May
2000
Volume 12
Greetings, Leasing Colleagues! There's lots to report this month, so let's get
right to it.
CURRENT
DEVELOPMENTS IN LAW AND LEGISLATION: STATUS OF COMMERCIAL CODE ARTICLE 9: July
1, 2001, is the target date for enactment of the new Article 9, though to date
all 50 states have not adopted the new law. There are a large number of very important
substantive changes in the new legislation. For one, the scope of the law has
broadened substantially. And, of great significance to the leasing industry, filing
financing statements will no longer require signatures as long as they are "authorized,"
they will become centralized and simplified, electronic filings will be expressly
authorized, and generic descriptions i.e. "all assets" will be acceptable. Beware,
however, that there are new rules regarding collateral descriptions in the security
agreement which do not permit these "super-generic descriptions," but allow certain
categories of collateral which are newly defined in the Article. There are also
important new rules regarding default and enforcement, including elimination of
the so-called "absolute bar" on deficiencies when sales are not "commercially
reasonable." For further information, please feel free to contact the undersigned.
MORE ON ARTICLE 9: Debtor's Right to File Termination Statements. At the
recent ELA Legal Forum, one of the sessions centered on Revised Article 9 of the
Uniform Commercial Code. A topic that caused concern was a debtorâ?Ts right to
file termination statements pursuant to 9-509(d)(2) in the limited circumstance
where the secured party â?ohas failed to file or send a termination statement.
However, a debtor may only file a termination statement under 9-509(d)(2) if it
â?oindicates that the debtor authorized it to be filed.â? The termination statement
is ineffective if it does not contain that indication. Thus, anyone searching
the record and seeing a termination statement that indicates that the debtor authorized
the filing of that termination statement should make appropriate inquiries concerning
the circumstances of that filing, including contacting the lienholder. Additionally,
the filing office must maintain a record of the information provided in a filed
financing statement for at least one year after the effectiveness of the financing
statement has lapsed. Lapse is distinguished from termination. Termination statements,
no matter by whom filed, do not have the effect of authorizing the filing officer
to remove the â?orecord of information.â? This is true of termination statements
filed by the secured party, intentionally or by mistake, and by strangers, as
well as those filed by debtors (whether the debtor was entitled to do so or not).
Section 9-513(d) specifies the effect of the filing of a termination statement
by a person entitled to do so, namely the cessation of the effectiveness of the
financing statement to which the termination statement relates. The section does
not authorize the removal of the financing statement from the record or relieve
the filing office of the obligation to report it to searchers. Thus, even if the
debtor were to file a termination statement during the first year of the five
year period of effectiveness, 9-522(a) requires the filing office to maintain
the record of information provided in the filed financing statement for at least
one year after that five year period. During that period, the secured party has
the right, if it chooses, to file a correction statement under 9-518 challenging
the accuracy of that termination statement and, of course, can file a continuation
statement in accordance with 9-515(d). Accordingly, the secured party should be
fully protected against an improperly filed termination statement because the
record of information in the filing drawer is kept â?oopen.â? That being so, it
would appear unnecessary for the secured party to make post-closing searches.
STATUS OF BANKRUPTCY CODE REFORM: Late last week, House and Senate Republican
leaders met to work out final issues of the so-called "shadow conference" to resolve
differences between the House and Senate bills. A few details remain and the actual
legislative text is still being drafted. Sen. Hatch, Chairman of the Senate Judiciary
Committee, is taking the lead on this drafting process. On the homestead exemption,
it appears that the Republican leaders took a component from both bills: a $100,000
cap on equity (from S. 625) with the state's ability to opt out (H.R. 833). But
the state law on homestead could not be used if the home had been owned for less
than three years at the time of the filing. Significantly, Democrats have been
left out of these final negotiations and reports are that some are not pleased
with either the closed process or substantive shape of the final product. Rumors
are that support from Democrats, on and off the Judiciary Committee, may be eroding.
Last Thursday, Sen. Majority Leader Trent Lott and Minority Leader Tom Daschle
had a particularly sharp exchange on the Senate floor, over the way Lott is running
the Senate's schedule, and limiting the Democrats' ability to offer "non germane"
amendments on their' policy agenda. This most recent blowup and growing stalemate
on an array of issues is important because Daschle's support is critical to the
process of attaching bankruptcy to another vehicle. Without the Minority Leader
running "interference" in his caucus, it will be difficult to pull off the extraordinary
feat of attaching the bankruptcy bill to another freestanding conference report.
The progress of the other conference reports is important because once they are
sent on to the President and no longer available as a vehicle, the odds for final
action on bankruptcy become longer. We will keep you posted on this continually
amazing saga!
NEW DEVELOPMENTS IN CASE LAW: In the case of In re Koenig Sporting
Goods 200 US. App. LEXIS 2020 (6th Circuit 2/15/00) the Court, in analyzing how
much rental under a real estate lease was due, confirmed that a lessor has an
administrative claim for unpaid rent from the date of the filing of a bankruptcy
petition until the date of rejection, AND, in a broad reading of the statute further
held that the claim includes not just the pre-rejection period, but the rent due
for the entire month, where the rejection took place only one day after the rent
was due. In other words, the rejection was effective on 12/2/97, but the lessor's
allowed administrative claim for the entire December rent was based on the premise
that the rent was DUE on 12/1/97. Whereas this is a real property rather than
personal property lease case, and it is not altogether clear which, if any, other
Circuits besides the 6th will follow this approach, it is, for now at least, a
useful tool in the leasing attorney's arsenal.
BUSINESS NEWS
JOSEPH
G. BONNANO, ESQ., Legal Counsel to NAELB sent a three page fax memo to all NAELB
members notifying them that neither EQUIPMENT FINANCING GROUP, DIREC TIONAL FUNDING,
INC. nor DIRECTIONALFUNDING.NET are members in the NAELB. According to Mr. Bonnano,
his office is in possession of all documentation to substantiate certain claims
made against these companies and will share them with any member in good standing
at anytime. Note however that DirectFunding.N et issued a fax to all NAELB Brokers
to state that Directional Funding is not a part of Equipment Financing Group as
claimed in Mr. Bonnano's fax. above. HPSC, Inc. Reports First Quarter Results:
HPSC, Inc. reported a 17% increase in net income for the first quarter of 2000
of $693,000 compared to $594,000 for the same period last year. First quarter
diluted net income per share was $0.16 compared to $0.14 for the first quarter
of 1999, a 14% increase, while basic net income per share increased 19% to $0.19
compared to $0.16 in the first quarter of the previous year. The increase in net
income resulted from higher revenue generated from portfolio growth, offset by
a higher provision for losses, higher borrowing costs and higher operating and
related expenses. CONSECO, INC. announced that its CONSECO FINANCE GROUP subsidiary
has closed a previously disclosed agreement for the sale of approximately $1.3
billion in CONSECO FINANCE receivables to LEHMAN BROTHERS and affiliates. The
receivables sale is not expected to result in a material gain or loss. UNICAPITAL
Announces First-Quarter Financial Results: UNICAPITAL announced its financial
results for the first quarter of fiscal 2000 and said it is developing a plan
that includes closing unprofitable business units and redeploying capital to the
more profitable business units in its Finance Division. Exclusive of special charges,
UNICAPITAL reported a pretax loss from operations of $8.5 million during the first
quarter, or a diluted pretax operating loss per share of $0.16. Continued weakness
in the aircraft engine market resulted in a pretax operating loss for the UNICAPITAL
AIRCRAFT ENGINE GROUP of approximately $4.5 million before special charges. The
Company expects the current unfavorable market conditions for the sale of aircraft
engines to continue for the foreseeable future. REPUBLIC FINANCIAL CORPORATION
announced that W. RANDALL DIETRICH has been promoted to president of the company.
Our good friend JAMES POSSEHL retains the title of Chairman of the Board and CEO.
At its INTERACT client conference, FAIR, ISAAC AND COMPANY officially launched
LIQUIDCREDIT, a Web-based instant credit network. This breakthrough service has
already generated hundreds of responses and 15 agreements from businesses looking
to profit from the growing demand for consumer and small business credit on the
Internet. LIQUIDCREDIT, designed for click-and-mortar financial institutions,
Internet credit brokers, e-tailers and e-marketplaces, is powered by FAIR ISAAC'S
"gold standard" analytics and decision technology. It claims to offer better,
faster and more cost-effective credit origination decisions, resulting in more
profitable, enduring customer relationships.
PENTECH FINANCIAL SERVICES Names
New General Counsel: Pentech Financial Services, Inc., Campbell, CA, announces
that Daphne Wells has joined the company as general counsel. Ms. Wells will be
a member of the senior staff and report directly to our friend Benjamin E. Millerbis,
president and CEO of Pentech.
INDUSTRY AND ASSOCIATION NEWS
UAEL
ANNUAL CONFERENCE: The ACE will beheld in Lake Buena Vista (Mickeyland), Florida,
September 14-17. It is entitled "Learn to Use Your Magic for Greater Business
Success." The agenda looks great, including a Farewell Dinner at Epcot Center
with a Millennium celebration. Don't miss out. UAEL WEBSITE: Some of us are fortunate
enough to be beta-testing the new website. It looks FANTASTIC! Keep an eye out
for it! ELA ANNUAL CONVENTION: The annual convention will be held from October
22-25 at the Marriott Desert Springs Resort in Palm Desert, California. It is
called "E-volving Realities." Look for the brochure in the mail.
That's it for now. Any questions, please feel free to send a reply e-mail, or
call us at (415) 925 0700.
And,
again, my thanks to my good friend Kit Menkin for further distributing this newsletter.
Ken
Greene
Kenneth
C. Greene & Associates
The
foregoing is meant to provide general information to the leasing industry. It
is not meant as an endorsement or legal opinion and readers should consult counsel
and/or verify the accuracy of any contents upon which they intend to rely. Any
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Thank
you.
