Table of Contents
Page | ||
Part I | ||
| Item 1. | 1 | |
| Item 1A. | ||
| Item 1B. | ||
| Item 2. | 26 | |
| Item 3. | 27 | |
| Item 4. | ||
| Part II | ||
| Item 5. | ||
| Item 6. | ||
| Item 7. | ||
| Item 7A. | ||
| Item 8. | ||
| Item 9. | ||
| Item 9A. | ||
| Item 9B. | ||
| Item 9C. | ||
| Part III | ||
| Item 10. | ||
| Item 11. | ||
| Item 12. | ||
| Item 13. | ||
| Item 14. | ||
| Part IV | ||
| Item 15. |
The Woodbridge Liquidation Trust (the “Trust”) is a Delaware statutory trust. It was formed on February 15, 2019, the effective date (the “Plan Effective Date”) of the First Amended Joint Chapter 11 Plan of Liquidation dated August 22, 2018 of Woodbridge Group of Companies, LLC and Its Affiliated Debtors (the “Plan”). The Trust was formed to implement the terms of the Plan. The Plan was confirmed by the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) on October 26, 2018 in the jointly administered chapter 11 bankruptcy cases (the “Bankruptcy Cases”) of Woodbridge Group of Companies, LLC and its affiliated chapter 11 debtors (collectively, the “Debtors”), Case No. 17-12560 (JKS).
In this Annual Report on Form 10-K (“Annual Report”), all beneficial interests in the Trust, including both Class A Liquidation Trust Interests (“Class A Interests”Interests”) and Class B Liquidation Trust Interests (“Class B Interests”Interests”), are collectively referred to as “Liquidation Trust Interests.”
The material terms of the Plan which relate to holders of Liquidation Trust Interests (the “Interestholders”) are described in this Annual Report, as well as in the Disclosure Statement for the First Amended Joint Chapter 11 Plan of Liquidation of The Woodbridge Group of Companies, LLC and Its Affiliated Debtors (the “Disclosure Statement”). The Disclosure Statement was approved by the Bankruptcy Court on August 22, 2018 and was distributed or made available to creditors of the Debtors and other parties in interest pursuant to Section 1125 of Title 11 of the United States Code (the “Bankruptcy Code”).
A copy of the Plan is referenced as Exhibit 2.1 to this Annual Report. A copy of the order of the Bankruptcy Court confirming the Plan is referenced as Exhibit 99.1 hereto.
Statements Regarding Forward-Looking Statements. This Annual Report, and other filings by the Trust with the U.S. Securities and Exchange Commission (“SEC”), or written statements made by the Trust in press releases or in other communications, oral or written, may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act” and, together with the Securities Act, the “Acts”). Such 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, performance, and performancetermination and dissolution 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,” “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 constructionfor warranty claims, punch list items and holding costs of single familythe single-family homes, amount of general and administrative costs, the number and amount of successful litigations and/or settlements and the ability to recover thereon, the amount of funding required to continue litigations, the continuing impact of the COVID-19 pandemic and other global health issues, interest rates, adverse weather conditions in the regions in which properties to be sold are located, inflation, domestic and global economic and political conditions, changes in tax and other governmental rules and regulations applicable to the Trust and its subsidiaries, and other risks identified and described in “Item 1A. Risk Factors” of this Annual Report. 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 Acts, 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 “Item 1A. Risk Factors” of this Annual Report.) 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.
| Item 1. | Business |
A.Overview
The Trust and its wholly-owned subsidiary Woodbridge Wind-Down Entity LLC (the “Wind-Down Entity”) were formed pursuant to the Plan. The purpose of the Trust is to prosecute various causes of action owned by the Trust (the “Causes of Action”), to litigate and resolve claims filed against the Debtors, to pay allowed administrative and priority claims against the Debtors (including professional fees), to receive cash from certain sources and, in accordance with the Plan, to make distributions of cash to Interestholders subject to the retention of various reserves and after the payment of Trust expenses and administrative and priority claims. The Trust has no other purpose. Sources and potential sources of cash include the net proceeds from settlements of various Causes of Action, remittances of cash distributed from the Wind-Down Entity, “Fair Fund” recoveries from the SEC, and assets forfeited to the U.S. Department of Justice by former owners and principals of the Debtors (“Forfeited Assets”).
The purpose of the Wind-Down Entity is, through its subsidiaries (the “Wind-Down Subsidiaries” and, with the Wind-Down Entity, the “Wind-Down Group”), to develop (as applicable), market, and sell the real estate assets owned by the Wind-Down Subsidiaries to generate cash to be remitted to the Trust after the payment of Wind-Down Group expenses and subject to the retention of various reserves. The Trust, the Remaining Debtors (as defined in Section B of this Item 1) and the Wind-Down Group are collectively referred to in this Form 10-K as the “Company.”
Most of the Debtors filed for chapter 11 bankruptcy protection in December 2017 (certain other Debtors filed cases on later dates). During the Bankruptcy Cases, the major constituencies reached agreements on several matters, including new management for the Debtors, the manner and timing of the liquidation of the Debtors’ assets, and relative priorities to such distributions among creditors. Certain of these agreements were embodied in the Plan, which was confirmed in October 2018 and became effective on February 15, 2019. Under the Plan, holders of certain claims against the Debtors received Class A Interests, which became registered pursuant to Section 12(g) of the Exchange Act on December 24, 2019.
The Trust will be terminated upon the first to occur of (i) the making of all distributions required to be made and a determination by the Liquidation Trustee that the pursuit of additional causesCauses of actionsAction held by the Trust is not justified or (ii) February 15, 2024. However, the Bankruptcy Court may approve an extension of the term if deemed necessary to facilitate or complete the recovery on, and liquidation of, the Trust’s assets.
The Trust is administered by a Liquidation Trustee. The Liquidation Trustee is authorized, subject to the oversight of a six-member supervisory board (the “Supervisory Board”), to carry out the purposes of the Trust. The Wind-Down Entity is managed by a three-member board of managers, one of whom is the chief executive officer.
Pursuant to the Plan and the Liquidation Trust Agreement of the Trust (as amended, the “Trust Agreement”), a copy of which is referenced as Exhibits 3.2, 3.3 and 3.4 to this Annual Report, distributions to Interestholders are net of any costs and expenses incurred by the paymentTrust, including in connection with administering the Trust and litigating or otherwise resolving the various Causes of Trust expensesAction and administrative and priority claims and the retention of various reserves. Such amountsdisputed claims. Amounts withheld from distributionsdistribution may include the cost of maintaining, litigating,collecting, administering, distributing, and resolving Causes of Action,liquidating the Trust assets such as fees and expenses of the Liquidation Trustee, reserves for contingent liabilities, premiums for directors’ and the Supervisory Board,officers’ insurance, and fees and expenses of the Trust’s attorneys and consultants. Furthermore, cash received from the Wind-Down Group is net of the payment of Wind-Down Group expenses and the retention of reserves by the Wind-Down Group.
Distributions will be made by the Trust only to the extent that the Trust has sufficient assets (over amounts retained for contingent liabilities and future costs and expenses, among other things) to make such payments in accordance with the Plan and the Trust Agreement. No distribution is required to be made to any Interestholder unless such Interestholder is to receive in such distribution at least $10.00. If the Trust mails a distribution check to an Interestholder and the Interestholder fails to cash the check within 180 calendar days, or if the Trust mails a distribution check to an Interestholder and such check is returned to the Trust as undeliverable and is not claimed by the Interestholder within 180 days, then the Interestholder may not only lose its right to the amount of that distribution, but also may be deemed to have forfeited its right to any reserved and future distributions under the Plan.
Distributions will be made at the sole discretion of the Liquidation Trustee in accordance with the provisions of the Plan and the Trust Agreement. Since the Plan Effective Date, the Liquidation Trustee and the Supervisory Board have authorized seventen cash distributions to the holders of Class A Interests.
Part I
Item 1. Business (Continued)
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 solely reliant on future recoveries from litigation, which are uncertain and the amount and timing, if any, are difficult to determine.
The following table summarizesshows the Trust’s ten cash distributions declared for the period fromto Class A Interestholders since its February 15, 2019 (inception) through September 24, 2021:Plan Effective Date:
| Distributions | Date Declared | $ per Class A Interest | Distributions Declared ($ in millions) | ||||||
| First | 3/15/2019 | $ | 3.75 | $ | 44.70 | ||||
| Second | 1/2/2020 | 4.50 | 53.43 | ||||||
| Third | 3/31/2020 | 2.12 | 25.00 | ||||||
| Fourth | 7/13/2020 | 2.56 | 29.97 | ||||||
| Fifth | 10/19/2020 | 2.56 | 29.95 | ||||||
| Sixth | 1/7/2021 | 4.28 | 50.01 | ||||||
| Seventh | 5/13/2021 | 2.58 | 30.02 | ||||||
| Total | $ | 22.35 | $ | 263.08 | |||||
The Trust’s distributions have primarily come from the net proceeds of real estate sales, except for the ninth distribution, which included the Trust’s net proceeds from the settlement of litigation against Comerica Bank.
Part I
Item 1. Business D. Plan Provisions Regarding(Continued)
Reflective of the Company, 2. Treatment underprogress toward the completion of its liquidation activities, the following two tables show the Trust’s decreasing number of real estate assets and amount of net carrying values of the real estate assets since the Plan Effective Date and through June 30, 2022:
Part I
Item 1. Business (Continued)
The Trust’s distributed cash through June 30, 2022 and distributions payable as of claims against and equity interestsJune 30, 2022 totaled approximately $401.2 million. The Trust’s net assets in the Debtors and 3. Assets and liabilitiesliquidation as of June 30, 2022 was approximately $34.39 million.
B.Organization of the Company”). Therefore, the total amount of a distribution declared may change between the date declared and the date paid.Company
On the Plan Effective Date, the Plan was implemented, and the Trust and the Wind-Down Entity were formed. By operation of the Plan, the following assets were transferred to the Trust on the Plan Effective Date:
1. The Trust
The Trust was established for the benefit of its Interestholders and for the purpose of collecting, administering, distributing and liquidating the Trust assets in accordance with the Plan and the Trust Agreement, to resolve disputed claims asserted against the Debtors, to litigate and/or settle the Causes of Action, and to pay certain allowed claims and statutory fees, in each case to the extent required by the Plan. The Trust has no objective to continue or engage in the conduct of a trade or business, except to the extent reasonably necessary to, and consistent with, the purpose of the Trust as set forth in the Plan.
By operation of the Plan, (i) the real estate assets of the Debtors were automatically vested in the Wind-Down Group; (ii) all existing equity interests in Woodbridge Group of Companies, LLC and Woodbridge Mortgage Investment Fund 1, LLC (together, the “Remaining Debtors”) were cancelled and extinguished and new equity interests in the Remaining Debtors, representing all of the issued and outstanding equity interests of the Remaining Debtors, were issued to the Trust; and (iii) all of the Debtors other than the Remaining Debtors were automatically dissolved.
As of the Plan Effective Date, each of the Debtors’ directors, officers and managers was terminated and the Trust succeeded to all of their powers in respect of the assets vested in the Trust. Each of the Debtors other than the Remaining Debtors was automatically dissolved on the Plan Effective Date pursuant to the Plan.
the Plan, the following assets were transferred to the Trust on the Plan Effective Date:
an aggregate of $5.0 million in cash from the Debtors for the purpose of funding the Trust’s initial expenses of operation;
the following Causes of Action: (i) all claims and causes of action formerly held or acquired by the Debtors and (ii) all causes of action contributed by Noteholders or Unitholders (as defined in Section C of this Item 1) to the Trust as “Contributed Claims” pursuant to the Plan;
all of the outstanding membership interests of the Wind-Down Entity; and
certain other non-real estate related assets and entities.
2. The Wind-Down Entity
On the Plan Effective Date and by operation of the Plan, the Wind-Down Entity became a wholly-owned subsidiary of the Trust. The Wind-Down Entity was organized for the purpose of accepting, holding, and administering the Debtors’ real estate assets and distributing the net proceeds of liquidating such real estate assets to the Trust in accordance with the Plan and the Limited Liability Company Agreement of the Wind-Down Entity (the “Wind-Down Entity LLC Agreement”), consistent with the purposes of the Trust. As of the Plan Effective Date, the Wind-Down Group received, in the aggregate, assets consisting of approximately $31.34 million in cash and approximately $585.01 million of real estate and other assets.
Part I
Item 1. Business (Continued)
C.Material Developments Leading to Confirmation of the Plan (i) the real estate assets of the Debtors were automatically vested in the Wind-Down Group; (ii) all existing equity interests in Woodbridge Group of Companies, LLC and Woodbridge Mortgage Investment Fund 1, LLC (together, the “Remaining Debtors”) were cancelled and extinguished and new equity interests in the Remaining Debtors, representing all of the issued and outstanding equity interests of the Remaining Debtors, were issued to the Trust; and (iii) all of the Debtors other than the Remaining Debtors were automatically dissolved.
Prior to the commencement of the Bankruptcy Cases, the Debtors were part of a group of more than 275 affiliated entities formed by, and formerly controlled by, Robert Shapiro (“Shapiro”) which were used by Shapiro to perpetrate a large-scale “Ponzi” scheme. As part of the scheme, Shapiro is believed to have used the group of affiliated entities to raise more than $1.22 billion from over 10,000 investors nationwide. Money was raised in the form of one of two primary products: (1) five-year private placement products that were styled, marketed or sold as “units” in Woodbridge Mortgage Investment Fund 1, LLC, Woodbridge Mortgage Investment Fund 2, LLC, Woodbridge Mortgage Investment Fund 3, LLC, Woodbridge Mortgage Investment Fund 3a, LLC, Woodbridge Mortgage Investment Fund 4, LLC, Woodbridge Commercial Bridge Loan Fund 1, LLC, and Woodbridge Commercial Bridge Loan Fund 2, LLC (each, a “Fund Debtor”) and (2) purportedly secured promissory products of from 12 to 18 months that were styled, marketed or sold as “notes,” “mortgages” or “loans” by one or more Fund Debtors. In this Annual Report, any and all investments, interests or other rights with respect to any of the Fund Debtors that were styled, marketed or sold as “units” are referred to as “Units” and the holders of Units are referred to as “Unitholders.” Similarly, in this Annual Report, any and all investments, interests or other rights with respect to any of the Fund Debtors that were styled, marketed or sold as “notes,” “mortgages” or “loans” are referred to as “Notes” and the holders of Notes are referred to as “Noteholders.”
The proceeds of the sale of Units and Notes were not used for the purposes that were represented to investors, but were instead used to pay (i) over $400 million of “interest” and “principal” to existing investors, (ii) approximately $64.5 million in commissions to sales agents engaged in the sale of the investments, and (iii) at least $21.2 million for the personal benefit of Shapiro or his related entities or family members (including, for example, the purchase of luxury items, travel, wine, and the like). Additionally, the Debtors and Shapiro used investor funds to purchase at least 193 residential and commercial properties located primarily in Los Angeles, California, and Carbondale, Colorado. The Debtors had one segment, known as “Riverdale,” which did, in fact, originate loans to unrelated third parties, but the dollar amount of these third-party loans was a fraction of the amount of the loans made to disguised affiliates.
In the years leading up to the commencement of their Bankruptcy Cases, the Debtors faced a variety of inquiries from state and federal regulators. In particular, in or around September 2016, the SEC began investigating certain of the Debtors (and certain non-debtor affiliates) in connection with possible securities law violations, including the alleged offer and sale of unregistered securities, the sale of securities by unregistered brokers, and the commission of fraud in connection with the offer, purchase, and sale of securities.
In late 2017, the Debtors found it increasingly difficult to raise new capital from investors. The Debtors were unable to make the December 1, 2017 interest and principal payments due on the Notes. Shapiro hired an outside financial restructuring firm and a chief restructuring officer to manage the Debtors on or about December 1, 2017, and on December 4, 2017 chapter 11 bankruptcy cases for 279 of the Debtors were commenced (cases for the 27 other Debtors were filed on later dates). An immediate effect of commencement of the Bankruptcy Cases was the imposition of the automatic stay under Bankruptcy Code section 362(a), which, with limited exceptions, enjoined the commencement or continuation of all collection efforts by creditors, the enforcement of liens against property of the Debtors, and the continuation of litigation against the Debtors during the pendency of the Bankruptcy Cases. Under Chapter 11 of the Bankruptcy Code, a company may continue to operate its business under the supervision of the Bankruptcy Court while it attempts to reorganize.
As of the commencement of the Bankruptcy Cases, certain discovery-related disputes regarding administrative subpoenas issued by the SEC were proceeding before the United States District Court for the Southern District of Florida, but the SEC had not yet asserted any claims against any of the Debtors or their affiliates. Subsequent to the commencement of the Bankruptcy Cases, the SEC commenced legal proceedings in the Florida district court against, among other defendants, Shapiro, a trust related to Shapiro or his family, and the Debtors.
Part I
Item 1. Business (Continued)
In addition to the SEC investigation, certain of the Debtors received information requests from state securities regulators in approximately 25 states. As of the commencement of the Bankruptcy Cases, regulators in eight states had filed civil or administrative actions against one or more of the Debtors and certain of their sales agents, alleging they engaged in the unregistered offering of securities in their respective jurisdictions and unlawfully acted as unregistered investment advisors or broker-dealers. Six states—Massachusetts, Texas, Arizona, Pennsylvania, South Dakota and Michigan—entered permanent cease and desist orders against one or more of the Debtors related to their alleged unregistered sale of securities. Several of these inquiries were resolved prior to the commencement of the Bankruptcy Cases through settlements, which included the entry of consent orders. Certain of the Debtors entered into consent orders with California, Arizona, Michigan, Oregon, Idaho, and Colorado during the Bankruptcy Cases.
On December 14, 2017, the Office of the United States Trustee for the District of Delaware (the “U.S. Trustee’s Office”) formed the Official Committee of Unsecured Creditors (the “Unsecured Creditors’ Committee”). On December 20, 2017, the SEC filed its action in the Florida district court, as discussed above, detailing much of the massive fraud perpetrated by Shapiro before the commencement of the Bankruptcy Cases. The SEC asked the Florida district court to appoint a receiver who would displace the Debtors’ management in the Bankruptcy Cases, but the Florida district court declined to immediately act on this request in light of the pending Bankruptcy Cases.
On December 28, 2017, the Unsecured Creditors’ Committee filed a motion seeking appointment of a chapter 11 trustee to replace the Debtors’ management team, arguing that the team was “hand-picked by Shapiro, and ha[d] done his bidding both before and after the filing of these cases.” The SEC later made a similar request, arguing that the new “independent” management team was “completely aligned [with Shapiro] in controlling this bankruptcy.”
On or about January 23, 2018, the Debtors, the Unsecured Creditors’ Committee, the SEC, and groups of Noteholders and Unitholders entered into a term sheet (the “Joint Resolution”) that resolved the trustee motions and several other matters. The Joint Resolution included, among other provisions, the following key provisions:
| • | A new board of |
The New Board was empowered to select a CEO or CRO, subject to the consent of the Unsecured Creditors’ Committee and the SEC.
The New Board was empowered, subject to the SEC’s consent, to select new counsel for the Debtors or to re-confirm Gibson Dunn & Crutcher LLP as counsel for the Debtors.
| • | The holders of Units were permitted to form a single one- or two-member fiduciary Unitholder committee (the “Unitholder Committee”) to advocate for the interests of Unitholders. |
| • | The holders of Notes were permitted to form a single six- to nine-member fiduciary Noteholder committee (the “Noteholder Committee”) to advocate for the interests of Noteholders. |
As authorized by the Joint Resolution, the New Board selected Frederick Chin to serve as the Chief Executive Officer and Bradley D. Sharp to serve as the Chief Restructuring Officer during the pendency of the Bankruptcy Cases. Under the direction of the New Board, the Debtors also retained and employed Development Specialists, Inc. as the Debtors’ restructuring advisor and Klee, Tuchin, Bogdanoff & Stern LLP (n/k/a KTBS Law LLP) as new bankruptcy co-counsel to represent them in the Bankruptcy Cases with Young Conaway Stargatt & Taylor LLP.
On April 16, 2018, the Debtor defendants in the Florida proceedings entered into a consent agreement with the SEC and consented to the entry of a judgment. Under the consent agreement and the judgment, the Debtors agreed, among other things, that (i) the Debtor defendants would be permanently enjoined from violations of certain sections of the Securities Act and the Exchange Act; (ii) upon motion of the SEC, the Florida district court would determine whether it was appropriate to order disgorgement and/or a civil penalty against the Debtor defendants, and if so, the amount of any such disgorgement and/or civil penalty; and (iii) in connection with any hearing regarding disgorgement and/or a civil penalty, inter alia, the Debtor defendants would be precluded from arguing that they did not violate the federal securities laws as alleged in the SEC action and the Debtor defendants would not challenge the validity of the consent agreement or judgment. On May 1, 2018, the Bankruptcy Court approved the consent agreement and the judgment. On May 21, 2018, the Florida district court entered the judgment against the Debtor defendants in the SEC action and entered an order administratively closing such action. The Debtors reached a settlement with the SEC to resolve the disgorgement and civil penalty claims asserted by the SEC against the Debtor defendants.
Part I
Item 1. Business (Continued)
During the Bankruptcy Cases, the Debtors sold numerous parcels of owned real property, in each case with Bankruptcy Court approval. Additionally, the major constituencies in the Bankruptcy Cases reached agreements on several matters, including new management for the Debtors, the manner and timing of the liquidation of the Debtors’ assets, and the relative priorities to such distributions among creditors, certain of which agreements were embodied in the Plan.
Under the Plan, on the Plan Effective Date, former Noteholders, Unitholders, and general unsecured creditors holding allowed claims were granted Class A Interests in exchange for their claims. Pursuant to a compromise in the Plan, former Unitholders also received Class B Interests (Unitholders received Class A Interests on account of only 72.5% of their allowed Unit Claims and received Class B Interests on account of the remaining 27.5% of their allowed Unit Claims).
The Plan incorporated a “netting” mechanism for Note and Unit investors whereby such investors received Liquidation Trust Interests based on their “Net” Note Claim (defined as claims arising from or in connection with any Notes) or their “Net” Unit Claim (defined as claims arising from or in connection with any Units). The netting was achieved by reducing the Note or Unit claim by the aggregate amount of all pre-bankruptcy distributions received by the Noteholder or Unitholder (other than return of principal). For example, a Noteholder holding a Note with a face amount of $100,000 who received $10,000 of “interest” before the Debtors filed bankruptcy would be deemed to hold a Net Note Claim of $90,000. Such Noteholder would receive Class A Interests on account of a $90,000 Net Note Claim.
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. TheBid and ask prices for the Trust’s Class A Interests are quoted on the OTC Link ATS, the SEC-registered alternative trading system, andsystem. The Class A Interests are eligible for the Depository Trust Company’s Direct Registration (DRS) services. The Class B Interests are not registered with the SEC.
D.Plan Provisions Regarding the Company
| 1. | Corporate governance provisions |
Under the Plan and the Wind-Down Entity LLC Agreement, the Trust is required at all times to be the sole and exclusive owner of all membership interests of the Wind-Down Entity. The Trust is prohibited from selling, transferring, or otherwise disposing of its membership interests in the Wind-Down Entity without approval of the Bankruptcy Court, and the Wind-Down Entity is prohibited from issuing any equity interest to any other person. Under the Plan and the Wind-Down Entity LLC Agreement, the Wind-Down Entity is required to be managed by a three-member board of managers, one of whom is the chief executive officer. Since the Plan Effective Date, the board of managers of the Wind-Down Entity (the “Board of Managers”) has consisted of Richard Nevins, M. Freddie Reiss, and Frederick Chin and the chief executive officer of the Wind-Down Entity has been Frederick Chin. The Wind-Down Entity is also conducting business under the name “Viewpoint Collection.”
The Wind-Down Entity is required to advise the Trust regarding its affairs on at least a monthly basis, reasonably make available such information as is necessary for any reporting by the Trust and advise the Trust of material actions. Excess cash of the Wind-Down Entity (cash that is in excess of budgeted reservesreserve for ongoing operations and other anticipated obligations and expenses as determined by the Board of Managers) is required to be remitted to the Trust on a quarterly basis, and the Wind-Down Entity is restricted in its ability to invest or gift any of its assets or make asset acquisitions.
The Bankruptcy Court has retained certain jurisdiction 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.
Part I
Item 1. Business (Continued)
| 2. | Treatment under the Plan of holders of claims against and equity interests in the Debtors |
The Plan identified 12 types of Claims against and equity interests in the Debtors, eight of which were “classified” (i.e., placed into formalized classes under the Plan) and four of which are not. Claims required to be paid in full under the Plan are referred to as “Unimpaired Claims.” Four types of claims are not classified—(i) claims arising under Bankruptcy Code sections 503(b), 507(a)(2), 507(b), or 1114(e)(2) (“Administrative Claims”), (ii) claims by professionals employed in the Bankruptcy Cases pursuant to Bankruptcy Code sections 327, 328, 1103, or 1104 for compensation or reimbursement of costs and expenses relating to services provided during the period from the Petition Date through and including the Plan Effective Date (“Professional Fee Claims”), (iii) tax claims entitled to priority under Bankruptcy Code section 507(a)(8) (“Priority Tax Claims”), and (iv) debtor-in-possession financing claims (“DIP Claims”). The foregoing claims are all Unimpaired Claims and have been or will be paid in full. Although the amounts may be subject to negotiation based on the Debtors’ and creditors’ records, and to ultimate determination, if necessary, in the Bankruptcy Court, liabilities resulting from any such Administrative Claims, Professional Fee Claims, Priority Tax Claims, and DIP Claims that are allowed are analogous, in substance, to accounts payable. As of September 24, 2021,23, 2022, there were no allowed and unpaid DIP claims. As of September 24, 2021,23, 2022, there were approximately $.01 million ofno unpaid Administrative Claims, approximately $.18 million of unpaid Priority Tax Claims and no remaining unpaid Professional Fee Claims.
The remaining eight types are claims and equity interests that have been classified. Classified claims and equity interests are treated in accordance with the priorities established under the Bankruptcy Code.
The classified claims and equity interests under the Plan are the following (each, a “Class” of claims or interests):
“Class 1 Claims” or “Other Secured Claims,” which are claims, other than DIP Claims, that are secured by a valid, perfected, and enforceable lien on property in which the Debtors have an interest, which lien is valid, perfected, and enforceable under applicable law and not subject to avoidance under the Bankruptcy Code or applicable non-bankruptcy law.
“Class 2 Claims” or “Priority Claims,” which are claims that are entitled to priority under Bankruptcy Code section 507(a), other than Administrative Claims and Priority Tax Claims.
“Class 3 Claims” or “Standard Note Claims,” which are any Note Claims other than Non-Debtor Loan Note Claims (as defined below).
“Class 4 Claims” or “General Unsecured Claims,” which are unsecured, non-priority claims that are not Note Claims, Subordinated Claims (as defined below), or Unit Claims.
“Class 5 Claims” or “Unit Claims,” which are Unit Claims (as defined in Item 1, Section C of this Annual Report).
“Class 6 Claims” or “Non-Debtor Loan Note Claims,” which are any Note Claims that are or were purportedly secured by an unreleased assignment or other security interest in any loans or related interests as to which the lender was a Debtor and the underlying borrower actually is or actually was a person that is not a Debtor.
“Class 7 Claims” or “Subordinated Claims,” which are collectively, (a) any claim, secured or unsecured, for any fine, penalty, or forfeiture, or for multiple, exemplary, or punitive damages, to the extent such fine, penalty, forfeiture, or damages are not compensation for actual pecuniary loss suffered by the holder of such claim and (b) any other claim that is subordinated to General Unsecured Claims, Note Claims, or Unit Claims pursuant to Bankruptcy Code section 510, a final order of the Bankruptcy Court, or by consent of the creditor holding such claim.
“Class 8” or “Equity Interests,” which are all previously issued and outstanding common stock, preferred stock, membership interests, or other ownership interests in any of the Debtors outstanding immediately prior to the Plan Effective Date.
Holders of Class 1 Claims are creditors of the Wind-Down Entity, and holders of Class 2 Claims are creditors of the Trust. Although the amounts may be subject to negotiation based on the Debtors’ and creditors’ records, and to ultimate determination, if necessary, in the Bankruptcy Court, liabilities resulting from any such claims that are allowed are analogous, in substance, to accounts payable. As of September 24, 2021,23, 2022, there were no allowed and unpaid Class 1 Claims or Class 2 Claims.
Part I
Item 1. Business (Continued)
Under the Plan, three Classes of claims, when the claims are allowed under the Plan, entitle the holders thereof to become holders of Liquidation Trust Interests. The holders of these claims belonged, as of the Petition Date, to one or more of the following categories:
Standard Note Claims (Class 3)
General Unsecured Claims (Class 4)
Unit Claims (Class 5)
General Unsecured Claims include any unsecured, non-priority claim asserted against any of the Debtors that is not a Note Claim, Subordinated Claim or Unit Claim, and generally include the claims of trade vendors, landlords, general liability claimants, utilities, contractors, employees and numerous others. As of September 24, 2021,23, 2022, the aggregate outstanding amount of allowed Class 4 General Unsecured Claims was approximately $5.66$5.98 million, and the Trust estimates that the aggregate outstanding amount of disputed Class 4 General Unsecured Claims as of September 24, 202123, 2022 was approximately $12.22$0.41 million.
Unit Claims are Claims arising from any and all investments, interests or other rights with respect to any of the seven Debtors identified as a “Fund Debtor” under the Plan that were styled, marketed or sold as “units.” As of September 24, 2021,23, 2022, the aggregate outstanding amount of allowed Class 5 Unit Claims was approximately $178.77 million, and the Trust estimates that the aggregate outstanding amount of disputed Class 5 Unit Claims as of September 24, 202123, 2022 was approximately $1.36$0.09 million (in each case, net of prepetition distributions of interest).
Holders of allowed claims in Classes 3, 4 and 5 are deemed to hold an amount and class of Liquidation Trust Interests that is prescribed by the Plan based on the amount of their respective claims, as follows:
| • | Each holder of an allowed claim in Class 3 (Standard Note Claims) is deemed to hold one (1) Class A Interest for each $75.00 of Net Note Claims held by the applicable Noteholder with respect to its Allowed Note Claims. |
| • | Each holder of an allowed claim in Class 4 (General Unsecured Claims) is deemed to hold one (1) Class A Interest for each $75.00 of allowed General Unsecured Claims held by the applicable creditor. |
| • | Each holder of an allowed claim in Class 5 (Unit Claims) is deemed to hold 0.725 of a Class A Interest and 0.275 of a Class B Interest for each $75.00 of Net Unit Claims held by the applicable Unitholder with respect to its allowed Unit Claims. |
In addition, under the Plan, holders of Standard Note Claims and Unit Claims were permitted, at the time they cast their votes on the Plan, to elect to contribute their causes of action against any non-released persons to the Trust for prosecution (the “Contributed Claims”). The relative share of the Trust recoveries for any so electing Noteholder or Unitholder in respect of its respective Class 3 Claim or Class 5 Claim has been enhanced by having the amount that otherwise would be the applicable Net Note Claim or Net Unit Claim increased by a multiplier of 105%, referred to as the “Contributing Claimant’s Enhancement Multiplier.” The Plan releases the Debtors, the members of the New Board, the Unsecured Creditors’ Committee, the Noteholder Committee, and the Unitholder Committee, and any party related to such persons from liability, but generally excludes from such release any prepetition insider of any of the Debtors, any non-debtor affiliates of the Debtors or insider of any such non-debtor affiliates, any prepetition employee of any of the Debtors involved in the marketing or sale of Notes or Units, and any other person involved in such marketing, including certain persons identified on a schedule attached to the Plan.
Distributions of cash by the Trust on account of Class A Interests and Class B Interests are required to be made in accordance with a prescribed priority, referred to as the “Liquidation Trust Interests Waterfall.” (See “Part I, Item 1. Business, D. Plan Provisions Regarding the Company, 4. Liquidation Trust Interests under the Plan.”) Fractional Liquidation Trust Interests, if any, are rounded in accordance with the rounding convention established by the Plan.
Part I
Item 1. Business (Continued)
Other Classes under the Plan include Subordinated Claims, Non-Debtor Loan Note Claims, and Equity Interests. Although holders of Subordinated Claims are not Interestholders of the Trust, they are deemed to have retained a residual right to receive any cash that remains in the Trust after the final administration of all the Trust assets and payment in full to holders of both Class A Interests and Class B Interests, including interest at the rate and to the extent set forth in the Plan. The Trust does not expect that there will be any such residual cash.1
| 3. | Assets and liabilities of the Company |
The Trust has no authority to engagefollowing is the Company’s consolidated statements of net assets in any trade or business except to the extent reasonably necessary to, and consistent with, its purpose. The purpose of the Trust is to hold and effectuate an orderly disposition of the Trust assets, including liquidation to cash and maximization of value of the Causes of Action by litigation, settlement or otherwise, to receive remittances from the Wind-Down Entity, to resolve disputed claims asserted against the Debtors, to pay certain allowed Unimpaired Claims and statutory fees, and to distribute cash to Interestholders in accordance with the Plan and the Trust Agreement. The Trust is governed by the Trust Agreement, the material terms of which are summarized in this Annual Report. The summary does not purport to be complete and is qualified in its entirety by reference to the Trust Agreement.
| Plan | ||||||||
| Effective | ||||||||
| Date | June 30, 2022 | |||||||
| Net real estate assets held for sale, net | $ | 582.71 | $ | 29.06 | ||||
| Cash and cash equivalents | 36.02 | 96.81 | ||||||
| Restricted cash | 0.32 | 6.12 | ||||||
| Other assets | 2.29 | 5.83 | ||||||
| Total assets | $ | 621.34 | $ | 137.82 | ||||
| Accounts payable and accrued liabilities | $ | 5.78 | $ | 0.12 | ||||
| Distributions payable | - | 68.77 | ||||||
| Accrued liquidation costs | 232.07 | 34.54 | ||||||
| Total liabilities | $ | 237.85 | $ | 103.43 | ||||
| Net assets in liquidation: | ||||||||
| Restricted for Qualifying Victims | $ | - | $ | 3.48 | ||||
| All Interestholders | 383.49 | 30.91 | ||||||
| Total net assets in liquidation | $ | 383.49 | $ | 34.39 | ||||
The status of outstanding Unimpaired and Impaired Claims as of September 24, 202123, 2022 is summarized below, with amounts in millions:
Estimated Allowed Claims | Disputed Claims at Asserted Amount | Estimated Allowed Claims | Disputed Claims at Asserted Amount | |||||||||||||||
| Unimpaired Claims (Liabilities) | $ | 0.09 | $ | 0.62 | $ | 0.13 | $ | 0.49 | ||||||||||
| Impaired Claims (Beneficial Interests) | $ | 888.35 | (a) | $ | 14.24 | $ | 887.73 | (a) | $ | 0.55 | ||||||||
(a) Includes an estimated
| 4. | Liquidation Trust Interests under the Plan |
Each holder of an allowed claim in the Plan’s Class 3 (Standard Note Claims), Class 4 (General Unsecured Claims) and Class 5 (Unit Claims) was granted one or more beneficial interests in the Trust (a Liquidation Trust Interest) of a class (i.e. either Class A and/or Class B) and in an amount prescribed by the Plan and the Trust Agreement, as follows:
In the case of an allowed claim in the Plan’s Class 3 (Standard Note Claims), the holder was granted one (1) Class A Interest in the Trust for each $75.00 of Net Note Claims held by the applicable Noteholder with respect to its Allowed Note Claims. Allowed Net Note Claims are determined as the outstanding principal amount of Note Claims held by a particular Noteholder, minus the aggregate amount of all prepetition distributions (other than return of principal) received by such Noteholder.
In the case of an allowed claim in the Plan’s Class 4 (General Unsecured Claims), the holder was granted one (1) Class A Interest in the Trust for each $75.00 of allowed General Unsecured Claims held by the applicable creditor.
In the case of an allowed claim in the Plan’s Class 5 (Unit Claims), the holder was granted 0.725 of a Class A Interest in the Trust and 0.275 of a Class B Interest in the Trust for each $75.00 of Net Unit Claims held by the applicable Unitholder with respect to its allowed Unit Claims. Allowed Net Unit Claims were determined as the outstanding principal amount of Unit Claims held by a particular Unitholder, minus the aggregate amount of all prepetition distributions (other than return of principal) received by such Unitholder.
The Plan permitted Noteholders and Unitholders to contribute certain causes of action (the Contributed Claims) to the Trust. In the case of any Noteholder or Unitholder that elected, on such holder’s Plan ballot, to contribute such holder’s Contributed Claims to the Trust, the relative share of Liquidation Trust Interests granted to any so electing Noteholder or Unitholder has been enhanced by increasing the amount that otherwise would be the applicable Net Note Claim or Net Unit Claim by the Contributing Claimant’s Enhancement Multiplier of 105% before converting such Net Note Claim or Net Unit Claim to Liquidation Trust Interests.
With respect to disputed claims, upon resolution of any disputed claims and to the extent such claims become allowed claims, holders of such Claims in the Plan’s Class 3, Class 4 and Class 5 will be granted Liquidation Trust Interests.
As of September 24, 2021, $887.2023, 2022, approximately $887.39 million of Class 3, Class 4 and Class 5 Claims are Allowed.allowed. The Trust estimates, as of September 24, 2021,23, 2022, that approximately $1.15$0.34 million of additional Class 3, Class 4 and Class 5 Claims will ultimately be allowed. As more such claims become allowed, additional Liquidation Trust Interests will be granted. The percentage recovery to be received by each Class A Interest holderInterestholder will be based on (i) the amount of cash ultimately available for distribution to such holders; and (ii) the actual amount of Class 3, Class 4, and Class 5 Claims that ultimately become allowed.
During the Period from February 15, 2019 (inception) through June 30, 2021 ($ in Millions) | During the Period from February 15, 2019 (inception) through September 24, 2021 ($ in Millions) | ||||||||||||||||||||||||||||
| Date Declared | $ per Class A Interest | Total Declared | Paid | Restricted Cash Account | Total Declared | Paid | Restricted Cash Account | ||||||||||||||||||||||
| Distributions Declared | |||||||||||||||||||||||||||||
| First | 3/15/2019 | $ | 3.75 | $ | 44.70 | $ | 42.32 | $ | 2.38 | $ | 44.70 | $ | 42.32 | $ | 2.38 | ||||||||||||||
| Second | 1/2/2020 | 4.50 | 53.43 | 51.19 | 2.24 | 53.43 | 51.19 | 2.24 | |||||||||||||||||||||
| Third | 3/31/2020 | 2.12 | 25.00 | 24.19 | 0.81 | 25.00 | 24.19 | 0.81 | |||||||||||||||||||||
| Fourth | 7/13/2020 | 2.56 | 29.97 | 29.24 | 0.73 | 29.97 | 29.24 | 0.73 | |||||||||||||||||||||
| Fifth | 10/19/2020 | 2.56 | 29.95 | 29.20 | 0.75 | 29.95 | 29.20 | 0.75 | |||||||||||||||||||||
| Sixth | 1/7/2021 | 4.28 | 50.01 | 48.67 | 1.34 | 50.01 | 48.67 | 1.34 | |||||||||||||||||||||
| Seventh (a) | 5/13/2021 | 2.58 | 30.02 | 29.33 | 0.69 | 30.02 | 29.33 | 0.69 | |||||||||||||||||||||
| Subtotal | $ | 22.35 | $ | 263.08 | $ | 254.14 | $ | 8.94 | $ | 263.08 | $ | 254.14 | $ | 8.94 | |||||||||||||||
| Distributions Reversed | |||||||||||
| Disallowed/cancelled (b) | (2.83 | ) | (2.93 | ) | |||||||
| Returned (c) | .74 | .74 | |||||||||
| Subtotal | (2.09 | ) | (2.19 | ) | |||||||
| Distributions Paid from Reserve Account (d) | (2.16 | ) | (2.20 | ) | |||||||
| Distributions Payable | as of 6/30/2021: | $ | 4.69 | as of 9/24/2021: | $ | 4.55 | |||||
The Plan provides for a Liquidation Trust Interests Waterfall that specifies the priority and manner of distribution of available cash.cash, excluding distributions of the net proceeds from Forfeited Assets. On each distribution date, the Liquidation Trustee is required to distribute available cash as follows:
First, to each Interestholder of Class A Interests pro rata based on such Interestholder’s number of Class A Interests, until the aggregate amount of all such distributions on account of the Class A Interests equals the product of (i) the total number of all Class A Interests and (ii) $75.00;
Thereafter, to each Interestholder of Class B Interests pro rata based on such Interestholder’s number of Class B Interests, until the aggregate amount of all such distributions on account of the Class B Interests equals the product of (i) the total number of all Class B Interests and (ii) $75.00;
Thereafter, to each Interestholder of a Liquidation Trust Interest (whether a Class A Interest or a Class B Interest) pro rata based on such Interestholder’s number of Liquidation Trust Interests until the aggregate amount of all such distributions on account of the Liquidation Trust Interests 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 outstanding from time to time on or after December 4, 2017, treating each distribution of available cash made after the Plan Effective Date pursuant to the immediately preceding two subparagraphs as reductions of such principal amount; and
Thereafter, pro rata to the holders of allowed Subordinated Claims until such claims are paid in full, including interest, at a per annum fixed rate of 10% or such higher rate as may be specified in any consensual agreement or order relating to a given Holder, compounded annually, accrued on the principal amount of each allowed Subordinated Claim outstanding from time to time on or after December 4, 2017.
Part I
Item 1. Business (Continued)
Pursuant to the Plan and the Trust Agreement, distributions to Interestholders are net of any costs and expenses incurred by the Trust, including in connection with administering the Trust and litigating or otherwise resolving the various Causes of Action and disputed claims. Amounts withheld from distribution may include cost of collecting, administering, distributing, and liquidating the Trust assets such as fees and expenses of the Liquidation Trustee, reserves for contingent liabilities, premiums for directors’ and officers’ insurance, and fees and expenses of attorneys and consultants. Distributions will be made only from assets of the Trust and only to the extent that the Trust has sufficient assets (in excess of amounts retained for contingent liabilities and future costs and expenses, among other things) to make such payments in accordance with the Plan and the Trust Agreement. No distribution is required to be made to any Interestholder unless such Interestholder is to receive in such distribution at least $10.00.
Distributions will be made at the sole discretion of the Liquidation Trustee in accordance with the provisions of the Plan and the Trust Agreement. Since the Plan Effective Date, the Liquidation Trustee has declared ten distributions to the Class A Interestholders. The distributions include a cash distribution on account of the then-allowed claims and a deposit is made into a restricted cash account for amounts that are or may become payable (a) in respect of Class A Interests that may be issued in the future upon the allowance of unresolved bankruptcy 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 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 awaiting 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 had failed to cash distribution checks in respect of prior distributions, which checks were issued more than 180 days prior to the date of the letter. The letter informed each recipient that, unless the Trust was contacted on or before February 28, 2022, such recipient’s reserved and future distribution would be deemed forfeited in accordance with the Plan. The Trust provided this final notice simply as a one-time courtesy and reserved 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.
Part I
Item 1. Business (Continued)
The following tables summarize the distributions declared, distributions paid and the activity in the restricted cash account for the periods from February 15, 2019 (inception) through June 30, 2022 and from February 15, 2019 through September 23, 2022:
| During the Period from February 15, 2019 (inception) through June 30, 2022 ($ in Millions) | During the Period from February 15, 2019 (inception) through September 23, 2022 ($ in Millions) | ||||||||||||||||||||||||||||
| Date Declared | $ per Class A Interest | Total Declared | Paid | Restricted Cash Account | Total Declared | Paid | Restricted Cash Account | ||||||||||||||||||||||
| Distributions Declared | |||||||||||||||||||||||||||||
| First | 3/15/2019 | $ | 3.75 | $ | 44.70 | $ | 42.32 | $ | 2.38 | $ | 44.70 | $ | 42.32 | $ | 2.38 | ||||||||||||||
| Second | 1/2/2020 | 4.50 | 53.43 | 51.19 | 2.24 | 53.43 | 51.19 | 2.24 | |||||||||||||||||||||
| Third | 3/31/2020 | 2.12 | 25.00 | 24.19 | 0.81 | 25.00 | 24.19 | 0.81 | |||||||||||||||||||||
| Fourth | 7/13/2020 | 2.56 | 29.97 | 29.24 | 0.73 | 29.97 | 29.24 | 0.73 | |||||||||||||||||||||
| Fifth | 10/19/2020 | 2.56 | 29.95 | 29.20 | 0.75 | 29.95 | 29.20 | 0.75 | |||||||||||||||||||||
| Sixth | 1/7/2021 | 4.28 | 50.01 | 48.67 | 1.34 | 50.01 | 48.67 | 1.34 | |||||||||||||||||||||
| Seventh (a) | 5/13/2021 | 2.58 | 30.02 | 29.33 | 0.69 | 30.02 | 29.33 | 0.69 | |||||||||||||||||||||
| Eighth | 10/8/2021 | 3.44 | 40.02 | 39.14 | 0.88 | 40.02 | 39.14 | 0.88 | |||||||||||||||||||||
| Ninth | 2/4/2022 | 3.44 | 39.98 | 39.15 | 0.83 | 39.98 | 39.15 | 0.83 | |||||||||||||||||||||
| Tenth (b) | 6/15/2022 | 5.63 | 65.04 | - | - | 65.02 | 64.19 | 0.83 | |||||||||||||||||||||
| Total/Subtotal | $ | 34.86 | $ | 408.12 | $ | 332.43 | 10.65 | $ | 408.10 | $ | 396.62 | 11.48 | |||||||||||||||||
| Distributions Returend / (Reversed) | |||||||||||||||||||||||||||||
| Disallowed (c) | (3.64 | ) | (6.27 | ) | |||||||||||||||||||||||||
| Returned (d) | 0.74 | 0.74 | |||||||||||||||||||||||||||
| Forfeited (e) | (1.16 | ) | (1.15 | ) | |||||||||||||||||||||||||
| Subtotal | (4.06 | ) | (6.68 | ) | |||||||||||||||||||||||||
Distributions Paid from Reserve Account (f) | (2.86 | ) | (3.57 | ) | |||||||||||||||||||||||||
| Distributions Payable: | as of 6/30/2022: | as of 9/23/2022: | |||||||||||||||||||||||||||
| Subtotal | 3.73 | 1.23 | |||||||||||||||||||||||||||
| Tenth distribution | 65.04 | (b) | - | ||||||||||||||||||||||||||
| Total distributions payable | $ | 68.77 | $ | 1.23 | |||||||||||||||||||||||||
(a) The seventh distribution included the cash the Trust received from Fair Funds.
(b) On July 15, 2022, $64.19 million was paid.
(c) As a result of claims being disallowed or Class A Interests cancelled.
(d) Distribution checks returned or not cashed.
(e) Distributions forfeited as Interestholders did not cash checks that were over 180 days old.
(f) Paid as claims are allowed or resolved.
As claims are resolved, additional Class A Interests may be issued or cancelled (see “Part 1, Item 1. Business, D. Plan Provisions Regarding the Company, 2. Treatment under the Plan of holders of claims against and equity interests in the Debtors and 3. Assets and liabilities of the Company”). Therefore, the total amount of a distribution declared may change between the date declared and the date paid.
E. Operations and Management of the Company
| 1. | The Trust |
Michael I. Goldberg, Esq. is the Liquidation Trustee. The Liquidation Trustee was unanimously selected by the Unsecured Creditors’ Committee, the Noteholder Committee, and the Unitholder Committee and approved by the Bankruptcy Court.
Part I
Item 1. Business (Continued)
The Trust is also required to have a trustee that has its principal place of business in the State of Delaware (the “Delaware Trustee”). The Delaware Trustee is Wilmington Trust Company, National Association, who has been appointed for the purpose of fulfilling the requirements of the Delaware Statutory Trust Act.
The Trust does not have directors, executive officers or employees. Subject as described below to certain supervision by the Supervisory Board, the Liquidation Trustee has the full power, right, authority and discretion, unless otherwise provided in the Plan, to carry out and implement all applicable provisions of the Plan.
In addition to other actions that the Liquidation Trustee has the authority to take, the Liquidation Trustee may do any and all of the following:
review, reconcile, compromise, settle, or object to claims and resolve such objections as set forth in the Plan, free of any restrictions of the Bankruptcy Code or applicable bankruptcy rules;
calculate and make distributions and calculate and establish reserves under and in accordance with the Plan;
retain, compensate, and employ professionals and other persons to represent the Liquidation Trustee with respect to and in connection with its rights and responsibilities;
establish, maintain, and administer documents and accounts of the Debtors as appropriate, which are to be segregated to the extent appropriate in accordance with the Plan;
maintain, conserve, collect, settle, and protect the Trust’s assets (subject to the limitations described in the Plan);
sell, liquidate, transfer, assign, distribute, abandon, or otherwise dispose of the assets of the Trust or any part of such assets or interest in such assets upon such terms as the Liquidation Trustee determines to be necessary, appropriate, or desirable;
negotiate, incur, and pay the expenses of the Trust;
prepare and file any and all informational returns, reports, statements, tax returns, and other documents or disclosures relating to the Debtors that are required under the Plan, by any governmental unit, or by applicable law;
compile and maintain the official claims register, including for purposes of making initial and subsequent distributions under the Plan;
take such actions as are necessary or appropriate to wind-down and dissolve the Debtors;
comply with the Plan, exercise the Liquidation Trustee’s rights, and perform the Liquidation Trustee’s obligations; and
exercise such other powers as deemed by the Liquidation Trustee to be necessary and proper to implement the Plan.
The powers and authority of the Liquidation Trustee are subject to limitations under the Trust Agreement. On behalf of the Trust or the Interestholders, the Liquidation Trustee is prohibited from doing any of the following:
entering into or engaging in any trade or business (other than the management and disposition of the assets of the Trust), and no part of the Trust’s assets or the proceeds, revenue or income therefrom may be used or disposed of by the Trust in furtherance of any trade or business;
except as expressly permitted in the Trust Agreement, reinvesting any assets of the Trust;
selling, transferring, or otherwise disposing of the Trust’s membership interests in the Wind-Down Entity without further approval of the Bankruptcy Court; or
incurring any indebtedness except as contemplated by the Plan or the Trust Agreement.
Part I
Item 1. Business (Continued)
The Liquidation Trustee is permitted to invest cash of the Trust, including any earnings thereon or proceeds therefrom, any cash realized from the liquidation of the assets of the Trust, or any cash that is remitted to the Trust from the Wind-Down Entity or any other person. Investments by the Liquidation Trustee are not required to comply with Bankruptcy Code section 345(b). Accordingly, the Liquidation Trustee will not be required to obtain a secured bond from financial institutions at which Trust funds are deposited or invested. However, investments must be investments that are permitted to be made by a “liquidating trust” within the meaning of Treasury Regulation section 301.7701-4(d), as reflected in such regulation, or under applicable guidelines, rulings, or other controlling authorities. Accordingly, cash not available for distribution and cash pending distribution is expected to be held in demand and time deposits, such as short-term certificates of deposit, in banks or other savings institutions, or other temporary, liquid investments such as Treasury bills.
The Liquidation Trustee is subject to removal and replacement following notice to the SEC and upon a determination by the Bankruptcy Court that “cause” exists for such removal and replacement, using the standard set forth under Bankruptcy Code Section 1104.
Pursuant to the Plan and the Trust Agreement, the activities of the Liquidation Trustee are subject to the supervision of the Supervisory Board, a six-member supervisory board currently consisting of Lynn Myrick, John J. O’Neill, and Terry Goebel (all three of whom were nominated by the Unsecured Creditors’ Committee), Jay Beynon (nominated by the Noteholder Committee), Dr. Raymond C. Blackburn (nominated by the Unitholder Committee), and M. Freddie Reiss (elected to such position by the other members of the Supervisory Board). Mr. Reiss is the sole member of the Audit Committee of the Supervisory Board.
Under the Plan, the Supervisory Board has the rights and powers of a duly elected board of directors of a Delaware corporation. The Supervisory Board is charged with supervision of the Liquidation Trustee in accordance with the Plan and the Trust Agreement, determination of the Liquidation Trustee’s incentive compensation, if any, and approval of the appointment of any successor Liquidation Trustee. In the event that votes or consents by the Supervisory Board for and against any matter (other than any matter regarding the supervision, evaluation or compensation of the Liquidation Trustee) are equally divided, the Liquidation Trustee has the power to cast the deciding vote.
Additionally, approval by the Supervisory Board or, in the absence of such approval, an order of the Bankruptcy Court, is necessary concerning any of the following matters:
any sale or other disposition of an asset of the Trust, or any release, modification or waiver of existing rights as to an asset of the Trust, if the asset at issue exceeds $500,000 in estimated value;
any compromise or settlement of litigation or controverted matter proposed by the Liquidation Trustee involving claims in excess of $500,000; and
any retention by the Liquidation Trustee of professionals.
The approval of sale of real estate assets owned by the Wind-Down Group is the subject of an agreed-upon protocol between the Trust and the Wind-Down Entity.
Members of the Supervisory Board may resign following written notice to the Liquidation Trustee and the other members of the Supervisory Board. Such resignation will become effective on the later to occur of (i) the day specified in such written notice and (ii) the date that is thirty (30) days after the date such notice is delivered. A member of the Supervisory Board may be removed only by entry of a Bankruptcy Court order finding that cause exists to remove such member.
In the event that a member of the Supervisory Board is removed, dies, becomes incapacitated, resigns or otherwise becomes unavailable for any reason, such member’s replacement shall be appointed in accordance with the Plan, which establishes procedures for the appointment of such replacements. If a member of the Supervisory Board nominated by the Unsecured Creditors’ Committee is no longer available for any reason, then the remaining member(s) selected by the Unsecured Creditors’ Committee are to select the replacement member(s). If a member of the Supervisory Board nominated by either the Noteholder Committee or the Unitholder Committee is no longer available for any reason, then the available former members of the Noteholder Committee or Unitholder Committee, as applicable, are to be requested to, and may, select a replacement. If no former members of the Noteholder Committee or the Unitholder Committee, as applicable, are reasonably available and willing to make the selection, then the remaining members of the Supervisory Board are to select the replacement member(s).
Part I
Item 1. Business (Continued)
Holders of Liquidation Trust Interests have no voting rights with respect to the selection or replacement of the Liquidation Trustee or the Delaware Trustee and have no other voting rights.
The Audit Committee of the Trust was appointed by the Supervisory Board to oversee (i) the integrity of the annual, quarterly and other financial statements of the Trust, (ii) the independent auditor’s qualification and independence, (iii) the performance of the Trust’s independent auditor, and (iv) the compliance by the Trust with legal and regulatory requirements. The Audit Committee also is authorized, subject to final review by all disinterested members of the Supervisory Board in each case, to review and approve all related-person transactions in which the Trust is a participant as provided for in the Trust’s Related Person Transaction Policy. The Audit Committee is comprised of M. Freddie Reiss, who also serves as Chairman of the committee.
| 2. | The Wind-Down Group |
Under the Plan and the Wind-Down LLC Agreement, the Wind-Down Entity is managed by a three-member Board of Managers, one of whom is the chief executive officer. The Board of Managers is required to consist of the Chief Executive Officer of the Wind-Down Entity and two other persons. Pursuant to the Plan, the initial Board of Managers is comprised of Frederick Chin (the Chief Executive Officer of the Wind-Down Entity), Richard Nevins and M. Freddie Reiss (former members of the Debtors’ New Board).
The Board of Managers is charged with the administration of the Wind-Down Entity, including the power to carry out any and all acts necessary, convenient or incidental to or for the furtherance of the purposes of the Wind-Down Entity. Except as otherwise provided in the Plan and the Wind-Down LLC Agreement, no individual member of the Board, in his or her capacity as such, has any authority to bind the Wind-Down Entity.
Members of the Board of Managers serve until they resign, die, become incapacitated or are removed for Cause by the Trust. “Cause” is defined in the Wind-Down Entity LLC Agreement, with respect to any Manager, as (i) the embezzlement, misappropriation of any property or other asset of the Wind-Down Entity; (ii) the commission of, or the entering of a plea of nolo contendere or guilty with respect to, any felony whatsoever or any misdemeanor involving moral turpitude; or (iii) any willful and material breach of the terms of the Wind-Down Entity LLC Agreement or the terms of the Plan applicable to such Manager. Any member of the Board of Managers may resign by giving not less than thirty (30) calendar days’ prior notice of resignation to the other members. Vacancies on the Board of Managers are required to be filled by the Trust.
Subject to the Plan and the Wind-Down Entity LLC Agreement, the Board of Managers also is charged with the supervision and oversight of the Chief Executive Officer. The Chief Executive Officer of the Wind-Down Entity is Frederick Chin. In addition to the Chief Executive Officer, the Wind-Down Entity had 118 employees as of September 24, 2021.23, 2022.
Subject to the supervision of the Board of Managers as described above, the Chief Executive Officer has the authority, except as otherwise provided in the Plan, to carry out and implement all applicable provisions of the Plan for the ultimate benefit of the Trust, including the authority to do the following:
retain, compensate, and employ professionals and other persons to represent the Wind-Down Entity in connection with its rights and responsibilities;
establish, maintain, and administer accounts of the Debtors as appropriate;
maintain, develop, improve, administer, operate, conserve, supervise, collect, settle, and protect the assets of the Wind-Down Entity;
sell, liquidate, transfer, assign, distribute, abandon, or otherwise dispose of the assets of the Wind-Down Entity, including through the formation on or after the Plan Effective Date of any new or additional legal entities to be owned by the Wind-Down Entity to own and hold particular assets of the Wind-Down Entity separate and apart from any other assets of the Wind-Down Entity, upon such terms as the Chief Executive Officer determines to be necessary, appropriate, or desirable;
invest cash of the Debtors and their estates, including any cash realized from the liquidation of the assets of the Wind-Down Entity;
negotiate, incur, and pay the expenses of the Wind-Down Entity;
Part I
Item 1. Business (Continued)
exercise and enforce all rights and remedies regarding any loans or related interests as to which the lender was a Debtor and the underlying borrower actually is or actually was a person or organization that is not a Debtor, including any such rights or remedies that any Debtor or any estate was entitled to exercise or enforce prior to the Plan Effective Date on behalf of a holder of a Non-Debtor Loan Note Claim, and including rights of collection, foreclosure, and all other rights and remedies arising under any promissory note, mortgage, deed of trust, or other document with such underlying borrower or under applicable law;
comply with the Plan, exercise the Chief Executive Officer’s rights, and perform the Chief Executive Officer’s obligations; and
exercise such other powers as deemed by the Chief Executive Officer to be necessary and proper to implement the provisions of the Plan.
Each of the Wind-Down Subsidiaries is managed by its member, the Wind-Down Entity. Frederick Chin serves as Chief Executive Officer of each of the Wind-Down Subsidiaries.
Distributions of cash or other assets of the Wind-Down Group are to be made as and when determined by the Board of Managers in its sole discretion, provided however that on the first business day that is 30 calendar days after each calendar quarter-end, the Wind-Down Entity is to remit to the Trust as of such quarter-end any cash in excess of its budgeted amount for ongoing operations, other anticipated expenses and other Plan obligations.
| 3. | Current year plan of operations |
During the remainder of the fiscal year ending June 30, 2022,2023, the Trust plans to continue to engage in the resolution of claims filed against the Debtors, the evaluation and prosecution of the Unresolved Causes of Action, the disposition of Forfeited Assets, and the payment of allowed administrative and priority tax claims against the Debtors (including professional fees).Debtors. Subject to the receipt of remittances from the Wind-Down Entity, proceeds from the disposition of Forfeited Assets, the payment of Trust expenses, administrative and priority claims and the retention of various reserves, the Trust also plans to make distributions of cash to Interestholders in accordance with the Plan.
| 4. | Termination and dissolution of the Company |
The Trust is required to be terminated, and the Liquidation Trustee discharged from duties, at such time as: (a) the Liquidation Trustee determines that the pursuit of additional Causes of Action held by the Trust is not likely to yield sufficient additional proceeds to justify further pursuit of such Causes of Action and (b) all distributions required to be made by the Liquidation Trustee to the holders of allowed claims and to the Interestholders under the Plan and the Trust Agreement have been made. Notwithstanding the above, the Trust must be terminated no later than February 15, 2024 unless the Bankruptcy Court, upon motion made within the six-month period before such date, determines that a fixed period extension is necessary to facilitate or complete the recovery on, and liquidation of, the Trust’s assets, except that the Bankruptcy Court may not grant an extension that, together with any prior extensions, exceeds three years unless the Trust has obtained a favorable letter ruling from the Internal Revenue Service to the effect that the further extension would not adversely affect the status of the Trust as a liquidating trust for federal income tax purposes. The status of ongoing litigation, pending appeals, and other events and factors may cause the Trust to request the Bankruptcy Court to extend the Trust’s termination date past February 15, 2024.
The Trust may not be terminated at any time by the Interestholders. Upon any termination of the Trust, any remaining assets of the Trust that exceed the amounts required to be paid under the Plan may be transferred by the Liquidation Trustee to the American Bankruptcy Institute Endowment Fund.
Pursuant to the Wind-Down Entity’s Limited Liability Company Agreement, the Wind-Down Entity shall dissolve upon the first to occur of the following: (i) the written consent of the Trust, (ii) the entry of a decree of judicial dissolution under Section 18-802 of the Delaware LLC Act and (iii) the sale or other disposition of all of the Wind-Down Assets.
F. Access to Information
The Trust’s website is located at www.woodbridgeliquidationtrust.com. The information on the Trust’s website is not part of this Annual Report. Through its website, the Trust makes available, free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished to the SEC. These reports are available as soon as reasonably practicable after the Trust electronically files these reports with the SEC. The Trust also posts on its website its Code of Conduct and Conflict of Interest Policy, Code of Ethics, Insider Trading Policy and other corporate governance materials required by SEC regulation. These documents are also available in print to any Interestholder requesting a copy from the Liquidation Trustee.
An investment in the Liquidation Trust Interests involves various risks. An investor should carefully consider the risks and uncertainties described below and the other information included or incorporated by reference in this Annual Report before deciding to invest in the Liquidation Trust Interests. Any of the risk factors set forth below could significantly and adversely affect the Company’s business, prospects, financial condition and results of operations. As a result, the trading price of the Liquidation Trust Interests could decline, and an investor could lose a part or all of his or her investment.
Risks Relating to Uncertainties Relating to Causes of Action
Future distributions by the Trust will increasingly depend on the successful outcome of the Unresolved Causes of Action. The Company does not expect to receive additional Fair Funds or Forfeited Assets. As the Company’s remaining limited real estate asset portfolio is sold, the source of funds for future distributions by the Trust will depend increasingly on its successful prosecution of the Unresolved Causes of Action.
The amount and timing of receipts, if any, from Causes of Action is inherently speculative and risky and cannot be predicted with certainty. The Trust does not expect to receive the proceeds of the Unresolved Causes of Action unless and until it successfully obtains judgments or concludes settlements with respect to such Unresolved Causes of Action and is successful in recovering on such judgments or settlements. The Trust may not be successful in litigating the Unresolved Causes of Action or, if it is successful, there could be a significant delay before any recovery is obtained and distributed (if ever). The outcome of litigation is inherently speculative and uncertain, and there can be no assurance that the Trust will obtain a favorable judgment or settlement with respect to any particular Unresolved Cause of Action. Due to the speculative and risky nature of litigation and settlement efforts, the Company is unable to make any meaningful determination of the potential outcome or value, in the aggregate, of the Unresolved Causes of Action. In addition, even if there is a favorable judgment or settlement, there can be no assurance that the Trust will be able to recover some or all of such judgment or settlement.
Delays in the prosecution of the Unresolved Causes of Action may extend the Company’s anticipated liquidation period. Appeals and other events that affect the duration of litigation may generate delays in the timing of net recoveries from the Trust’s prosecution of its Unresolved Causes of Action and completion of the Company’s liquidation. The Company expects to complete the liquidation of its real estate assets during the fiscal year ending June 30, 2024. However, the status of ongoing litigation, pending appeals and other events and factors may cause the Trust to request the Bankruptcy Court to extend the Trust’s termination date past February 15, 2024. Extension of its anticipated liquidation period may increase the overall operating and administrative costs of the Company and reduce the amounts available for distribution in respect of the Liquidation Trust Interests.
Even if there is a recovery based on the Unresolved Causes of Action, there can be no assurances that there will be sufficient funds to make any distributions to Interestholders. Even if the Trust obtains a judgment or settlement based on the Unresolved Causes of Action and successfully recovers funds on account of such judgment or settlement, there can be no assurance that the Interestholders will receive any proceeds from such judgment or settlement. Before Interestholders receive distributions, the Liquidation Trustee must pay Trust expenses and may set aside funds for future expenses or contingencies.
Limited information regarding developments in the Trust’s prosecution of the Unresolved Causes of Action and potential outcomes will be available; therefore, it may be difficult for Interestholders to assess the amount of recovery. The Trust is required to file current and periodic reports with the SEC, as required under the Exchange Act. The SEC reports are expected to include certain information regarding pending Unresolved Causes of Action. However, the Trust’s ability to disclose details of the Unresolved Causes of Action may be limited by the inherent nature and rules of judicial proceedings, including, among other things, proceedings and filings that are sealed by a court, matters involving attorney-client and work product privilege and proceedings that are conducted on a confidential basis by agreement of the parties, such as settlement negotiations. To the extent that information regarding the Unresolved Causes of Action cannot be provided, it will be difficult for investors in the Liquidation Trust Interests to make any meaningful determination of the potential outcome or value of the Unresolved Causes of Action.
Risks Relating to Real Estate Assets
The Wind-Down Group’s real estate asset portfolio is limited and will further decrease. The Wind-Down Group’s real estate asset portfolio consisted of five real estate assets as of June 30, 2022, which assets had a carrying value of $29.06 million as of June 30, 2022. The Company expects to continue to market and sell its current real estate portfolio and does not expect to add any new real estate assets to its portfolio. Completion of the liquidation of the existing real estate portfolio is anticipated during the fiscal year ending June 30, 2024. Accordingly, investors are advised that the Wind-Down Group’s real estate portfolio cannot provide a source of indefinite future distributions to the Trust.
Part I
Item 1A. Risk Factors (Continued)
The Wind-Down Group’s real estate asset portfolio is highly concentrated in a small number of properties. The Wind-Down Group’s real estate asset portfolio consisted of five real estate assets as of June 30, 2022. The vast majority of the estimated value of the Wind-Down Group’s real estate portfolio as of June 30, 2022 is derived from a single, very exclusive, luxury single-family residential property located in the Bel-Air neighborhood of Los Angeles. This concentration and lack of diversification in its real estate portfolio means that the Wind-Down Group is particularly subject to the risks and fluctuations in the price of high-end residential property in its market, and any downturn in its market would result in a significant and outsized negative impact on the Wind-Down Group.
The Wind-Down Group may not be able to sell its real estate (or “real estate assets”) for its carrying value. The Wind-Down Group has estimated the sales price of its real estate assets. There are many factors which are outside of the Wind-Down Group’s control which may impact the actual sales price of its real estate assets. The actual sales price will be determined through negotiations between the Wind-Down Group and prospective buyers. The actual sales price of the real estate assets may differ materially from the estimates.
The Wind-Down Group may remain subject to potential liabilities for construction defects for an extended period of time following the sale of its properties. In connection with its sales of developed real properties and pursuant to applicable law, the Wind-Down Group may face potential claims for construction defects and property damage for up to 10 years following the completion of construction. There can be no assurance that contractor’s guaranties and warranties will be adequate to indemnify the Wind-Down Group against all such claims. In the ordinary course of business, the Wind-Down Group seeks to obtain liability insurance in appropriate amounts in order to address its potential liability for construction defects and property damage. However, the Company’s ability to continue to do so is subject to factors beyond its control, including the availability and cost of appropriate insurance products. Furthermore, subject to applicable law and policy limitations, coverage may or may not be available for property damage or certain other liabilities resulting from construction defects. If contractor’s guaranties and insurance policies were to prove insufficient, the Wind-Down Group may become exposed to further costs, including potentially expensive litigation and significant adverse judgments. Any significant liabilities resulting from such post-sale obligations may adversely affect the Wind-Down Group’s financial position, net assets in liquidation and cash flow which would, in turn adversely affect the Trust’s ability to make distributions to its Interestholders. Furthermore, the amount of cash available for distribution to the Trust upon completion of the Wind-Down Group’s activities may be affected by reserves that the Wind-Down Group may be required to set aside in order to make reasonable provision for future or unknown construction defect claims. There is also no guarantee that the estimated reserves will be sufficient to cover unknown future liabilities.
There is limited liquidity in real estate investments, which could limit the Wind-Down Group’s flexibility. Real estate is a relatively illiquid asset. The Wind-Down Group may not be able to sell its real estate assets at the optimal time to maximize its recovery. The Wind-Down Group is unable to acquire new real estate assets to diversify its portfolio and may lack the flexibility to adapt in response to changes in economic and other conditions.
High-end single-family homes are subject to the costs and risks of marketing such properties. High-end residential properties commonly require longer average marketing time than conventional residential properties. During an extended marketing period, significant holding costs may be incurred to stage, maintain and own the completed homes. The Wind-Down Group may be required to refresh properties after completion of construction to accommodate prospective purchasers’ requests, which may result in additional costs to complete a sale.
The Wind-Down Group is dependent on the timely and consistent performance of services by third party service providers. To complete potential warranty claims and punch list items and pay holding costs of its single-family homes, the Wind-Down Group relies on general contractors, subcontractors, development managers, architects, maintenance personnel and other service providers who are not under the control of the Wind-Down Group. Inadequate or failed performance of services by such third-party providers may subject the Wind-Down Group to delays in completing its properties and increased costs.
The Los Angeles market, in which the remaining single-family home owned by the Wind-Down Group is located, may experience a significant slackening of demand. Slowing of demand in the Los Angeles market may further lengthen the number of days the property remains on the market and negatively affect sales prices. In addition, periods of economic slowdown or recession in the United States and in other countries, rising interest rates, inflation or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in property values, which would adversely affect the financial position, net assets in liquidation and cash flow of the Wind-Down Group. This would, in turn, adversely affect the Company’s ability to make distributions to its Interestholders.
Part I
Item 1A. Risk Factors (Continued)
The Wind-Down Group’s success depends on the continuing contributionsworking capital may not be sufficient to cover warranty claims, punch list items and holding costs of its key personnel. single-family homes, complete liquidation activities and may be restricted in its ability to access capital. As of August 31, 2022, and June 30, 2022, the Wind-Down Group had existing unrestricted cash and cash equivalents of approximately $15.72 million and $14.16 million, respectively. Aside from unrestricted cash and cash equivalents, the Wind-Down Group does not have access to any line of credit.
Risks related to building code and zoning compliance may adversely affect the financial condition and changes in net assets in liquidation of the Wind-Down Group. The Wind-Down Group has a skilled management teamintends to oversee the development, marketingcomplete potential warranty repairs and salepunch list items of its high-value single-family homes and, in connection therewith, must comply with zoning and building code requirements and pass frequent building inspections and obtain other approvals. Delays or difficulties in connection with any of the properties. However, it does not have agreements with any key personnel that hinders such individuals’foregoing may result in additional costs and delays, which depending on market conditions may adversely affect the financial position, net assets in liquidation and cash flow of the Wind-Down Group. This would, in turn, adversely affect the Trust’s ability to quit at will and, thus, any executive officer or key employee may terminate his or her relationship withmake distributions to its Interestholders.
Risks related to competition from other developers of residential real properties in the Los Angeles market, in which the remaining single-family home owned by the Wind-Down Group at any time upon relatively short notice.is located, may adversely affect the financial condition and changes in net assets in liquidation of the Wind-Down Group. The addition of new homes by the Wind-Down Group’s competitors may increase the available supply of similar properties, creating downward pressure on home prices and protracted sales periods. In addition, one or more of the Wind-Down Group’s competitors may have superior financial resources that would allow them to continue in business for a longer term than the Wind-Down Group.
Risks related to increased inventory of residential real properties available for sale in the Los Angeles market, in which the remaining single-family home owned by the Wind-Down Group is located, may adversely affect the financial condition and changes in net assets in liquidation of the Wind-Down Group. An increase in available supply of similar properties that are available for purchase may create downward pressure on home prices and protract the marketing and sales periods.
Adverse weather conditions and natural disasters could adversely affect the Wind-Down Group’s operations and results. Additionally, the Wind-Down Group may not be able to obtain insurance at reasonable rates for natural disasters and other events which are beyond its control. Adverse weather conditions can delay the completion of warranty repairs and increasepunch list items relating to the costs of constructionsingle-family homes it constructed and may impact buyer demand for properties.the Wind-Down Group’s remaining single-family home. In more severe cases, such as wildfires, earthquakes and other natural disasters, weather conditions may damage the Wind-Down Group’s properties,remaining single-family home, perhaps for prolonged periods, which would negatively affect the value of those propertiesthe property and the ability to sell them.it. Southern California, where most of the remaining high-end properties aresingle-family home is located, is a seismically active area. Additionally, wildfires are prevalent in this region.
Additionally, although the Wind-Down Group insures its propertiesremaining single-family home against earthquakes (for some properties subject to coverage limitations of insurance), wildfires, and other disasters, it may not be able to obtain insurance for these types of events for all of its properties at reasonable rates. In particular, because the Wind-Down Group’s single-family homeshome in Los Angeles areis located in areasan area subject to seismic activity and/or wildfires, the Wind-Down Group may not be able to obtain insurance or sufficient insurance coverage against those types of disasters. A devastating natural disaster or other event in the vicinity of one of the propertiesproperty could result in substantial losses. This would, in turn, adversely affect the Trust’s ability to make distributions to its Interestholders.
The Wind-Down Group may suffer environmental liabilities which could result in substantial costs. Under various environmental laws, the current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances, including asbestos-containing materials that are located on or under the property. These laws often impose liability whether the owner or operator knew of, or was responsible for, the presence of those substances. In connection with the Wind-Down Group’s ownership and operation of properties, it may be liable for these costs, which could be substantial. In addition, the Wind-Down Group may become subject to claims by third parties based on damages and costs resulting from environmental contamination at or emanating from the properties.
The Wind-Down Group’s success depends on the continuing contributions of its key personnel. The Wind-Down Group has a skilled management team to oversee the completion of warranty claims and punch list items relating to its single-family homes, and the marketing and sale of the remaining real estate properties. However, it does not have agreements with any key personnel that hinders such individuals’ ability to quit at will and, thus, any executive officer or key employee may terminate his or her relationship with the Wind-Down Group at any time upon relatively short notice.
Part I
Item 1A. Risk Factors (Continued)
Risks Relating to Pandemics or other Health Crises, such as the Outbreak of the Novel Coronavirus (COVID-19)
The success of the Company’s marketing efforts, the timing of the sales of the Company’s properties and the value realized in such sales could be adversely affected by any reduction in demand for real estate properties as a result of the COVID-19 pandemic or other health crises.The Company’s ability to sell its properties at the values reflected in its consolidated financial statements depends, in part on demand for such properties and on the global, national, regional and local economic environments. The risk, or public perception of the risk, of a pandemic or media coverage of infectious diseases may cause persons seeking to purchase real estate properties to suspend or defer their efforts. Reduction in demand for the Company’s properties, which are located in areas affected by the recent COVID-19 outbreak such as Los Angeles and New York, may cause delays in the sale of such properties or adversely affect the price at which they can be sold. Furthermore, the success of the Company’s marketing efforts depends, in part, on the ability of the Company’s brokers to meet with and show Company properties to prospective purchasers and their agents. These and other marketing activities may become subject to restrictions on gatherings imposed by state and local governments in response to the recent coronavirus outbreak.
Risks Relating to the Liquidation Trust Interests
The value of the Liquidation Trust Interests has decreased and over time is expected to continue to decrease. The value of the Liquidation Trust Interests will depend primarily on the anticipated net liquidation value of the remaining assets of the Trust, which is expected to decrease with each cash distribution (if any) made to Interestholders.
The Liquidation Trust Interests are not suitable as a long-term investment. The Company intends to complete the liquidation in as short a time as is consistent with the maximization of the value of its assets, without regard to the potential long-term capital appreciation of the real properties owned by the Wind-Down Group. The Company expects to complete the liquidation of its real estate assets during the fiscal year ending June 30, 2024. However, the status of ongoing litigation, pending appeals, and other events and factors may cause the Trust to request the Bankruptcy Court to extend the Trust’s termination date past February 15, 2024.
The Liquidation Trust Interests are subject to forfeiture of their right to further distributions if a holder fails to promptly cash a distribution check or fails to promptly claim a distribution check that is returned to the Trust as undeliverable. The Plan provides that if the Trust mails a distribution check to an Interestholder and the Interestholder fails to cash the check within 180 calendar days, or if the Trust mails a distribution check to an Interestholder and such check is returned to the Trust as undeliverable and is not claimed by the Interestholder within 180 days, then the Interestholder not only loses its right to the amount of that distribution, but also is deemed to have forfeited its right to any reserved and future distributions under the Plan. It is the responsibility of the Interestholders to promptly cash all distribution checks received by them and to contact the Trust’s transfer agent to ensure that the Trust has complete and accurate information.
The Trust cannot predict with certainty the timing or amount of distributions to the Interestholders. It is not possible to predict with certainty the timing and amount of future distributions to Interestholders. The Trust will make distributions to the Interestholders only if and to the extent that it receives remittances from the Wind-Down Entity, proceeds from the Causes of Action or Forfeited Assets, and then only to the extent that such remittances or proceeds exceed any amounts withheld by the Liquidation Trustee for, among other things, payment of, and reserves for, Trust expenses and funding of the prosecution of Unresolved Causes of Action. Such cash receipts cannot be predicted with certainty because they are subject to conditions beyond the Trust’s control, or which are inherently uncertain. Remittances by the Wind-Down Entity will depend on the amount and timing of the Wind-Down Group’s sale of its portfolio offive remaining real estate properties,assets, as well as the Wind-Down Group’s operating expenses. Cash proceeds from Causes of Action will depend on the Trust obtaining, and recovering on, favorable judgments or settlements with respect to Causes of Action.
The Trust cannot predict with certainty the percentage of distributions to which each holder of a Class A Interest will be entitled. Such percentage will depend on the total number of Liquidation Trust Interests that ultimately are granted. Additional Liquidation Trust Interests will be granted to holders of disputed claims as and when the Trust resolves such claims, at which time they become allowed claims under the Plan. To the extent that additional Liquidation Trust Interests are granted to the holders of allowed claims, the percentage of distributions to which each holder of a Class A Interest is entitled will decrease. To the extent that additional claims are not allowed, no additional Liquidation Trust Interests will be granted in respect thereof and the percentage of distributions to which each holder of a Class A Interest is entitled will increase. As of September 24, 2021, $887.2323, 2022, $887.39 million of Class 3, Class 4 and Class 5 Claims have become allowed claims. The Trust estimates, as of September 24, 2021,23, 2022, that an additional approximately $1.15$0.34 million of Class 3, Class 4 and Class 5 Claims will ultimately be allowed. However, the actual number of allowed claims may be materially different from the estimate.
Part I
Item 1A. Risk Factors (Continued)
The Class A Interests may be thinly traded. The Class A Interests are not listed on any national securities exchange, but instead are traded on the over-the-counter market (OTC Link ATS) under the symbol WBQNL. As a result of relatively low trading volumes for the Class A Interests, the market price for the Class A Interests may be difficult to establish. Accordingly, the Class A Interests may not be suitable for investors preferring highly liquid securities and may present challenges in profit-taking and other trading risks.
The market price for Class A Interests may be volatile. Many factors could cause the market price of Class A Interests to rise and fall, including the following:
Actual or anticipated fluctuations in the Trust’s or the Wind-Down Group’s quarterly or annual financial results;
Various market factors or perceived market factors, including rumors, whether or not correct, involving the Trust, the Wind-Down Group, the properties, potential buyers, or the Wind-Down Group’s competitors;
Sales, or anticipated sales, of large blocks of Liquidation Trust Interests, including short selling by investors;
Additions or departures of key personnel;
Regulatory or political developments;
Litigation and governmental or regulatory investigations;
Changes in real estate market conditions; and
General economic, political, and financial market conditions or events.
To the extent that there is volatility in the price of Class A Interests, the Trust may also become the target of securities litigation. Securities litigation could result in substantial costs and divert the Trustee’s and the Supervisory Board’s attention and the Company’s resources as well as depress the value of Liquidation Trust Interests.
Certain holders of Class A Interests, deemed under the Bankruptcy Code to be “underwriters,” may not be able to sell or transfer their Class A Interests in reliance upon the Bankruptcy Code’s exemption from the registration requirements of federal and state securities laws. Such “statutory underwriters” may include members of the Supervisory Board and holders of ten percent (10%) or more of the Liquidation Trust Interests. Statutory underwriters may not be able to offer or sell their Class A Interests without registration under the Securities Act or applicable state securities (i.e., “blue sky”) laws unless such offer and sale is exempted from the registration requirements of such laws. The offer and sale of Class A Interests by statutory underwriters in reliance upon an exemption from registration under the Securities Act may require compliance with the requirements and conditions of Rule 144 of such law, including those regarding the holding period, the adequacy of current public information regarding the Trust, sale volume restrictions, broker transactions, and the filing of a notice.
Potential conflicts of interest exist among the classes of Liquidation Trust Interests. The existence of separate classes of Liquidation Trust Interests could give rise to occasions when the interests of the Interestholders could diverge, conflict or appear to diverge or conflict. Operational and financial decisions by the Liquidation Trustee regarding the litigation could favor one class (i.e., Class A or Class B) of Interestholders over another, adversely affecting the market value of a particular class of Liquidation Trust Interests or the distribution to that particular class of Liquidation Trust Interests.
The Class A Interests may become the subject of third-party tender offers. The Trust believes that one or more institutional investors have, or in the future may acquire, an interest in conducting a tender offer for the Class A Interests. Such tender offers may be commenced without the offeror having negotiated with the Trust to make price or other terms of the offer more attractive, and without the offeror having sought the Trust’s recommendation of the offer to its holders. As a result of thin trading of the Class A Interests on the over-the-counter market, the liquidity of such securities may be limited, and it may be difficult to establish a market price for such securities. Holders of Class A Interests presented with a tender offer may be at a disadvantage in evaluating such offer.
Part I
Item 1A. Risk Factors (Continued)
Risks Relating to Limited Purpose
The Trust has a limited purpose. The Trust cannot conduct any trade or business for profit. The Trust was formed pursuant to a chapter 11 bankruptcy plan. The Trust’s purpose is to prosecute Causes of Action, to litigate and resolve claims filed against the Debtors, to pay allowed administrative and priority claims against the Debtors (including professional fees), to receive cash from certain sources and, in accordance with the Plan, to make distributions of cash to Interestholders subject to the retention of various reserves and after the payment of Trust expenses and administrative and priority claims.
The Trust does not expect to generate or receive cash other than from limited sources. The Trust does not expect to receive significant cash other than from remittances to the Trust by the Wind-Down Entity (reflecting the net proceeds of the Wind-Down Group’s liquidation of its portfolio of real estate assets) and from litigation or settlement by the Trust of its Unresolved Causes of Action.
The Trust’s cash may be invested only in investments permissible under applicable Treasury regulations. Cash not available for distribution and cash pending distribution is expected to be held in demand and time deposits, such as short-term deposits in banks or other savings institutions or other temporary, liquid investments such as Treasury bills. Such investments are likely to bear only low rates of interest, if any. There can be no assurance that cash will earn interest or dividends at a rate in excess of inflation, or at all. The Liquidation Trustee will not be liable in the event of the insolvency or failure of any institution in which he or she has invested any funds of the Trust.
Risks Relating to Management and Control
The Trust is controlled by the Liquidation Trustee and the Interestholders have no voting rights regarding decisions made on behalf of the Trust. All decisions concerning the Unresolved Causes of Action and distribution of assets of the Trust are to be made by the Liquidation Trustee, in accordance with the terms of the Plan and the Trust Agreement, with approval by the Supervisory Board for certain decisions as set forth in the Trust Agreement. The Interestholders have no right to elect or remove the Liquidation Trustee. The Liquidation Trustee may be removed by Bankruptcy Court order upon the motion of the Supervisory Board and a showing of good cause; provided, however, that the proposed removal and replacement of Michael Goldberg as Liquidation Trustee will require a determination by the Bankruptcy Court that “cause” exists for such removal and replacement using the standard under Bankruptcy Code section 1104 made after notice of such proposed removal and replacement has been provided to the SEC.
Interestholders will have only limited rights against the Liquidation Trustee and the Liquidation Trustee has limited liability to the Trust. The Trust Agreement provides that the Liquidation Trustee and the Delaware Trustee (and their respective affiliates, directors, officers, employees and representatives) and any officer, employee or agent of the Trust or its affiliates will have no liability to the Trust or the Interestholders except for acts or omissions of the Liquidation Trustee or the Delaware Trustee undertaken with the deliberate intent to injure the Interestholders or with reckless disregard for the best interests of the Interestholders. Any liability of the Liquidation Trustee will be limited to actual, proximate and quantifiable damages. The Trust Agreement further provides that the Liquidation Trustee shall not incur any liability for any act or omission under the Trust Agreement unless the Liquidating Trustee has acted with gross negligence, fraud, or willful misconduct. The Trust Agreement provides that the Interestholders have no voting rights (except in connection with certain amendments to the Trust Agreement).
The Trust has limited control over the Wind-Down Entity. The business and affairs of the Wind-Down Entity are managed by its Board of Managers. The Trust, as the sole member of the Wind-Down Entity, has only limited approval rights over decisions by the Board of Managers. Under the Wind-Down Entity LLC Agreement, the Trust may remove members of the Board of Managers only for Cause, as defined in the Wind-Down Entity LLC Agreement. Furthermore, except in the case of twoone specified properties,property, the Trust has approved in advance any propertysingle-family home sale by the Wind-Down Group provided that the purchase price for such property is at or above the approved low-case price for such property in the Wind-Down Group’s current business plan. Only in the case of a sale of one or more of the two specified properties, or a sale of another property at a price less than its approved low-case price, is the Wind-Down Entity required to obtain the Trust’s approval for the sale of athe property. In the event of a dispute between the Trust and the Wind-Down Entity as to any matter that cannot be resolved between the Trust and the Wind-Down Entity, the Wind-Down Entity LLC Agreement requires that the matter be resolved by the Bankruptcy Court.
Being a public company is expensive and administratively burdensome. The Trust is subject to the periodic reporting requirements of the Exchange Act. The Trust’s status as a reporting company under the Exchange Act causes the Trust to incur additional legal, accounting, financial reporting and other expenses. The Trust expects these rules and regulations to increase its legal and financial compliance costs and to make some activities more time-consuming and costly. The Trust also expects that these rules and regulations may make it more difficult and more expensive for the Trust to obtain director and officer liability insurance and that the Trust may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain approximately the same or similar coverage. As a result, it may be more difficult for the Trust to attract and retain qualified individuals to serve on the Supervisory Board.
Part I
Item 1A. Risk Factors (Continued)
Risks Relating to Taxes
If the Trust is not treated as a liquidating trust for federal tax purposes, there may be adverse tax consequences to the Trust and the Interestholders. Pursuant to the Plan and the Trust Agreement, the Trust was organized with the intention that it conform to the requirements of a liquidating trust under applicable IRS rules. However, not all aspects of the formation of the Trust are expressly addressed in such rules, and the requirements of such rules are not always specific. No legal opinions have been requested from counsel, and no rulings have been or will be requested from the IRS, as to the tax treatment of the Trust. Accordingly, there can be no assurance that the IRS will not determine that the Liquidation Trust does not qualify as a liquidating trust. If the Trust does not qualify as a liquidating trust, there may be adverse federal income tax consequences, including taxation of the income of the Trust at the entity level, which could reduce the amount of Trust cash available for distributions to Interestholders or result in tax assessments of Interestholders upon their receipt of distributions.
As a liquidating trust, the Trust is subject to federal tax rules that limit its operations. To maintain its status as a liquidating trust, the Trust will need to comply with IRS regulations and revenue procedures applicable to the operation of liquidating trusts. The Trust will be prohibited or restricted from, among other activities, engaging in the conduct of a trade or business, unreasonably prolonging its liquidation activities, or allowing business activities to obscure the liquidating purpose of the Trust. Furthermore, the Trust will be subject to restrictions on its ability to retain net income or the net proceeds from the sale of assets from year to year, to make investments, and to use Trust funds to continue the development of the Wind-Down Entity’s real estate assets. Due to the lack of specificity and indeterminate nature of the applicable requirements, there can be no assurance that the Trust will be able to comply with the IRS rules. If the Trust fails to comply with such rules, the IRS may determine that the Trust’s status as a liquidating trust may be revoked. Revocation of such status may entail adverse federal income tax consequences to the Trust and the Interestholders.
The Trust may be restricted under applicable federal tax rules from accepting all Fair Fund recoveries and Forfeited Assets. Under applicable IRS rules, liquidating trusts are not permitted to receive or retain cash or cash equivalents in excess of a “reasonable” amount to meet claims and contingent liabilities (including disputed claims) or to maintain the value of the assets during liquidation. It is unclear whether the approximately $5 million cash contributions to the Trust under the Plan, together with any future Fair Fund recoveries or Forfeited Assets, will be determined to be an amount in excess of such limit.
An Interestholder’s tax liability could exceed distributions. If the Trust has income for a taxable year, the appropriate portion of that income may be includable in an Interestholder’s taxable income, whether or not any cash is actually distributed to the Interestholder by the Trust. The Plan and the Trust Agreement permit the Trust to reserve certain amounts to fund, among other things, operating and other expenses, and do not contain a mandatory tax distribution provision. Therefore, for any particular year, there may be no distribution or a distribution that is less than an Interestholder’s tax liability on its share of the income of the Trust.
Purchasers of Liquidation Trust Interests may be required to make special calculations to determine tax gain or loss on the sale of Liquidation Trust Interests. The Trust does not expect to maintain a separate basis account for any purchaser of a Liquidation Trust Interest in an open market transaction. However, to the extent the Trust is treated as a grantor trust, the purchaser may be treated as though such purchaser purchased the Liquidation Trust Interest deemed to have been owned by the selling Interestholder. The new purchaser may receive a new tax basis in the acquired Liquidation Trust Interests equal to such purchaser’s purchase price of the Liquidation Trust Interests. Upon the sale of assets by the Trust and its related entities, the basis of the Liquidation Trust Interest on the books and records of the Trust may be different than the new purchaser’s basis, requiring the new purchaser to make special calculations to report the correct gain or loss for federal income tax purposes. Investors are urged to consult with their tax advisors regarding the acquisition, ownership and disposition of Liquidation Trust Interests.
Expenses incurred by the Trust may not be deductible by Interestholders. Expenses incurred by the Trust generally will be deemed to have been proportionately paid by each Interestholder. As such, these expenses may not be deductible or be subject to limitations on deductibility. Interestholders are urged to consult with their tax advisors regarding the acquisition, ownership and disposition of Liquidation Trust Interests.
Part I
Item 1A. Risk Factors (Continued)
Before purchasing Liquidation Trust Interests, investors are urged to engage in careful tax planning with a tax professional. The federal income tax treatment of the Liquidation Trust Interests is complex and may not be clear in all cases. For example, in the case of an investor who purchases Liquidation Trust Interests in more than one transaction at different times and for different prices, and subsequently sells a portion of such Liquidation Trust Interests, there appears to be no clear guidance as to whether such purchaser can use average-cost basis in all of its Liquidation Trust Interests or instead may claim a higher or lower tax basis depending on the specific price of each lot. Additionally, the federal income tax treatment of the Liquidation Trust Interests may vary depending on the investor’s particular facts and circumstances. Investors other than individual citizens or residents of the U.S., and certain other persons subject to special treatment under the Internal Revenue Code, should consider the impact of their status on the tax treatment of such an investment. Persons subject to such special treatment under the Internal Revenue Code may include foreign companies, family trusts, 401(k) or individual retirement accounts, non-citizens of the U.S., tax-exempt organizations, real estate investment trusts, small business investment companies, regulated investment companies, governmental entities, entities exercising governmental authority, banks and certain other financial institutions, broker-dealers, insurance companies, and persons that have a functional currency other than the U.S. dollar.
Risks Relating to Accounting, Financial Reporting and Information Management
The Company’s consolidated financial statements are prepared on the Liquidation Basis of Accounting, which requires the estimation of the future value of assets and the amount of projected expenses. Estimates by management may be based, among other things, on projected construction and selling periods, real estate appraisals, cost forecasts by construction engineers, and the levels of general and administrative expenses (such as payroll, insurance and rent). However, the actual realized value of the Company’s assets and the Company’s actual expenses are likely to differ from the estimated amounts reported in the Company’s consolidated financial statements, and such differences may be material and possibly adverse.
The Wind-Down Entity’s real estate assets may not be liquidated at their recorded estimated net realizable value. The estimated net realizable value is an estimate of the amount that the Wind-Down Entity expects to realize from the sale of the real estate assets. The actual sales price and closing and other costs may differ from the amounts included in the consolidated financial statements. The estimated sales price and closing and other costs are estimated based on management’s analysis of current market conditions. The actual amounts realized will be based on negotiations between management and third-party buyers. The actual amounts realized will likely be different than the amounts included in the consolidated financial statements and the differences could be material and possibly adverse.
The Wind-Down Entity’s and the Trust’s general and administrative costs that are included in accrued liquidation costs may be different than the actual costs incurred. The estimated general and administrative costs may be different than the actual costs as the amounts may be greater than the amount estimated and the length of time required to complete the liquidation process may be longer than the time that was estimated. The actual amount of general and administrative costs will likely be different than the amounts included in the consolidated financial statements and the difference could be material.
The Company’s consolidated financial statements do not include any future recoveries from Unresolved Causes of Action and no future Fair Fund recoveries are expected. The Company’s consolidated financial statements are prepared using the Liquidation Basis of Accounting, under which future cash flows are recorded only if the Company has the ability to reasonably estimate them. Because the Company is unable to reasonably estimate the future recoveries, if any, from Unresolved Causes of Action, and no future Fair Fund recoveries are expected, such items have not been recognized in the Company’s consolidated financial statements. Therefore, the Company’s consolidated financial statements are not expected to provide prospective investors in the Liquidation Trust Interests with meaningful information regarding such future recoveries, the amount of which may be material to the Company’s net assets in liquidation.
If the Trust is unable to maintain effective internal control over financial reporting in the future, the accuracy and timeliness of its financial reporting may be adversely affected. If the Trust identifies one or more material weaknesses in the Trust’s internal control over financial reporting and such weakness remains uncorrected at fiscal year-end, the Trust may be required to disclose that such internal control is ineffective at fiscal year-end. Were this to occur, the Trust could lose investor confidence in the accuracy and completeness of its financial reports, which could have a material adverse effect on the Trust’s reputation and the value of the Liquidation Trust Interests.
Any decision on the part of the Company, as an “emerging growth company,” to choose reduced disclosures applicable to emerging growth companies could make the Liquidation Trust Interests less attractive to investors. The Company is an “emerging growth company” as defined in the Securities Act and, for so long as it continues to be an emerging growth company, it may choose to take advantage of certain exemptions from various reporting requirements applicable to other public companies including, but not limited to, the requirement that internal control over financial reporting be audited by the Company’s independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure requirements regarding executive compensation and the extended transition period for complying with new or revised financial accounting standards. The Company may take advantage of these provisions for up to five years or such earlier time that the Company is no longer an emerging growth company. No assurance can be given that this reduced reporting will not have an impact on the price of the Class A Interests.
Part I
Item 1A. Risk Factors (Continued)
Information technology, data security breaches and other similar events could harm the Company. The Company relies on information technology and other computer resources to perform operational activities as well as to maintain its business records and financial data. The Company’s computer systems are subject to damage or interruption from power outages, computer attacks by hackers, viruses, catastrophes, hardware and software failures and breach of data security protocols by its personnel or third-party service providers. Although the Company has implemented administrative and technical controls and taken other actions to minimize the risk of cyber incidents and otherwise protect its information technology, computer intrusion efforts are becoming increasingly sophisticated and even the controls that the Company has installed might be breached. Further, most of these computer resources are provided to the Company or are maintained on behalf of the Company by third-party service providers pursuant to agreements that specify certain security and service level standards, but which ultimately are outside of the Company’s control. Additionally, security breaches of the Company’s information technology systems could result in the misappropriation or unauthorized disclosure of proprietary, personal and confidential information which could result in significant financial or reputational damages to the Company.
None.
As of September 24, 2021,23, 2022, the Company’s principal properties are fiveproperty is one single-family homes, allhome. The single-family home is located in the Bel Air area of which were under development. The Company expects that the homes will be completed during fiscal year ending June 30, 2022. Although this construction scheduleLos Angeles, CA 90077 and is based on assumptions believed to be reasonable, residential real property construction is subject to many potential risks and delays, and no assurance can be given that the anticipated completion schedule will be realized.currently listed for sale.
26
Address2 | City | Area | State | Zip | Sq. Ft. (Rounded) | Lot Size (Acres) | |||||||||
| 41 King Street | New York | Hudson Square | NY | 10014 | 6,400 | .30 | |||||||||
| 2600 Hutton | Los Angeles | Beverly Hills | CA | 90210 | 6,500 | .73 | |||||||||
| 10733 Stradella | Los Angeles | Bel Air | CA | 90077 | 6,200 | 2.52 | |||||||||
638 Siena Way3 | Los Angeles | Bel Air | CA | 90077 | 17,400 | .85 | |||||||||
642 St. Cloud Road3 | Los Angeles | Bel Air | CA | 90077 | 29,000 | 1.07 | |||||||||
Part I
| Item 3. |