sold four single-family homes and settled two secured loans for net proceeds of approximately $64,405,000. It is unlikely that the net proceeds for the three or nine months ended March 31, 2022 will be indicative of future net proceeds, which are likely to be significantly lower. In addition, it may take longer to sell the properties than the Company has estimated. |
| o | Recoveries: During the three and nine months ended March 31, 2022, the Company recognized approximately $0.47 million and $26.68 million, respectively, from the settlement of Causes of Action. The recoveries for the three and nine months ended March 31, 2022 include approximately $0 and $24.81 million from Comerica Bank. There can be no assurance that the amounts the Company recovers from settling Causes of Action in the future will be consistent with the amount recovered during the three and nine months ended March 31, 2022. |
Sales of Real Estate Assets
The Wind-Down Entity and the Wind-Down Subsidiaries are in the process of developing, marketing and selling their real estate assets. As of March 31, 2021, one of the single-family homes was listed for sale. All of the other single-family homes are under construction. There can be no assurance as to the amount of net proceeds that the Company will receive from the sale of real estate assets or when the net sales proceeds will be received. As of March 31, 2021, the Company owned fourteen real estate assets with a gross carrying value of approximately $164.81 million. Therefore, it is unlikely that the net proceeds for the nine months ended March 31, 2021 will be indicative of future net proceeds, which may be significantly lower. In addition, it may take longer to sell the properties than the Company has estimated.
Causes of Action and Fair Funds Recoveries
During the three and nine months ended March 31, 2021, the Company recognized approximately $1.33 and $8.01 million, net, respectively, from the settlement of certain Causes of Action. There can be no assurance that the amounts the Company receives from settling other Causes of Action and Fair Funds recoveries in the future will be consistent with the amount recovered during the three and nine months ended March 31, 2021.
Forfeited Assets
Forfeited Assets consist of cash and other assets (jewelry, art, wine, purses, clothing, a car and other items). During the three months ended March 31, 2021, the Trust received certain of the Forfeited Assets from the DOJ. During the three and nine months ended March 31, 2021, the Company recognized approximately $3.46 million and $3.46 million, respectively of Forfeited Assets, including a $1.89 million receivable for cash not yet received from the DOJ.
The Trust is required to distribute the net sale proceeds from liquidating the Forfeited Assets to the Qualifying Victims. Qualifying Victims are the former holders of Class 3 and Class 5 Claims and their permitted assigns. Former holders of Class 4 Claims are not Qualifying Victims. Because of the requirement to distribute the net sale proceeds of the Forfeited Assets to the Qualifying Victims only, the Forfeited Assets at March 31, 2021 are presented in the consolidated statement of net assets as restricted net assets in liquidation. At March 31, 2021, 11,439,782 of the 11,513,660 Class A Interests were held by Qualifying Victims. Of the 138,788 Class A Interests relating to unresolved claims at March 31, 2021, 24,760 would be held by Qualifying Victims.
Uses of Liquidity
The primary uses of the Company’s liquidity are to pay (a) distributions payable, (b) development costs, (c) holding costs, and (d) general and administrative costs. As of March 31, 2021,2022, the Company’s total liabilities were approximately $68.33$47.50 million. The total liabilities recorded as of March 31, 20212022 may not be indicative of the costs paid in future periods, which may be significantly higher.
Given current cash and cash equivalent balances, projected sales of real estate assets, availability under the LOC, Causes of Action recoveries, distributions declared and expected cash needs, the Company does not expect a deficiency in liquidity in the next twelve 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 otherunresolved Causes of Action.
PART I. | FINANCIAL INFORMATION (CONTINUED) |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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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 May 13, 2021,2022, the Liquidation Trustee has declared sixnine distributions on account ofto the Class A Interests.Interestholders. The distributions are paid on account of the then-allowed claims and a deposit is made into a restricted cash account for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims, (b) in respect of Class A Interests on account of recently allowed claims, (c) tofor holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions, (d) for distributions that were withheld due to pending avoidance actions and (e) in respectfor holders of Class A Interests for which the Trust is waiting for further beneficiary information.
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 have 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 the holders that, unless such holders contact the Trust no later than February 28, 2022, in accordance with the Plan, the holders’ reserved and future distributions will be deemed forfeited. 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 March 31, 20212022 and from February 15, 2019 (inception) through May 13, 2021:2022:
| Date Declared | | $ per
Class A Interest | | | During the Period from February 15, 2019 (inception) through March 31, 2022 ($ in Millions) | | | During the Period from
February 15, 2019 (inception) through May 13, 2022 ($ in Millions) | | | | 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 | | Subtotal | | $ | 29.23 | | | $ | 343.08 | | | $ | 332.43 | | | | 10.65 | | | $ | 343.08 | | | $ | 332.43 | | | | 10.65 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Distributions Reversed | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Disallowed/cancelled (b) | | | | | | | | | | | | | | | (3.57 | ) | | | | | | | | | | | (3.62 | ) | Returned (c) | | | | | | | | | | | | | | | 0.73 | | | | | | | | | | | | 0.73 | | Subtotal | | | | | | | | | | | | | | | (2.84 | ) | | | | | | | | | | | (2.89 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Distributions Paid from Reserve Account (d) | | | | | | | | | | | | (2.78 | ) | | | | | | | | | | | (2.87 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Distributions Payable, Net | | | | | | | | | | as of 3/31/2022: | | | $ | 5.03 | | | | | | | as of 5/13/2022: | | | $ | 4.89 | |
| | | $ per
Class A Interest | | | During the Period From February 15, 2019 (inception) through March 31, 2021 ($ in Millions) | | | During the Period From February 15, 2019 (inception) through May 13, 2021 ($ in Millions) | | |
| Date | | Total Declared | | | Paid | | | Distribution Reserve Account | | | Total Declared | | | Paid | | | Distribution Reserve 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
| | | | -
| | | | -
| | | | -
| | | | 30.00
| | | | -
| | | | -
| | | Subtotal | | | $ | 22.35 | | | $ | 233.06 | | | $ | 224.81 | | | $ | 8.25 | | | $ | 263.06 | | | $ | 224.81 | | | $ | 8.25 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Distributions Reversed | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Disallowed/cancelled (b) | | | | | | | | | | | | | | | | (2.02 | ) | | | | | | | | | | | (2.81 | ) |
| Returned (c) | | | | | | | | | | | | | | | | 0.58 | | | | | | | | | | | | 0.58 | | | Subtotal | | | | | | | | | | | | | | | | (1.44 | ) | | | | | | | | | | | (2.23 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions Paid from Reserve Account (d) | | | | | | | | | | | | | | | (1.91 | ) | | | | | | | | | | | (2.14 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Distributions Payable, Net | | | | | | | | | | | as of 3/31/2021: | | | $ | 4.90 | | | | | | | as of 5/13/2021: | | | $ | 3.88
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| (a) | Approved on May 13, 2021. The seventh distribution included the cash the Trust received from Fair Funds. |
| (b) | As a result of claims being disallowed or Class A Interests being cancelled. |
| (c) | Distribution checks returned or not cashed. |
| (d) | Paid as claims are allowed or resolved. |
As claims are resolved, additional Class A Interests may be issued or cancelled (see the Company’s Annual Report on Form 10-K filed on September 27, 2021, “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).
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 Trust Interests are advised that future distributions from the Trust will be 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 determine.
Contractual Obligations
As of March 31, 2021,2022, the Company has contractual commitments related to construction contracts totaling approximately $15.20$5.20 million. The Company expects to complete the construction of thesethe single-family homes during the fiscal year ending June 30, 2022. The Company has an office lease that expires in August 2021.July 2022. The Company has two six-month options to extend the lease. The Company expects that it will continue to lease office space until the liquidation process is completed.
Quantitative Disclosures about Market Risk
As of March 31, 2021, the Company does not have any market risk exposure as defined by Securities and Exchange Commission Regulation 229.305.
PART I. | FINANCIAL INFORMATION (CONTINUED) |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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Critical Accounting Policies and Practices
The Company’s consolidated financial statements are prepared in accordance with U.S. GAAP. The accounting policies and practices that the Company believes are the most critical are discussed below. These accounting policies and practices require management to make decisions on subjective and/or complex matters that may inherently be uncertain. Estimates are required to prepare the consolidated financial statements in conformity with U.S. GAAP. Significant estimates, judgments and assumptions are required in a number of areas, including, but not limited to, the sales price of real estate assets, selling costs, development costs, holding costs and general and administrative costs to be incurred until the completion of the liquidation of the Company. In many instances, changes in the accounting estimates are likely to occur from period to period. Actual results may differ from the estimates. The Company believes the current assumptions and other considerations used in preparing the consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in the Company’s consolidated financial statements, the resulting changes could have a material adverse effect on the Company’s net assets in liquidation.
Liquidation Basis of Accounting
Under the liquidation basis of accounting, all assets are recorded at their estimated net realizable value or liquidation value, which represents the estimated amount of net cash that may 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 forfrom the future recoveries from unsettledsettlement of unresolved Causes of Action or Fair FundsFund recoveries in the accompanying consolidated financial statements because they cannot be reasonably estimated.
Valuation of Real Estate
The measurement of real estate assets held for sale is based on the terms of 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 considersconsidered 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-partythird party appraisals.
Accrued Liquidation Costs
The estimated costs associated with implementing and completing the Company’s plan of liquidation are recorded as accrued liquidation costs. The Company has also recorded the estimated development costs to be incurred to prepare the assets for sale as well as the estimated holding costs to be incurred until the projected sale date and the estimated general and administrative costs to be incurred until the completion of the liquidation of the Company.
Changes in Carrying Value
On a quarterly basis, the Company reviews the estimated net realizable values, and liquidation costs and the estimated date of the completion of the liquidation of the Company and records any significant changes. The Company will also evaluate 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 also include a change to the accrued liquidation costs related to the asset.
All changes in the estimated liquidation value of the Company’s assets, real estate held for sale, or other assets and liabilities are reflected as a change to the Company’s net assets in liquidation.
Causes of Action
The Company does not record any amount from the future settlement of unresolved Causes of Action or recoveries from Fair Fund or Forfeited Assets (including those that may be settled, but subject to court or other regulatory agency approval) in the accompanying consolidated financial statements since they cannot be reasonably estimated. The Company recognizes recoveries from the settlement of unresolved Causes of Action when an agreement has been executed and collectability is reasonably assured.
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