Financial Distress Issues for Family Farmers and …...Take Stock of your Loan Situation Any defects...
Transcript of Financial Distress Issues for Family Farmers and …...Take Stock of your Loan Situation Any defects...
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Financial Distress Issues for Family Farmers and
Their Creditors
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Congratulations!!!You just won the lottery!!!
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What are you going to do now?
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Trending Problems Irrigated and Non-Irrigated Cropland, Average Value
per Acre: 2012-2016
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State 2012 2013 2014 2015 2016 Change 2015-2016
(dollars) (dollars) (dollars) (dollars) (dollars) (percent)
MissouriAll Cropland
IrrigatedNon-irrigated
3,1203,6403,080
3,5004,1403,450
3,8104,7503,730
3,8105,1303,700
3,7705,1003,660
-1.0-0.6-1.1
KansasAll Cropland
IrrigatedNon-irrigated
1,6502,2501,590
1,9302,7601,840
2,2603,2802,150
2,2103,2702,090
2,0503,0001,940
-7.2-8.3-7.2
*Land Values 2016 Summary (August 2016), USDA, National Agricultural Statistics Service
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Trending Problems
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*USDA Long-term Projections to 2026, February 2017, USDA
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Trending Problems
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*USDA Long-term Projections to 2026, February 2017, USDA
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Trending Problems
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*USDA Long-term Projections to 2026, February 2017, USDA
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Storm Clouds on the Horizon:What should
you do?
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Take Stock of your Loan Situation
Any defects in loan documents?
Scope of perfection in collateral?
Value of collateral?
Competing priorities in collateral?
Status of guarantors?
Any lender liability claims?
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Work with your Borrower
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Proactively Discuss Strategies –Maintain Open Dialogue
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Share your Borrower Horror Stories
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“In local news, old Macdonald no longer has a farm.”
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Execute Forbearance Agreements with Release of Claims
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Offer an Orderly Liquidation
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Offer to Waive the Personal Guaranty if Key Milestones are Met
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Don’t Set Yourself up for a Fall
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Debtor
Payee/Transferee
Debtor transfers property interest without getting
reasonably equivalent value in exchange
Constructively Fraudulent Transaction
Payee/Transferee
Debtor
Before the Transfer After the Transfer
The Transfer
“More” of the Debtor for Creditors
“Less” of the Debtor for Creditors
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Transfer ofInterestin property
Some value or other contractual relationship
Some value the debtor indirectly receives because of the transfer
What Happens on Paper
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In reality, the debtor gives value to the lender without receiving any reasonably equivalent value in return.
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Before the Storm: Vendors, Landlords and Lessors
Get current financial statements and cash
flow projections
Require cash-in-
advance?
Don’t let defaulted contracts
linger
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Why did Congress create Chapter 12?
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Who can file Chapter 12?
Family Farmer or company owned by family engaged in farming
No more than $4,153,150 in debt
Regular annual income
50% or more of income from farming operations
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Benefits of Chapter 12
Faster
Cheaper
Easier
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Limits of Chapter 12
Debt Limit
CapitalGains
Control
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What frequently happens with
bankruptcy filings?
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The Debtor Takes the Leap of Faith with High Hopes
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…..but many cases fail
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Lurking Danger: Capital Gains Taxes
Hall v. United States
Capital gain taxes from sale of property in Chapter 12 cannot be paid pro rata with other unsecured creditors
Family farmer must pay the tax
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Actions for All Creditors
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File a Proof of Claim
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Closely Check Exemptions –Is the Debtor Being Greedy?
Kansas Exemptions
Missouri Exemptions
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Did the Debtor misbehave?
Then object to discharge of his debt.
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Secured Creditors
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Secured creditor Use of Cash Collateral
Adequate Protection
– Property insured?
– Loss of value?
Collateral Must be Paid in Full
Actions against guarantors
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Dealing with “Sneaky” Debtors
– Assets titled in wholly owned company
– Assets transferred for no consideration to debtor
– Debtor immediately files for bankruptcy
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Homestead Exemption Objections
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Lookout for low collateral valuations
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Cram Down
Debtor can strip off
unsecured liens
Debtor can change
loan terms
Debtor can change
payment terms
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The Big Question:
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Is the Plan Feasible?
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Unsecured Creditors 44
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Land & Equipment Leases
Stay relief to terminate?
Adequate protection—Post-petition Payments?
60-day requirement Cure costs?
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Reclamation—A Silver Bullet?
Reclamation “reclaims” goods that were provided just before bankruptcy [show picture of someone taking something back such as a gift]
Reclamation notice must be issued very shortly after bankruptcy filed
Reclamation doesn’t work if a secured lender has a lien on the goods
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Michael D. Fielding
816.983.8353
Q&A
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