$$ from rent (collected by D-landlord) is separate from on D’s property… TD BUT, CA allows for (CC assignment of rents § 2938) … provides for availability of owned by BUT subject § 552 cash collateral DIP, to held by C… lien MAY operate business in ordinary course w/o court hearing (§ DIP BUT, may NOT use/sell/lease unless w/ 363(c)(1))… cash collateral, consent OR court authorization (§ 363(c)(2)) has affirmative obligation to segregate/account for (§ DIP cash collateral 363(c)(4))… If fails to segregate/account for then will be DIP cash collateral, replaced by AND, must withdraw b/c has trustee… DIP counsel DIP violated federal law (file motion w/ court seeking permission to withdraw, BUT w/o disclosing reason, unless crime-fraud exception OR consents) DIP If fails to segregate/account for cash collateral (commingles DIP into general account), then C-lender MAY have NO cash claim against (for violation of obligation) collateral DIP essentially worth nothing… thus, C-lender must make sure that is using separate DIP … accounts obtain court authorization of daily/weekly/monthly accountings (DIP will fight against, BUT can’t be trusted) DIP Again, after D files (becomes customers will flake out Ch. 11 DIP), on obligations upon payment, $$ would go into separate AR DIP’s account for C-lender’s (assuming C-lender has on cash collateral SI AR)… BUT, customers ONLY pay to keep D happy once D AR … becomes customers have doubts re: survivability, do DIP, DIP’s shady things (i.e. write IN FULL” on check that is NOT “PAID full payment)… thus, C-lender/DIP must NOT cash checks w/ IN … “PAID FULL” notation MAY be binding (civil code says YES, commercial code says NO) is allowed to use must adequately protect § 363(e) DIP cash collateral, In CA, MAY prove adequate protection of C-lender by filing DIP cash w/ court… collateral stipulation
$$ from rent (collected by D-landlord) is separate from TD on D’s property… … BUT, CA allows for assignment of rents (CC § 2938) § 552 provides for availability of cash collateral owned by DIP, BUT subject to lien held by C… DIP MAY operate business in ordinary course w/o court hearing (§ 363(c)(1))… BUT, may NOT use/sell/lease cash collateral, unless w/ consent OR court authorization (§ 363(c)(2)) DIP has affirmative obligation to segregate/account for cash collateral (§ 363(c)(4))… If DIP fails to segregate/account for cash collateral, then will be replaced by trustee… AND, DIP counsel must withdraw b/c DIP has violated federal law (file motion w/ court seeking permission to withdraw, BUT w/o disclosing reason, unless crime-fraud exception OR DIP consents) If DIP fails to segregate/account for cash collateral (commingles into general account), then C-lender MAY have NO cash collateral claim against DIP (for violation of obligation) essentially worth nothing… … thus, C-lender must make sure that DIP is using separate accounts obtain court authorization of daily/weekly/monthly accountings (DIP will fight against, BUT DIP can’t be trusted) Again, after D files Ch. 11 (becomes DIP), customers will flake out on AR obligations upon payment, $$ would go into DIP’s separate account for C-lender’s cash collateral (assuming C-lender has SI on AR)… … BUT, customers ONLY pay AR to keep D happy once D becomes DIP, customers have doubts re: DIP’s survivability, do shady things (i.e. write “PAID IN FULL” on check that is NOT full payment)… … thus, C-lender/DIP must NOT cash checks w/ “PAID IN FULL” notation MAY be binding (civil code says YES, commercial code says NO) § 363(e) DIP is allowed to use cash collateral, must adequately protect In CA, DIP MAY prove adequate protection of C-lender by filing cash collateral stipulation w/ court…
Bankruptcy_Schechter-Fall-2009.docx