Woodbridge Liquidation Trust 10-K for FY2022
Woodbridge Liquidation Trust (WBQNL)
10-K
2022-09-26
For: 2022-06-30
View Original
Added on
April 06, 2026
About this 10-K
Woodbridge Liquidation Trust filed this 10-K on September 26, 2022, covering the fiscal year ended June 30, 2022 (FY2022).
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
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For the fiscal year ended June 30, 2022
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _______ to _______
Commission File Number 000-56115
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code: (310 ) 765-1550
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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N/A
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Securities registered pursuant to Section 12(g) of the Act:
Class A Liquidation Trust Interests
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐
Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐
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Accelerated filer ☐
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attesting to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 762(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
At December 31, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate
market value of the registrant’s shares of Class A Liquidation Trust Interests held by non-affiliates of the registrant was approximately $104.76
million based upon the average bid and ask price of $9.16. As of December 31, 2021, there were approximately 11.44 million shares of Class A Liquidation Trust Interests held by non-affiliates.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☒ Yes ☐ No
DOCUMENTS INCORPORATED BY REFERENCE
None
Table of Contents
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Page
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Part I
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Item 1.
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1
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Item 1A.
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18
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Item 1B.
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Item 2.
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Item 3.
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27 | |
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Item 4.
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30 | |
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Part II
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Item 5.
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Item 6.
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Item 7.
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Item 7A.
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Item 8.
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Item 9.
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Item 9A.
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Item 9B.
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Item 9C.
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Part III
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Item 10.
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Item 11.
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Item 12.
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Item 13.
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Item 14.
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Part IV
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Item 15.
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CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
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”)
and Class B Liquidation Trust Interests (“Class B 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 termination 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, amount of funds
needed for warranty claims, punch list items and holding costs of the 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.
Part I
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Business
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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 Causes of Action 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 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. 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 ten 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 shows the Trust’s ten cash distributions to Class A Interestholders since its February 15, 2019 Plan Effective Date:
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 (Continued)
Reflective of the progress 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 June 30, 2022 totaled approximately $401.2 million. The Trust’s net assets in liquidation as of
June 30, 2022 was approximately $34.39 million.
B. Organization of the Company
On the Plan Effective Date, the Plan was implemented, and the Trust and the Wind-Down Entity were formed.
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.
By operation of the Plan, the following assets were transferred to the Trust on the Plan Effective Date:
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an aggregate of $5.0 million in cash from the Debtors for the purpose of funding the Trust’s initial expenses of operation;
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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;
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all of the outstanding membership interests of the Wind-Down Entity; and
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certain other non-real estate related assets and entities.
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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
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 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:
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A new board of managers (with no ties whatsoever to Shapiro) was formed to govern the Debtors (the “New Board”). The New Board consisted of Richard Nevins, M. Freddie Reiss, and Michael Goldberg.
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The New Board was empowered to select a CEO or CRO, subject to the consent of the Unsecured Creditors’ Committee and the SEC.
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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.
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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.
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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.
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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. Bid and
ask prices for the Trust’s Class A Interests are quoted on the OTC Link ATS, the SEC-registered alternative trading system. 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
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Corporate governance provisions
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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 reserve 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 23, 2022, there were no allowed and unpaid DIP claims. As of September 23, 2022, there were no 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 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)
|
Standard Note 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 “notes,” “mortgages,” or “loans.” As of September 23, 2022, the aggregate outstanding amount of allowed Class 3 Standard Note Claims (net of prepetition distributions of interest) was approximately $702.64
million, including those Class 6 Non-Debtor Loan Note Claims that were reclassified as Class 3 Standard Note Claims in accordance with the Plan. See “Holders of Non-Debtor Loan Note Claims” below. The
Trust’s estimate of the aggregate outstanding amount of disputed Class 3 Standard Note Claims as of September 23, 2022 is approximately $0.05 million (in each case, net of prepetition distributions of interest).
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 23, 2022, the aggregate outstanding amount of allowed Class 4 General Unsecured Claims was
approximately $5.98 million, and the Trust estimates that the aggregate outstanding amount of disputed Class 4 General Unsecured Claims as of September 23, 2022 was approximately $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 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 23, 2022 was approximately $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.
| 3. |
Assets and liabilities of the Company
|
The following is the Company’s consolidated statements of net assets in liquidation as of the Plan Effective Date and June 30, 2022 ($ in millions):
|
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 23, 2022 is summarized below, with amounts in millions:
|
Estimated
Allowed
Claims
|
Disputed Claims
at Asserted
Amount
|
||||||||
|
Unimpaired Claims (Liabilities)
|
$
|
0.13
|
$
|
0.49
|
|||||
|
Impaired Claims (Beneficial Interests)
|
$
|
887.73
|
(a)
|
$
|
0.55
|
||||
(a) Includes an estimated $0.34 million of additional claims expected to be allowed from the approximate $0.55 million of disputed claims.
Part I
Item 1. Business (Continued)
| 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 23, 2022, approximately $887.39 million of Class 3, Class 4 and Class 5 Claims are allowed. The Trust estimates, as of September 23, 2022, that approximately $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
Interestholder 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.
The Plan provides for a Liquidation Trust Interests Waterfall that specifies the priority and manner of distribution of available 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 to 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:
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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;
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| • |
any compromise or settlement of litigation or controverted matter proposed by the Liquidation Trustee involving claims in excess of $500,000; and
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any retention by the Liquidation Trustee of professionals.
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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
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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 8 employees as of September 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:
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retain, compensate, and employ professionals and other persons to represent the Wind-Down Entity in connection with its rights and responsibilities;
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establish, maintain, and administer accounts of the Debtors as appropriate;
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maintain, develop, improve, administer, operate, conserve, supervise, collect, settle, and protect the assets of the Wind-Down Entity;
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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;
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invest cash of the Debtors and their estates, including any cash realized from the liquidation of the assets of the Wind-Down Entity;
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negotiate, incur, and pay the expenses of the Wind-Down Entity;
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Part I
Item 1. Business (Continued)
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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;
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comply with the Plan, exercise the Chief Executive Officer’s rights, and perform the Chief Executive Officer’s obligations; and
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exercise such other powers as deemed by the Chief Executive Officer to be necessary and proper to implement the provisions of the Plan.
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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
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During the remainder of the fiscal year ending June 30, 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. Subject to the receipt of remittances from the Wind-Down Entity, proceeds
from the disposition of Forfeited Assets, the payment of Trust expenses, priority claims and the retention of various reserves, the Trust also plans to make distributions of cash to Interestholders in accordance with the Plan.
As of September 23, 2022, the Wind-Down Group owned one single-family home and four other real estate assets. These four other real estate assets include two secured loans and two
other properties. During the remainder of the fiscal year ending June 30, 2023, the Wind-Down Group plans to continue to engage in the marketing and sale of these real estate assets. In connection with its development activities, the Wind-Down
Group contracts with third-party development management companies, general contractors, architects, and design and furnishing companies to carry out and complete construction and punch list items, prepare for sale and maintain its real estate
assets. The Wind-Down Group plans to undertake marketing initiatives to enhance the exposure of its real estate portfolio and to retain third-party real estate brokers to list and sell real estate assets currently held for sale. In addition,
the Wind-Down Group may complete work to satisfy warranty claims (where such activities are considered necessary or appropriate). The Wind-Down Group expects to fund its capital requirement for its operating costs with cash and cash equivalents
on hand and proceeds from sales of real estate assets.
| 4. |
Termination and dissolution of the Company
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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 working capital may not be sufficient to cover warranty claims, punch list items and holding costs of its 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 intends to complete potential warranty repairs and punch 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 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 make 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 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 punch list items relating to
the single-family homes it constructed and may impact buyer demand for 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 remaining single-family home, perhaps for prolonged periods, which would negatively affect the value of the property and the ability to sell it. Southern California, where the remaining single-family home is located, is a seismically active
area. Additionally, wildfires are prevalent in this region.
Additionally, although the Wind-Down Group insures its remaining 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 home in Los Angeles is located in an 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 the property
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 five remaining real estate 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 23, 2022, $887.39 million of Class 3, Class 4 and Class 5 Claims have become allowed claims. The Trust estimates, as of September 23, 2022, that an additional approximately $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;
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| • |
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;
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| • |
Regulatory or political developments;
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Litigation and governmental or regulatory investigations;
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| • |
Changes in real estate market conditions; and
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| • |
General economic, political, and financial market conditions or events.
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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 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 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 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 one specified property, the Trust has approved in advance any single-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 the specified 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 the 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, 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 23, 2022, the Company’s principal property is one single-family home. The single-family home is located in the Bel Air area of Los Angeles, CA 90077 and is currently
listed for sale.
Part I
| Item 3. |
Legal Proceedings
|
Below is a description of pending litigation. As the Company is the plaintiff in these legal proceedings and does not have the ability to estimate the ultimate recovery amount until they are settled, and in
accordance with the Company’s accounting policy, no recoveries have been recorded in the Company’s consolidated financial statements for these legal proceedings, other than for settlements for which the Trust has entered into a signed settlement
agreement and collectability is reasonably assured.
Goldberg v. Halloran & Sage LLP, et al., Case No. 19STCV42900 (Cal. Super. Ct., L.A. Cnty., filed Dec. 2, 2019), is an action by the Trust against nine law firms (Halloran
& Sage LLP; Balcomb & Green, P.C.; Rome McGuigan, P.C.; Haight Brown & Bonesteel LLP; Bailey Cavalieri LLC; Sidley Austin LLP; Davis Graham & Stubbs LLP; Robinson & Cole LLP; and Finn Dixon & Herling LLP) and ten individual
attorneys (Richard Roberts, Lawrence R. Green, Jon H. Freis, Brian Courtney, Ted Handel, Thomas Geyer, Neal Sullivan, S. Lee Terry, Jr., Shant Chalian, and Reed Balmer) for conduct in connection with their representation of Robert Shapiro, the
Debtors or their affiliates before the commencement of the Bankruptcy Cases, as well as against up to 100 “Doe” defendants. The conduct challenged in the complaint includes knowingly and/or negligently preparing loan documents and investment
agreements with material misstatements and omissions, designing deceptive securities products, preparing incorrect legal opinion memoranda on which investors relied, and assisting in the creation of nominally third-party borrower entities that were
in fact controlled by Robert Shapiro.
The first set of counts in the complaint are against law firm Halloran & Sage LLP, attorney Richard Roberts, and the “Doe” defendants for aiding and abetting securities fraud (First Count), aiding and abetting
fraud (Second Count), aiding and abetting breach of fiduciary duty (Third Count), negligent misrepresentation (Fourth Count), professional negligence (Fifth Count), and aiding and abetting conversion (Sixth Count). These defendants are alleged to
be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
The second set of counts in the complaint are against law firm Balcomb & Green, P.C., attorney Lawrence R. Green, and the “Doe” defendants for aiding and abetting securities fraud (Seventh Count), aiding and
abetting fraud (Eighth Count), aiding and abetting breach of fiduciary duty (Ninth Count), negligent misrepresentation (Tenth Count), professional negligence (Eleventh Count), and aiding and abetting conversion (Twelfth Count). These defendants are
alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
The third set of counts in the complaint are against attorney Jon H. Freis and the “Doe” defendants for aiding and abetting securities fraud (Thirteenth Count), aiding and abetting fraud (Fourteenth Count), aiding
and abetting breach of fiduciary duty (Fifteenth Count), negligent misrepresentation (Sixteenth Count), professional negligence (Seventeenth Count), and aiding and abetting conversion (Eighteenth Count). These defendants are alleged to be jointly
and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
The fourth set of counts in the complaint are against law firm Rome McGuigan, P.C., attorney Brian Courtney, and the “Doe” defendants for aiding and abetting securities fraud (Nineteenth Count), aiding and abetting
fraud (Twentieth Count), aiding and abetting breach of fiduciary duty (Twenty-First Count), negligent misrepresentation (Twenty-Second Count), professional negligence (Twenty-Third Count), and aiding and abetting conversion (Twenty-Fourth Count).
These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
The fifth set of counts in the complaint are against law firm Haight Brown & Bonesteel LLP, attorney Ted Handel, and the “Doe” defendants for aiding and abetting securities fraud (Twenty-Fifth Count), aiding and
abetting fraud (Twenty-Sixth Count), aiding and abetting breach of fiduciary duty (Twenty-Seventh Count), negligent misrepresentation (Twenty-Eighth Count), professional negligence (Twenty-Ninth Count), and aiding and abetting conversion (Thirtieth
Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $20 million, as well as for punitive damages.
The sixth set of counts in the complaint are against law firm Bailey Cavalieri LLC, Thomas Geyer, and the “Doe” defendants for aiding and abetting securities fraud (Thirty-First Count), aiding and abetting fraud
(Thirty-Second Count), aiding and abetting breach of fiduciary duty (Thirty-Third Count), negligent misrepresentation (Thirty-Fourth Count), professional negligence (Thirty-Fifth Count), and aiding and abetting conversion (Thirty-Sixth Count).
These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
Part I
Item 3. Legal Proceedings (Continued)
The seventh set of counts in the complaint are against law firm Sidley Austin LLP, attorney Neal Sullivan, and the “Doe” defendants for aiding and abetting securities fraud (Thirty-Seventh Count), aiding and abetting
fraud (Thirty-Eighth Count), aiding and abetting breach of fiduciary duty (Thirty-Ninth Count), negligent misrepresentation (Fortieth Count), professional negligence (Forty-First Count), and aiding and abetting conversion (Forty-Second Count).
These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
The eighth set of counts in the complaint are against law firm Davis Graham & Stubbs LLP, attorney S. Lee Terry, Jr., and the “Doe” defendants for aiding and abetting securities fraud (Forty-Third Count), aiding
and abetting fraud (Forty-Fourth Count), aiding and abetting breach of fiduciary duty (Forty-Fifth Count), negligent misrepresentation (Forty-Sixth Count), professional negligence (Forty-Seventh Count), and aiding and abetting conversion
(Forty-Eighth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $200 million, as well as for punitive damages.
The ninth set of counts in the complaint are against law firm Robinson & Cole LLP, attorney Shant Chalian, and the “Doe” defendants for aiding and abetting securities fraud (Forty-Ninth Count), aiding and
abetting fraud (Fiftieth Count), aiding and abetting breach of fiduciary duty (Fifty-First Count), negligent misrepresentation (Fifty-Second Count), professional negligence (Fifty-Third Count), and aiding and abetting conversion (Fifty-Fourth
Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $5 million, as well as for punitive damages.
The tenth set of counts in the complaint are against law firm Finn Dixon & Herling LLP, attorney Reed Balmer, and the “Doe” defendants for aiding and abetting securities fraud (Fifty-Fifth Count), aiding and
abetting fraud (Fifty-Sixth Count), aiding and abetting breach of fiduciary duty (Fifty-Seventh Count), negligent misrepresentation (Fifty-Eighth Count), professional negligence (Fifty-Ninth Count), and aiding and abetting conversion (Sixtieth
Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $5 million, as well as for punitive damages.
The eleventh set of counts in the complaint are against law firms Halloran & Sage LLP; Balcomb & Green, P.C.; Rome McGuigan, P.C.; Haight Brown & Bonesteel LLP; Bailey Cavalieri LLC; Sidley Austin LLP;
Davis Graham & Stubbs LLP; Robinson & Cole LLP; and Finn Dixon & Herling LLP; attorney Jon H. Freis, and the “Doe” defendants for actual-intent fraudulent transfer (Sixty-First Count) and constructive fraudulent transfer (Sixty-Second
Count). These defendants are alleged to be liable for damages in an amount believed to be in excess of $5 million, as well as for provisional remedies, avoidance of the transfers, and punitive damages.
The case was designated as a complex matter on December 18, 2019 and was assigned to the Honorable Amy Hogue.
On March 20, 2020, two sets of defendants – Sidley Austin LLP and Neal Sullivan; and Davis Graham & Stubbs LLP and S. Lee Terry, Jr. – filed special motions to strike the portions of the complaint directed at
them under a California statute (Civil Procedure Code section 425.16) that permits defendants to bring early challenges to causes of action against them that allegedly arise from protected litigation activity if those causes of action lack minimal
merit. The defendants that filed these special motions to strike asserted that the claims against them arise from communicative conduct in the course of quasi-judicial proceedings, such as regulatory inquiries, and that the Trust cannot establish
a likelihood of prevailing on its claims against them. The Trust opposed these motions, and the matters were heard on July 28, 2020, and taken under submission on that date. On August 14, 2020, the Court entered orders: (i) granting the motion to
strike filed by Sidley Austin LLP and Neal Sullivan, and (ii) granting in part and denying in part the motion to strike filed by Davis Graham & Stubbs LLP and S. Lee Terry, Jr. In September 2020, the Trust filed notices of appeal of the
foregoing orders, and Davis Graham & Stubbs LLP and S. Lee Terry, Jr. subsequently filed a cross-appeal. On January 27, 2021, the Court entered an order granting, in part, a motion for attorneys’ fees filed by Sidley Austin LLP and Neal
Sullivan, pursuant to which the movants were awarded $282,500.00 in fees and $5,557.87 in costs. On March 1, 2021, the Trustee filed a notice of appeal of the order granting fees and costs.
On April 13, 2020, four sets of defendants – Rome McGuigan, P.C. and Brian Courtney; Bailey Cavalieri LLC and Thomas Geyer; Robinson & Cole LLP and Shant Chalian; and Finn Dixon & Herling LLP and Reed Balmer
– filed motions to quash the service of summonses. The defendants that filed these motions asserted that they are not subject to suit in California because they do not have sufficient contacts with California to justify a California court’s
exercise of jurisdiction over them. The Trust opposed these motions, and the matters were heard in part on July 15, 2020 and in part on July 20, 2020, and (with exception of the motion filed by Finn Dixon & Herling LLP and Reed Balmer) were
taken under submission on July 20, 2020. The motion filed by Finn Dixon & Herling LLP, and Reed Balmer was taken off calendar prior to July 20, 2020, and the parties thereafter reached a confidential settlement. On July 21, 2020, the Court
entered orders granting the motions to quash filed by Rome McGuigan, P.C. and Brian Courtney; Bailey Cavalieri LLC and Thomas Geyer; and Robinson & Cole LLP and Shant Chalian. On September 10, 2020, the Trust filed a notice of appeal of the
foregoing orders.
Part I
Item 3. Legal Proceedings (Continued)
On June 16, 2020, the Trust reached a confidential settlement with Balcomb & Green, P.C. and Lawrence R. Green. On July 6, 2020, these defendants filed a motion seeking the Court’s determination that the
settlement was made in good faith under a California statute (Civil Procedure Code section 877.6) that permits settling defendants to seek a good faith settlement finding in order to bar any other defendant from seeking contribution or indemnity.
The motion was unopposed, and the Court entered an order granting it on August 12, 2020.
On January 21, 2021, the Trust reached a confidential settlement with Robinson & Cole LLP and Shant Chalian. As part of that settlement, the appeal of the jurisdictional ruling as to those parties has been
dismissed.
The other appeals remain pending. On June 14, 2021, the Trustee filed a combined opening brief for all of the appeals other than his appeal of the order granting fees and costs to Sidley Austin LLP. Between September
22-29, 2021, the respondents filed their opening briefs. On March 17, 2022, the Trustee filed a combined reply brief for all of the appeals other than his appeal of the order granting fees and costs to Sidley Austin LLP. On June 30, 2022, Davis
Graham & Stubbs LLP filed its reply brief in support of its cross-appeal of the order denying a portion of its special motion to strike. The matter is currently fully briefed and awaiting the Court scheduling oral argument.
The appeal of the award granting fees and costs to Sidley Austin LLP remains pending. The Trustee is due to file an opening brief on September 27, 2022.
On October 28, 2020, the Trust filed a federal lawsuit against four defendants that prevailed on the motions to quash service of summons in the California state court action (Rome McGuigan, P.C.; Brian Courtney;
Bailey Cavalieri LLC; and Thomas Geyer), as well as a fifth defendant (Ivan Acevedo), and certain “Doe” defendants.” The case is styled Goldberg v. Rome McGuigan, P.C., et al., Case No. 2:20-cv-09958-JFW-SK (C.D. Cal.). The complaint contains
counts for (i) violations of section 10(b) of the Exchange Act and Rule 10b-5; (i) aiding and abetting fraud; (iii) aiding and abetting breach of fiduciary duty; (iv) negligent misrepresentation; (v) professional negligence; (vi) aiding and
abetting conversion; (vii) actual fraudulent transfer; and (viii) constructive fraudulent transfer. The conduct challenged in the complaint includes certain of the same conduct challenged in the California state court action, and a footnote in the
complaint explains: “Plaintiff filed an action in Los Angeles Superior Court against [four of these defendants] raising some of the claims asserted in this action. Those defendants filed a motion to quash service, alleging that the court did not
have personal jurisdiction. The Court granted those motions, and Plaintiff appealed. Plaintiff brings this action to preserve his rights and ensure that his claims against [the defendants] are adjudicated on the merits. Should the state court
appeal be successful, resulting in two cases being simultaneously litigated on the merits in two forums, [plaintiff] will consider dismissing this action and litigating the case in state court.” On January 4, 2021, the four defendants from the
California state court action filed motions to dismiss this federal lawsuit, and on March 4, 2021, the court entered an order granting those motions in part by dismissing the first count (arising under the federal securities laws), without ruling
on the remaining counts (arising under state law) in light of potential personal jurisdiction issues. On March 29, 2021, the same four defendants again moved to dismiss the remaining counts for lack of personal jurisdiction. On April 23, 2021 the
federal court entered an order granting those motions, but has not yet entered a final judgment.
Avoidance actions. The Trust is currently prosecuting numerous legal actions to recover preferential payments, fraudulent transfers, and other funds subject to recovery by the
bankruptcy estate. These actions were filed in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”), are pending before the Honorable J. Kate Stickles, and generally fall into the following categories:
| o |
Preferential transfers. Certain of the actions include claims arising under chapter 5 of the Bankruptcy Code and seek to avoid or recover payments made by the Debtors during the 90 days prior to
the December 4, 2017 bankruptcy filing, including payments to miscellaneous vendors and former Noteholders and Unitholders.
|
| o |
Fraudulent transfers (Interest to Noteholders and Unitholders). Certain of the actions include claims arising under chapter 5 of the Bankruptcy Code and seek to avoid or recover payments made by
the Debtors during the course of the Ponzi scheme (from July 2012 through the December 4, 2017 bankruptcy filing) for interest paid to former Noteholders and Unitholders.
|
| o |
Fraudulent transfers (Shapiro personal expenses). Certain of the actions include claims arising under chapter 5 of the Bankruptcy Code and seek to avoid and recover payments made by the Debtors
during the course of the Ponzi scheme (from July 2012 through the December 4, 2017 bankruptcy filing) for the personal expenses of Robert and Jeri Shapiro, including those identified in a forensic report prepared in connection with an SEC
enforcement action in the United States District Court for the Southern District of Florida.
|
Part I
Item 3. Legal Proceedings (Continued)
| o |
Fraudulent transfers and fraud (against former agents). These actions, which arise under chapter 5 of the Bankruptcy Code and applicable state law governing fraudulent transfers, seek to avoid and
recover payments made by the Debtors during the course of the Ponzi scheme (from July 2012 through the December 4, 2017 bankruptcy filing) for commissions to former agents, as well as for fraud, aiding and abetting fraud, and the unlicensed
sale of securities asserted by the Trust based on claims contributed to the Trust by defrauded investors. These actions were filed by the Trust in the United States Bankruptcy Court for the District of Delaware between November 15, 2019 and
December 4, 2019. Actions of this type are also being pursued by the SEC, and it is the Trust’s understanding that any recoveries obtained by the SEC will be transmitted to the Trust pursuant to a Fair Fund established by the SEC.
|
The Trust has filed over 400 legal actions of this nature, many of which have been resolved, resulting in recoveries by or judgments in favor of the Trust. Since inception and as of
August 31, 2022, the Trust has obtained judgments of approximately $44.73 million, including default judgments of approximately $36.21 million and stipulated judgments of approximately $8.52 million. It is unknown at this time how much,
if any, will ultimately be collected on the judgments. Additionally, the Trust has entered into settlements in approximately 221 legal actions and approximately 245 potential avoidance claims for which litigation was not filed, resulting in
aggregate settlements of approximately $18.13 million of cash payments made or due to the Trust and approximately $11.21 million in reductions of claims against the Trust.
Other legal proceedings. In addition, other legal proceedings were prosecuted by the Trust and United States governmental authorities, which actions resulted in recoveries in favor of the Trust. Such
actions include:
| o |
Actions regarding the Shapiro’s personal assets. On December 4, 2019, the Trust filed an action in the Bankruptcy Court, Adv. Pro. No. 10-51076 (BLS), Woodbridge
Liquidation Trust v. Robert Shapiro, Jeri Shapiro, 3X a Charm, LLC, Carbondale Basalt Owners, LLC, Davana Sherman Oaks Owners, LLC, In Trend Staging, LLC, Midland Loop Enterprises, LLC, Schwartz Media Buying Company, LLC and Stover Real
Estate Partners LLC. In this action, the Trust asserts claims under chapter 5 of the Bankruptcy Code and applicable state law for avoidance of preferential and fraudulent transfers together with claims for fraud, aiding and
abetting fraud, the unlicensed sale of securities, breach of fiduciary duty and unjust enrichment. The Trust seeks to recover damages and assets held in the names of Robert Shapiro, Jeri Shapiro and their family members and entities owned
or controlled by them, which assets the Trust contends are beneficially owned by the Debtors or for which the Debtors are entitled to recover based on the Shapiros’ defalcations, including over $20 million in avoidable transfers. On
February 4, 2022, the Trust entered into a Settlement Agreement with Ms. Jeri Shapiro resolving the Trust’s adversary proceeding against Ms. Shapiro. In connection with the Settlement Agreement, Ms. Shapiro responded to interrogatories
from the Trust and submitted a declaration under penalty of perjury detailing her lack of assets. Upon execution of the Settlement Agreement, Ms. Shapiro executed and delivered a Stipulated Judgment for approximately $20.6 million that
will be held by the Trust in escrow for three years that can be entered without notice if the Trust learns Ms. Shapiro’s representations in her declaration were false or materially inaccurate. Additionally, Ms. Shapiro authorized the Trust
to expunge the filed claims of certain co-defendants she was listed as an officer and turned over payments to the Trust that were received by certain co-defendants in the adversary proceeding. A stipulation of dismissal (as to Ms. Shapiro
only) was entered on April 1, 2022.
|
| o |
Criminal proceeding and forfeiture. In connection with the United States’ criminal case against Robert Shapiro (Case No. No. 19-20178-CR-ALTONAGA (S.D. Fla. 2019)), Shapiro agreed to the
forfeiture of certain assets. The Trust filed a petition in the Florida court to claim the Forfeited Assets as property of the Debtors’ estates, and therefore as property that had vested in the Trust pursuant to the Plan. The Trust has
entered into an agreement with the United States Department of Justice to resolve its claim. The agreement was approved by the Bankruptcy Court on September 17, 2020 and was approved by the United States District Court on October 1, 2020.
Among other things, the agreement provides for the release of specified Forfeited Assets by the United States to the Trust, and for the Trust to liquidate those assets and distribute the net sale proceeds to Qualifying Victims, which
include the vast majority of Trust beneficiaries—specifically, all former holders of Class 3 and 5 claims under the Plan and their permitted assigns—but do not include former holders of Class 4 claims under the Plan. The Trust has taken
possession of the Forfeited Assets and has sold the wine and gold assets. Some of the jewelry, art, clothing, handbags and shoes have also been sold.
|
Wind-Down Group litigation. The Wind-Down Group owns a portfolio of real estate assets, which includes secured loans and other properties. As part of its recovery efforts,
the Wind-Down Group, through its subsidiaries, is involved in ordinary routine litigation incidental to such assets. Among other litigation, certain Woodbridge entities (including the Trust, the Wind-Down Entity, and WB 8607 Honoapiilani, LLC)
filed an action against Certain Underwriters at Lloyd’s of London in Los Angeles Superior Court, alleging that the defendant insurer breached its obligations under an insurance policy purchased to protect a property owned by WB 8607 Honoapiilani (a
subsidiary of the Wind-Down Entity) in Hawaii, which property was destroyed by fire in August 2017. The Superior Court granted the defendant’s motion for summary judgment, and on March 25, 2021 entered judgment in favor of the defendant. The
judgment provided that plaintiffs take nothing by way of the complaint. Further, the judgment provided that defendant refund plaintiffs for the premium payments under the insurance policy at issue in the lawsuit ($110,829.43), less all amounts
paid by the defendant in respect of claims under the policy ($97,770.38) and less defendant’s costs (defendant requested costs of $9,874.71). Plaintiffs have appealed the judgment. The appeal has been fully briefed and is awaiting oral argument
before the Court of Appeal, which argument is presently expected to occur in November 2022.
Not applicable.
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The Trust has two classes of common equity: Class A Interests and Class B Interests. Neither class is listed on any national securities exchange.
Class A Interests are traded on the over-the-counter market (OTC Link® ATS) under the trading symbol
WBQNL. Over-the-counter quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. As of September 23, 2022, there were approximately 7,114 holders of record of
the Class A Interests.
Since issuance, Class B Interests have not been transferable except by operation of law or by will or the laws of descent and distribution. Accordingly, there has not been any
established public trading market for the Class B Liquidation Trust Interests or any available price quotations. As of September 23, 2022 there were approximately 1,182 holders of record of the Class B Interests.
Dividends and Distributions
Liquidation Trust Interests represent a right to receive a pro rata portion of distributions by the Trust pursuant to the terms of the Plan and the Trust Agreement. Since the Plan Effective Date, the
Liquidation Trustee has authorized ten cash distributions to the holders of Class A Interests. See “Item 1. Business – A. Overview” of this Annual Report.
The Liquidation Trustee will continue to assess the adequacy of funds held and determine the availability of funds for additional distributions to Interestholders, but does not
currently know the timing or amount of any such distributions(s). Additional cash distributions will be subject to, among other things, the establishment of reasonable reserves for contingent liabilities and future costs and expenses. Pursuant to
the Plan and the Trust Agreement, all distributions are net of any costs and expenses incurred by the Trust in connection with administering, litigating or otherwise resolving the various Causes of Action of the Trust and operating the Trust.
Amounts withheld and not distributed may also include fees and expenses of the Liquidation Trustee, premiums for directors’ and officers’ insurance, and other 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 reserves 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 or unless such distribution is the final distribution to such Interestholder pursuant to the Plan and the Trust Agreement. Distributions will be made at the sole discretion of the Liquidation Trustee in accordance with the provisions of the
Plan and the Trust Agreement.
As 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.
Since its inception, the Wind-Down Entity has made substantial progress toward completion of its liquidation activities and is nearing the end of the liquidation
of its real estate portfolio. Holders of Liquidation Trust Interests are advised that future distributions from the Trust will be limited. Once the Company’s remaining real property assets have been liquidated and the net proceeds resulting
therefrom, net of reserves, have been distributed, further distribution(s) will be materially reliant on future recoveries from litigation, which are uncertain and the amount and timing of which are difficult to determine.
Sales of unregistered securities
In accordance with the Plan, all Liquidation Trust Interests have been issued without registration under the Securities Act. The Liquidation Trust Interests have been issued only
to holders of allowed claims in Class 3, Class 4, and Class 5 entirely in exchange for such claims. See “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” of this Annual Report. During the period from February 15, 2019 (inception) through June 30, 2022, the Trust has issued an aggregate of 11,539,281 Class A Interests and an aggregate of
677,623 Class B Interests. As of June 30, 2022, the Trust has 11,515,790 Class A Interests and 675,617 Class B Interests outstanding. All Liquidation Trust Interests were issued on the Plan Effective Date or from time to time thereafter as soon as
practicable as and when claims in Class 3, Class 4 or Class 5 have become allowed.
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (Continued)
During the three months ended June 30, 2022, the Trust did not issue any Liquidation Trust Interests.
The issuance of Liquidation Trust Interests without registration under the Securities Act has occurred in reliance upon the exemption from such registration afforded by Section
1145(a)(1) of the Bankruptcy Code. Section 1145(a)(1) exempts the offer and sale of securities under a plan of reorganization from registration under the Securities Act and state securities laws and regulation if (i) the securities are offered and
sold under a plan of reorganization and are securities of the debtor, of an affiliate of the debtor participating in a joint plan with the debtor, or of a successor to the debtor under the plan; (ii) the recipients of the securities hold a
pre-petition or administrative claim against the debtor or an interest in the debtor; and (iii) the securities are issued entirely in exchange for the recipient’s claim against or interest in the debtor, or principally in such exchange and partly
for cash or property. The Trust believes that the Liquidation Trust Interests are securities of a “successor” to the Debtors within the meaning of Section 1145(a)(1), and such securities were issued under the Plan entirely in exchange for allowed
claims in Class 3, Class 4, and Class 5.
| Item 6. |
[Reserved]
|
Part II
| Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion of changes in net assets and net assets in liquidation should be read in conjunction with “Item 8. Financial Statements and Supplementary Data” of Part II
of this Annual Report, and other financial information appearing elsewhere in this Annual Report. This discussion contains “forward-looking statements” within the meaning of the Securities Act and the Exchange Act. All such forward-looking
statements are based upon the Trust’s current expectations and involve risks and uncertainties which may cause actual results to differ materially from those expressed or implied by the forward-looking statements. See “Cautionary Note About
Forward-Looking Statements” included at the beginning of this Annual Report for a description of these risks and uncertainties. The Trust, the Remaining Debtors, the Wind-Down Entity and the Wind-Down Subsidiaries are collectively referred to in
this discussion as “the Company.”
Overview
Pursuant to the Plan, the Trust was formed on February 15, 2019 to hold, either directly or indirectly through the Wind-Down Group, the assets and equity interests formerly owned by
the Debtors. Each of the real properties formerly owned by the Debtors was transferred, on the effective date of the Plan, to one of the Wind-Down Subsidiaries. The purpose of the Wind-Down Group is to develop (as applicable), market, and sell
those properties to generate cash. Assets formerly owned by the Debtors other than real estate assets and certain cash were transferred, on the effective date of the Plan, to the Trust. The purpose of the Trust is to receive remittances of cash
from the Wind-Down Entity, to resolve disputed claims, to prosecute the Causes of Action, to pay allowed Unimpaired Claims and, subject to the payment of Trust expenses and the retention of various reserves, to make distributions of cash to
Interestholders in accordance with the Plan.
The Trust operates pursuant to the Plan and the Trust Agreement. The Trust was formed as a Delaware statutory trust and is administered by the Liquidation Trustee. The Wind-Down
Entity, a wholly-owned subsidiary of the Trust, operates pursuant to the Plan and the Wind-Down Entity LLC Agreement. The Wind-Down Entity was formed as a Delaware limited liability company and is administered by its Board of Managers, one of which
is the Chief Executive Officer.
As of September 23, 2022, and June 30, 2022, the number of Liquidation Trust Interests outstanding in each series is as follows:
|
Number Outstanding as of
|
||||||||
|
September 23, 2022
|
June 30, 2022
|
|||||||
|
Class A Liquidation Trust Interests
|
11,514,190
|
11,513,535
|
||||||
|
Class B Liquidation Trust Interests
|
675,617
|
675,617
|
||||||
For each of the classes of Liquidation Trust Interests, the number of Liquidation Trust Interests outstanding will increase to the extent that disputed claims become allowed
claims. In addition, the number of Liquidation Trust Interests outstanding will decrease to the extent that disputed claims are settled by cancelling previously issued Liquidation Trust Interests.
Since the Plan Effective Date through June 30, 2022, the Wind-Down Group has disposed of approximately 145 properties for aggregate net sale proceeds of approximately $549.04
million. As of June 30, 2022, the Company owned five real estate assets (including one single-family home listed for sale) with a gross carrying value of approximately $30.97 million. Therefore, the amount of net proceeds from the sale of real
estate assets in the future will be less than the amount realized from the Plan Effective Date through June 30, 2022. In addition, it may take longer to sell the properties than the Company has estimated. The Company expects to complete the
liquidation of its real estate assets during the fiscal year ending June 30, 2024.
Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Discussion of the Company’s Operations
Year ended June 30, 2022
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the year ended June 30, 2022 ($ in thousands):
|
|
Restricted
For Qualifying
Victims |
All
Interestholders |
Total
|
|||||||||
|
Net Assets in Liquidation as of beginning of year
|
$
|
3,167
|
$
|
126,373
|
$
|
129,540
|
||||||
|
Change in assets and liabilities:
|
||||||||||||
|
Restricted for Qualifying Victims - change in carrying value of assets and and liabilities, net
|
318
|
-
|
318
|
|||||||||
|
All Interestholders-
|
||||||||||||
|
Change in carrying value of assets and liabilities, net
|
-
|
47,602
|
47,602
|
|||||||||
|
Distributions (declared) reversed, net
|
-
|
(143,065
|
)
|
(143,065
|
)
|
|||||||
|
Net change in assets and liabilities
|
-
|
(95,463
|
)
|
(95,463
|
)
|
|||||||
|
Net Assets in Liquidation as of end of year
|
$
|
3,485
|
$
|
30,910
|
$ |
34,395
|
||||||
Net assets in Liquidation – Restricted for Qualifying Victims increased by approximately $0.32 million during the year ended June 30, 2022.
Net assets in liquidation – All Interestholders decreased approximately $95.46 million during the year ended June 30, 2022. This decrease was due to an increase in the carrying
value of assets and liabilities of $47.60 million, net and distributions declared of approximately $143.06 million, net (distributions declared of $145.04 million, less distributions reversed of $1.98 million for disallowed claims and forfeited
distributions). The components of the changes in carrying value of assets and liabilities, net are as follows ($ in thousands):
|
Restricted for
Qualifying Victims |
All
Interestholders |
Total
|
||||||||||
|
Causes of Action, net (1) :
|
||||||||||||
|
Comerica Bank
|
$
|
-
|
$
|
23,575
|
$ |
23,575
|
||||||
|
Other settlement agreements
|
-
|
2,004
|
2,004
|
|||||||||
|
Sales proceeds in excess of carrying value
|
53
|
20,130
|
20,183
|
|||||||||
|
Remeasurement of assets and liabilities, net
|
265
|
1,016
|
1,281
|
|||||||||
|
Other
|
-
|
877
|
877
|
|||||||||
|
Change in carrying value of assets and liabilities, net
|
$
|
318
|
$
|
47,602
|
$
|
47,920
|
||||||
| (1) |
Net of 5% payable to the Liquidation Trustee of approximately $1,241 for Comerica Bank and $105 for Other settlement agreements.
|
During the year ended June 30, 2022, the Company:
| • |
Declared three distributions of $3.44, $3.44 and $5.63 per Class A Interest, which totaled approximately $40.02 million, approximately $39.98 million and approximately $65.04 million, respectively.
|
| • |
Sold Forfeited Assets for net proceeds of approximately $0.61 million.
|
| • |
Completed construction of two single-family homes (642 St. Cloud and 638 Siena).
|
Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
| • |
Sold six single-family homes and settled two secured loans for net proceeds of approximately $131.72 million.
|
| • |
Recorded approximately $23.57 million from the settlement of legal proceedings against Comerica Bank, net of 5% payable to Liquidation Trustee.
|
| • |
Recorded approximately $2.00 million from the settlement of other Causes of Action, net of 5% payable to Liquidation Trustee.
|
| • |
Paid construction costs of approximately $13.49 million relating to the single-family homes under development.
|
| • |
Paid holding costs of approximately $2.67 million.
|
| • |
Paid general and administrative costs of approximately $16.17 million, including approximately $9.69 million professional fees, approximately $5.77 million of payroll and related costs and approximately $0.71
million of board member fees and expenses.
|
Year ended June 30, 2021
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the year ended June 30, 2021 ($ in thousands):
|
Restricted for
Qualifying Victims |
All
Interestholders |
Total
|
||||||||||
|
Net assets in liquidation as of beginning of year
|
$
|
-
|
$
|
264,517
|
$
|
264,517
|
||||||
|
Change in assets and liabilities:
|
||||||||||||
|
Restricted for Qualifying Victims - change in carrying value of assets and liabilities, net
|
3,167
|
-
|
3,167
|
|||||||||
|
All Interestholders-
|
||||||||||||
|
Change in carrying value of assets and liabilities, net
|
-
|
644
|
644
|
|||||||||
|
Distributions (declared) reversed, net
|
-
|
(138,788
|
)
|
(138,788
|
)
|
|||||||
|
Net change in assets and liabilities
|
-
|
(138,144
|
)
|
(138,144
|
)
|
|||||||
|
Net assets in liquidation as of end of year
|
$
|
3,167
|
$
|
126,373
|
$ |
129,540
|
||||||
Net assets in liquidation decreased approximately $138.14 million during the year ended June 30, 2021. This decrease was due to a reduction in the carrying value of assets and
liabilities of $0.64 million, net and distributions declared of approximately $138.78 million, net (distributions declared of $139.95 million, less distributions reversed of $1.17 million for disallowed claims and cancelled interests). The
components of the changes in carrying value of assets and liabilities, net are as follows ($ in thousands):
Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
|
Restricted for
Qualifying Victims |
All
Interestholders |
Total
|
||||||||||
|
Recognition of Forfeited Assets
|
$
|
3,459
|
$
|
-
|
$
|
3,459
|
||||||
|
Settlement recoveries recognized, net (1)
|
-
|
9,339
|
9,339
|
|||||||||
|
Sales proceeds in excess of carrying value
|
-
|
5,180
|
5,180
|
|||||||||
|
Remeasurement of assets and liabilities, net
|
(308
|
)
|
(12,271
|
)
|
(12,579
|
)
|
||||||
|
Adjustment to insurance claim receivable
|
-
|
(1,900
|
)
|
(1,900
|
)
|
|||||||
|
Other
|
$
|
16
|
$
|
296
|
$
|
312
|
||||||
|
Change in carrying value of assets and liabilities, net
|
$
|
3,167
|
$
|
644
|
$
|
3,811
|
||||||
(1) Net of 5% payable to the Liquidation Trustee of approximately $491.
During the year ended June 30, 2021, the Company:
| • |
Declared distributions of $2.56, $2.56, $4.28 and $2.58 per Class A Interest, which totaled approximately $29.97, approximately $29.95, approximately $50.01 million and approximately $30.02 million, respectively.
|
| • |
Completed construction of two single-family homes (1966 Carla Ridge and 10721 Stradella), both of which were sold prior to construction being completed during the year ended June 30, 2020. 1432 Tanager was under
construction when it was sold in August 2020 and the buyer assumed the remaining obligations to complete construction of the property of approximately $10 million.
|
| • |
Accrued approximately $12.95 million of additional general and administrative costs following management’s determination that an additional year would be needed to resolve the Unresolved Causes of Action and carry
out the Company’s liquidating activities. The costs are primarily legal and professional fees, payroll and payroll-related, directors’ and officers’ insurance and board fees and expenses. These costs are included in accrued liquidation
costs (Note 6).
|
| • |
Sold six single-family homes, two lots and eleven other properties for net proceeds of approximately $134.16 million.
|
| • |
Recognized Forfeited Assets which are restricted for Qualifying Victims of approximately $3.46 million, including $1.84 million of cash.
|
| • |
Recorded approximately $9.34 million from the settlement of other Causes of Action, net of 5% payable to Liquidation Trustee.
|
| • |
Paid construction costs of approximately $27.29 million relating to the single-family homes under development.
|
| • |
Paid holding costs of approximately $9.84 million.
|
| • |
Paid general and administrative costs of approximately $18.10 million, including approximately $9.83 million of professional fees, approximately $7.39 million of payroll and related costs and approximately $0.88
million of board member fees and expenses.
|
Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Liquidity, Capital Resources and Uses of Liquidity
Liquidity
The Company’s only sources for meeting its capital requirements are its cash and cash equivalents, proceeds from the sale of its real estate assets, collection of escrow
receivables, recoveries on Causes of Action and from the sale of Forfeited Assets1. The Company’s primary uses of funds are and will continue to be for distributions,
development costs, including accrual for warranty claims, holding costs and general and administrative costs, all of which the Company expects to be able to adequately fund over the next twelve months from its primary sources of capital.
Capital Resources
In addition to consolidated cash and cash equivalents as of June 30, 2022, the capital resources available to the Company are as follows:
| • |
Sales of Real Estate: The Wind-Down Group is in the process of marketing and selling its real estate assets, all of which are held for sale. One single-family home was listed for sale as of June 30, 2022.
As of June 30, 2022, the Company owned a total of five real estate assets with a gross carrying value of approximately $30.97 million. The majority of the gross carrying value is concentrated in one single-family home. During the year ended
June 30, 2022, the Company sold six single-family homes and settled two secured loans for net proceeds of approximately $131.72 million. The net proceeds for the year ended June 30, 2022 is not indicative of future net proceeds. Based on
the remaining assets of the Company, future net proceeds will be significantly less.
|
| • |
Escrow Receivables: As of June 30, 2022, the Wind-Down Group had escrow receivables relating to three single-family homes that had been sold and for which it was completing punch list items and/or awaiting
the issuance of a certificate of occupancy. In August 2022, the certificate of occupancy was received for one of the single-family homes and $2.5 million of escrow receivable was collected.
|
| • |
Causes of Action Recoveries: During the year ended June 30, 2022, the Company recognized approximately $26.92 million from the settlement of Causes of Action. The recoveries for the year
ended June 30, 2022 include approximately $23.57 million from a settlement of litigation with Comerica Bank. There can be no assurance that the amounts the Company recovers from settling Causes of Action in
the future will be consistent with the amount recovered during the year ended June 30, 2022.
|
| • |
Forfeited Assets: Forfeited Assets consist of cash and other assets (jewelry, art, clothing, handbags, shoes, and a car). During the year ended June 30, 2022, the Trust sold some of its Forfeited Assets
for net proceeds of approximately $0.61 million.
|
Uses of Liquidity
The primary uses of the Company’s liquidity are to pay (a) distributions payable, (b) development costs, including accrual for warranty claims, (c) holding costs, including
maintenance and repair costs, and (d) general and administrative costs. As of June 30, 2022, the Company’s total liabilities were approximately $103.42 million, which includes distributions payable of approximately $68.77 million. The estimated
costs recorded as of June 30, 2022 may not be indicative of the costs paid in future periods, which may be significantly higher.
1 The Trust is required to distribute the net sale proceeds from
liquidating the Forfeited Assets to the Qualifying Victims. Qualifying Victims are the former holders of Class 3 and Class 5 Claims and their permitted assigns. Former holders of Class 4 Claims are not Qualifying Victims. Because of the
requirement to distribute the net sale proceeds of the Forfeited Assets to the Qualifying Victims only, the Forfeited Assets as of June 30, 2022 are presented in the consolidated statement of net assets as restricted net assets in liquidation.
As of June 30, 2022, 11,436,675 of the 11,515,790 Class A Interests were held by Qualifying Victims. Of the 90,793 Class A Interests relating to unresolved claims as of June 30, 2022, 3,449 would be held by Qualifying Victims.
Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Given current cash balances, projected sales, Causes of Action recoveries, distributions declared, and expected cash needs, the Company does not expect a deficiency in liquidity in
the next twelve months. Due to the uncertain nature of future net sales proceeds, recoveries and costs to be incurred, it is not possible to be certain that the current liquidity will be adequate to cover all future financial needs of the Company.
Creating contingent obligation agreements and/or seeking methods to reduce professional costs, including legal fees, and administrative costs are strategies that could be undertaken to address liquidity issues should they arise. These strategies
could impact the Company’s ability to maximize recoveries from the settlement of Unresolved Causes of Action.
Distributions
Distributions will be made at the sole discretion of the Liquidation Trustee in accordance with the provisions of the Plan and the Trust Agreement. As of September 23, 2022, 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 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.
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. The Liquidation Trustee
will continue to assess the adequacy of funds held and expects to make additional cash distributions on account of Class A Interests, but does not currently know the timing or amount of any such distribution(s).
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 distributions would be deemed forfeited in accordance with the Plan The Trust provided this final notice simply as a one-time courtesy and
reserves its rights to strictly enforce the Plan’s forfeiture provisions, and any other provision of the Plan, against any person (including any recipient of the final notice) at any time in the future, without further notice.
The following tables summarize the distributions declared, distributions paid and the activity in the restricted cash account for the periods from February 15, 2019 (inception)
through June 30, 2022 and from February 15, 2019 through September 23, 2022:
Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
|
|
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 Returned / (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.
|
|
(g)
|
Included above.
|
Management believes that, since its inception, the Wind-Down Entity has made substantial progress toward completion of its liquidation activities and is nearing
the end of the liquidation of its real estate portfolio. Holders of Liquidation Trust Interests are advised that future distributions from the Trust will be limited. Once the Company’s remaining real property assets have been liquidated and the net
proceeds resulting therefrom, net of reserves, have been distributed, further distribution(s) will be materially reliant on future recoveries from litigation, which are uncertain and the amount and timing of which are difficult to determine.
Contractual Obligations
As of June 30, 2022, the Company has contractual commitments related to construction contracts totaling approximately $1.50 million. The Company has an office lease that expires in
January 2023. The Company expects that it will lease office space until the liquidation process is completed.
Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Critical Accounting Policies and Practices
The Company’s consolidated financial statements are prepared in accordance with U.S. GAAP. The accounting policies and practices that the Company believes are the most critical are
discussed below. These accounting policies and practices require management to make decisions on subjective and/or complex matters that may inherently be uncertain. Estimates are required to prepare the consolidated financial statements in
conformity with U.S. GAAP. Significant estimates, judgments and assumptions are required in a number of areas, including, but not limited to, the sales price of real estate assets, selling costs, development costs, holding costs, potential warranty
claims, general and administrative costs to be incurred until the completion of the liquidation of the Company and estimated reserves for contingent liabilities. In many instances, changes in the accounting estimates are likely to occur from period
to period. Actual results may differ from the estimates. The Company believes the current assumptions and other considerations used in preparing the consolidated financial statements are appropriate. However, if actual experience differs from the
assumptions and other considerations used in estimating amounts reflected in the Company’s consolidated financial statements, the resulting changes could have a material adverse effect on the Company’s net assets in liquidation.
Liquidation Basis of Accounting
Under Liquidation Basis of Accounting, all assets are recorded at their estimated net realizable value or liquidation value, which represents the estimated amount of net cash that
will be received upon the disposition of the assets (on an undiscounted basis). Liabilities are measured in accordance with U.S. GAAP that otherwise applies to those liabilities. The Company has not recorded any amount from the future settlement
of Unresolved Causes of Action or Fair Fund recoveries in the accompanying consolidated financial statements because they cannot be reasonably estimated.
Valuation of Real Estate
The measurement of real estate assets held for sale is based on current contracts (if any), estimates and other indications of sales value, net of estimated selling costs. To
determine the value of real estate assets held for sale, the Company considered the three traditional approaches to value (cost, income and sales comparison) commonly used by the real estate appraisal community. The applicability and relevancy of
each valuation approach as applied may differ by asset. In most cases, the sales comparison approach was accorded the greatest weight. This approach compares a property to other properties with similar characteristics that have recently sold. To
validate management’s estimate, the Company also considers opinions from qualified real estate professionals and local real estate brokers and, in some cases, obtained third party appraisals.
Accrued Liquidation Costs
The estimated costs associated with implementing and completing the Company’s plan of liquidation are recorded as accrued liquidation costs. The Company has also recorded the
estimated development costs to be incurred to prepare the assets for sale as well as the estimated holding, maintenance and repair costs to be incurred until the projected sale date and the estimated general and administrative costs to be incurred
until the completion of the liquidation of the Company, and estimated reserves for contingent liabilities.
Changes in Carrying Value
On a quarterly basis, the Company reviews the estimated net realizable values, liquidation costs and the estimated date of the completion of the liquidation of the Company and
records any significant changes. The Company will also revalue an asset when it is under contract for sale and the buyer’s contingencies have been removed. During the period that this occurs, the carrying value of the asset and the estimated
closing and other costs will be adjusted, if necessary. If the Company has a change in its plan for the disposition of an asset, the carrying value will be adjusted to reflect this change in the period that the change is approved. The change in
value may include a change to the accrued liquidation costs related to the asset.
Estimates are required to prepare the consolidated financial statements in conformity with US GAAP. Significant estimates, judgments and assumptions are required in a number of
areas, including, but not limited to, the sales price of real estate assets, selling costs, development costs, holding costs and general and administrative costs to be incurred until the completion of the liquidation of the Company and estimated
reserves for contingent liabilities. In many instances changes in the accounting estimates are likely to occur from period to period. Actual results may differ from the estimates. The Company believes that the current assumptions and other
considerations used in the consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in the Company’s consolidated financial
statements, the resulting changes could have a material adverse effect on the Company’s net assets in liquidation.
Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
All changes in the estimated liquidation value of the Company’s assets, real estate assets held for sale and other assets, and liabilities are reflected as a change to the Company’s
net assets in liquidation.
| Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk
|
Not applicable, as the Company is a “smaller reporting company” within the meaning of Rule 12b-2 of the Exchange Act.
| Item 8. |
Financial Statements and Supplementary Data
|
The information required by this Item is incorporated by reference to the consolidated financial statements set forth in Item 15 of Part IV of this Annual Report, “Exhibits and
Financial Statement Schedules”.
| Item 9. |
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
|
On July 19, 2019, the Trust engaged Squar Milner LLP (“Squar Milner”) as its first independent registered public accounting firm. Prior to such engagement, the Company did
not consult with Squar Milner regarding either the application of accounting principles to any specified transaction or the type of audit opinion that might be rendered on the Company’s financial statements. Thus, Squar Milner did not provide any
written reports or oral advice to the Company regarding such matters. There have been no disagreements between Squar Milner and the Company.
On November 1, 2020, the Company was notified that its then independent registered public accounting firm Squar Milner was combined with Baker Tilly US, LLP (“Baker Tilly”)
in a transaction pursuant to which Squar Milner combined its operations with Baker Tilly and certain of the professional staff and partners of Squar Milner joined Baker Tilly either as employees or partners of Baker Tilly. On November 1, 2020,
Squar Milner resigned as the auditors of the Company and, with the approval of the Audit Committee of the Supervisory Board, Baker Tilly was engaged as its independent registered public accounting firm.
Prior to engaging Baker Tilly, the Company did not consult with Baker Tilly regarding the application of accounting principles to a specific completed or contemplated transaction or
regarding the type of audit opinions that might be rendered by Baker Tilly on the Company’s financial statements, and Baker Tilly did not provide any written or oral advice that was an important factor considered by the Company in reaching a
decision as to any such accounting, auditing or financial reporting issue.
The report of the independent registered public accounting firm of Squar Milner regarding the Company’s consolidated financial statements for the year ended June 30, 2020 and the
period from February 15, 2019 (inception) through June 30, 2019 did not contain any adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles.
During the year ended June 30, 2020 and the period from February 15, 2019 (inception) through June 30, 2019, and during the interim period from the end of the most recently
completed fiscal year through November 1, 2020, the date of resignation, there were no disagreements with Squar Milner on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which
disagreements, if not resolved to the satisfaction of Squar Milner would have caused it to make reference to such disagreement in its reports.
Part II
| Item 9A. |
Controls and Procedures
|
Disclosure Controls and Procedures
As of the end of the period covered by this report, management and the Liquidation Trustee evaluated the effectiveness of the design and operation of our disclosure controls and
procedures. Based upon, and as of the date of, the evaluation, management and the Liquidation Trustee concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information
required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed
to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including the Liquidation Trustee, as appropriate to allow timely decisions
regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) or 15d-15(f) promulgated
under the Securities Exchange Act of 1934, as amended.
In connection with the preparation of our Form 10-K, our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2022. In making that
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).
Based on its assessment, our management believes that, as of June 30, 2022, our internal control over financial reporting was effective based on those criteria. There have been no
changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| Item 9B. |
Other Information
|
None.
| Item 9C. |
Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
|
None.
Part III
| Item 10. |
Directors, Executive Officers, and Corporate Governance
|
The Liquidation Trustee
The Trust does not have directors or executive officers. All of the management and executive authority over the Trust resides in the Liquidation Trustee, subject to the supervision
of the Supervisory Board.
Michael I. Goldberg, Esq., the Liquidation Trustee, age 58, has served as the Liquidation Trustee since inception of the Trust on February
15, 2019. Prior to that time, Mr. Goldberg served as a member of the Debtors’ independent Board of Managers and had been the SEC’s designee to that Board. Mr. Goldberg was unanimously selected to be the Liquidation Trustee by the Unsecured
Creditors’ Committee, the Noteholder Committee, and the Unitholder Committee in the Debtors’ Bankruptcy Cases. Mr. Goldberg has been a partner in the law firm of Akerman LLP since 1997, where he is chair of the Fraud & Recovery Practice Group,
a comprehensive fraud management team focusing on Ponzi schemes, receiverships, and EB-5 fraud. Mr. Goldberg has managed some of the largest Ponzi scheme liquidation recoveries in United States history and routinely testifies as a qualified expert
witness on Ponzi schemes in federal and state court cases. Mr. Goldberg currently is the Receiver for Jay Peak and Q Resort, Inc., the owners and operators of a ski resort in northern Vermont, and for the Champlain Towers South condominium
association in Surfside, Florida. For over 25 years, Mr. Goldberg has practiced law in the area of fraud and recovery and bankruptcy and reorganizations, regularly serving as a court-appointed fiduciary in unwinding Ponzi schemes. Mr. Goldberg
holds Bachelor of Arts and Juris Doctor degrees from Boston University and a Master of Business Administration from New York University. He is admitted to practice law in state and federal courts in Florida and New York.
The Liquidation Trustee serves for the duration of the Trust, subject to earlier death, resignation or removal. The Liquidation Trustee may resign at any time by giving the
Interestholders and the Supervisory Board at least sixty (60) days written notice of his or her intention to do so. A Liquidation Trustee may be removed and replaced by an order of the Bankruptcy Court upon the motion of the Supervisory Board and a
showing of good cause, except that any 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. Under Bankruptcy Code section 1104, “cause” includes fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the
Trust.
The Supervisory Board of the Trust
The Liquidation Trustee is subject to the supervision, to the extent provided in the Plan, of the Supervisory Board. The Supervisory Board consists of six members, five of whom have
served as members of the Supervisory Board since inception and one of whom was elected on August 21, 2019. Except as otherwise indicated below, during the past five years none of the following named individuals has served or held a position with
any company that is a parent, subsidiary or other affiliate of the Trust.
Jay Beynon, age 75, has been a member of the Supervisory Board since inception of the Trust and was appointed to such office in accordance
with the Plan and Trust Agreement. Beginning in February 2018 and continuing until February 15, 2019, Mr. Beynon served as a member of the Ad Hoc Noteholder Group in the Bankruptcy Cases. Mr. Beynon is a real estate investor and, prior to his
retirement in 2011, was a businessman with over 27 years’ experience, including as founder and chief executive officer of The Beynon Company, a graphic design agency, and the founder of Hot Rod Speed Works, the designer and fabricator of custom
automobiles.
Raymond C. Blackburn, M.D., age 73, has been a member of the Supervisory Board since inception of the Trust and was appointed to such office
in accordance with the Plan and Trust Agreement. Beginning in January 2018 and continuing until February 15, 2019, Dr. Blackburn served as a member of the Ad Hoc Unitholder Committee in the Bankruptcy Cases. Dr. Blackburn is a licensed physician in
Texas and holds a Bachelor of Arts in Chemistry from Oakwood University and a Doctor of Medicine from Loma Linda University School of Medicine. Dr. Blackburn specialized in and practiced dermatology in Dallas, Texas for nearly 38 years. Retired
since August 2016, Dr. Blackburn maintains an active medical license in Texas. He is a retired member of the Dallas County Medical Society, the Texas State Medical Society and the American Academy of Dermatology.
Terry R. Goebel, age 69, has been a member of the Supervisory Board since inception of the Trust and was appointed to such office in
accordance with the Plan and Trust Agreement. Mr. Goebel currently serves as Chair of the Supervisory Board. Beginning in December 2017 and continuing until February 15, 2019, Mr. Goebel served as a member of the Unsecured Creditors’ Committee in
the Bankruptcy Cases, having been appointed to such position by the U.S. Trustee’s Office. Mr. Goebel is the President and a principal owner of G3 Group LA, a California-licensed general contractor specializing in the development of high-end,
luxury residences. Mr. Goebel’s responsibilities at G3 Group LA include oversight of field operations.
Part III
Item 10. Directors, Executive Officers, and Corporate Governance (Continued)
Lynn Myrick, age 78, has been a member of the Supervisory Board since inception of the Trust and was appointed to such office in accordance
with the Plan and Trust Agreement. Ms. Myrick was appointed to the Unsecured Creditors’ Committee in the Bankruptcy Cases on April 3, 2018 by the U.S. Trustee’s Office, succeeding to her husband Ron Myrick’s position after his death, and continued
to serve on that committee until February 15, 2019. Retired since 2013, Ms. Myrick worked as an elementary school teacher and has experience in charitable fund-raising for the Boston Ballet and the Southwest Florida Symphony Society. Ms. Myrick
holds an Associate of the Arts in Interior Design and a Bachelor of Science from the University of Louisville.
John J. O’Neill, age 79, has been a member of the Supervisory Board since inception of the Trust and was appointed to such office in
accordance with the Plan and Trust Agreement. Beginning in December 2017 and continuing until February 15, 2019, Mr. O’Neill served as a member of the Unsecured Creditors’ Committee in the Bankruptcy Cases, having been appointed to such position by
the U.S. Trustee’s Office. Retired since 2014, Mr. O’Neill is a former account executive at Merrill Lynch and the former president of an independently owned beverage distributor. Mr. O’Neill holds a Bachelor of Arts in Business Administration from
Dickinson State University.
M. Freddie Reiss, age 75, has been a member of the Supervisory Board since August 21, 2019, at which time he was appointed to such office by
the Supervisory Board. Mr. Reiss is the sole member of the Audit Committee of the Supervisory Board. Additionally, Mr. Reiss has been a member of the Board of Managers since its inception and was appointed to such office under the Plan. Prior to
that time, Mr. Reiss served as a member of the Debtors’ Board of Managers during the Bankruptcy Cases. Mr. Reiss is the former Senior Managing Director of the Corporate Finance/Restructuring Practice at FTI Consulting, an independent global
business advisory firm, a position from which he retired in 2013. Mr. Reiss has been an independent director of Eva Automation Inc. (March 2020 to current), Blackrock TCP Tennenbaum Capital Corp. (August 2016 to current) and Blackrock Direct
Lending Corp. (December 2020 to current). Mr. Reiss’s prior positions during the previous five years, each of which has since concluded, include the following: (i) independent director of Arclight and Pacific Theatres (August 2020 to July 2021);
(ii) independent director of JH Capital Group (August 2018 to April 2019); (iii) independent director of Fallas Paredes, a brand name and private label clothing retailer (October 2018 to January 2019); (iv) special advisor of Shipston Automotive
Engineering Limited, an automotive company (May 2018 to July 2018); and (v) independent director of Classic Party Rentals, a special event rental company (March 2017 to August 2017). Mr. Reiss has over thirty years’ experience in strategic
planning, cash management, liquidation analysis, covenant negotiations, forensic accounting and valuation. He specializes in advising on bankruptcies, reorganizations, business restructurings and providing expert witness testimony in respect of
underperforming companies. Mr. Reiss is a certified insolvency and restructuring advisor, a certified public accountant in New York and California and a certified turnaround professional. He has been inducted into the American College of Bankruptcy
and the Turnaround Management Association’s Hall of Fame. Mr. Reiss is a member of the American Institute of Certified Public Accountants and has completed the Director Education and Certification Program and the John E. Anderson School of
Management of the University of California at Los Angeles. He holds a B.B.A. from City College of New York’s Bernard Baruch School of Business and a Master of Business Administration from City University of New York’s Baruch College.
Management of the Wind-Down Group
Frederick Chin, age 62, has been the Chief Executive Officer and a member of the Board of Managers since its inception and was appointed to
such offices pursuant to the Plan. Mr. Chin also serves as Chief Executive Officer of each of the Wind-Down Subsidiaries. Mr. Chin served as the Chief Executive Officer of the Debtors from his appointment to that position on January 29, 2018 until
the Plan Effective Date. Over the past 40 years, Mr. Chin has been engaged full time in providing real estate valuation, consulting, advisory, research, due diligence, financial structuring, ownership, restructuring, and operational turnaround
services. Mr. Chin has served in executive roles as Chief Executive Officer, Chief Operating Officer, and Chief Restructuring Officer of public and private real estate companies involved in homebuilding, land development, and commercial office
portfolios in Southern California and Nevada. Mr. Chin was a partner at Ernst & Young LLP from 1995 until 2004 and was a principal with Kenneth Leventhal and Company from 1993 until 1995. Mr. Chin has testified as a real estate expert in
deposition or trial on over 50 occasions in federal and state courts throughout the United States. During the past five years, Mr. Chin has served as a member of the board of managers of 1155 Island Avenue, LLC, a privately held company and the
owner of a commercial office building in Southern California (December 2014 to December 2018). Mr. Chin is a member of the Appraisal Institute and was awarded the MAI Designation in 1987. Mr. Chin is also a Certified Insolvency and Restructuring
Advisor and holds the CIRA designation of the Association of Insolvency and Restructuring Advisors and holds the CRE designation from the Counselors of Real Estate. Mr. Chin holds a B.S. in Finance and Real Estate from the University of Arizona.
Part III
Item 10. Directors, Executive Officers, and Corporate Governance (Continued)
The Chief Executive Officer of the Wind-Down Entity is subject to the supervision of a Board of Managers. In addition to Mr. Chin, the following individuals are members of the Board
of Managers:
Richard Nevins, age 75, has been a member of the Board of Managers since its inception and was appointed to such office under the Plan.
Prior to that time, Mr. Nevins served as a member of the Debtors’ Board of Managers during the Bankruptcy Cases. An independent financial advisor, Mr. Nevins was a director of Cadiz, Inc., a publicly held natural resources company (July 2016 to
June 2021) and Ravn Air Group Inc., an aviation company undergoing a restructuring (March 2020 to October 2020). During the past five years, Mr. Nevins has been a director of several privately-owned companies, including Travel Management Company
Intermediate Holdings, LLC (March 2019 to May 2019), a light aircraft charter services provider, and Harvey Gulf International Marine, an offshore oil service company (October 2017 to July 2018). Mr. Nevins has over thirty years’ experience in
investment banking and financial advisory services, including as former Managing Director of Jefferies & Company, Inc., Smith Barney, and Drexel Burnham Lambert, and holds a Master of Business Administration from Stanford University—Graduate
School of Business and a Bachelor of Arts in Economics from University of California, Riverside.
M. Freddie Reiss, age 75, has been a member of the Board of Managers since its inception and was appointed to such office under the Plan.
(See “Item 10. Directors, Executive Officers and Corporate Governance” of this Annual Report under the caption “The Supervisory Board of the Trust.”)
In addition to Mr. Chin, the following individuals are executive officers of the Wind-Down Group:
Marion W. Fong, age 58, has been the Chief Financial Officer of the Wind-Down Entity since February 2019. Ms. Fong serves in the same
capacity for the Wind-Down Subsidiaries. Ms. Fong is the founder and principal of Mariposa Real Estate Advisors, LLC (January 2001 to present), which provides real estate financial consulting services to public and private real estate companies,
institutional investors, developers, operators and lenders. Ms. Fong has over 30 years’ experience in the real estate industry, including knowledge of many aspects of real estate development, acquisitions, dispositions, transaction structuring,
workouts and restructuring and capital access. Ms. Fong was a partner in the Real Estate Advisory Service Group of Ernst & Young LLP and was a Senior Manager at Kenneth Leventhal & Company. Ms. Fong was admitted to the Counselors of Real
Estate in 2000 and earned her Bachelor of Arts in Economics from Occidental College.
David Mark Kemper II, age 44, has been the Chief Operating Officer and Chief Investment Officer of the Wind-Down Entity since February 2019.
Mr. Kemper serves in the same capacity for the Wind-Down Subsidiaries. Prior to such appointment, Mr. Kemper served as financial advisor at Province, Inc., a nationally recognized financial advisory firm focusing on growth opportunities,
restructurings and fiduciary-related services (March 2017 to February 2019), where he represented unsecured creditors in corporate bankruptcies and provided management and restructuring services to various companies. During the past five years, Mr.
Kemper also has served as managing director of LandCap Advisors, a company engaged in providing real estate consulting services, where Mr. Kemper provided clients with real estate management and restructuring, lease advisory, valuation and
feasibility, transaction advisory, portfolio, and project management services. Mr. Kemper has over 20 years’ experience in financial advisory, real estate and accounting services. Mr. Kemper holds a B.A. in Accounting from St. Mary’s University.
Part III
| Item 11. |
Executive Compensation
|
Summary Compensation Table
|
Name and Princpal Position at
June 30, 2022 (1) |
Fiscal
Year |
Base
|
Bonus
|
All Other
Compensation (2) |
Total
|
|||||||||||||
|
Michael I. Goldberg, Esq.
|
2022
|
$
|
162,196
|
$
|
1,346,093
|
$
|
-
|
$
|
1,508,289
|
|||||||||
|
Liquidation Trustee
|
2021
|
$
|
366,949
|
$
|
532,038
|
(3)
|
|
$
|
-
|
$
|
898,988
|
|||||||
|
Frederick Chin
|
2022
|
$
|
938,654
|
$
|
450,000
|
(4)
|
|
$
|
120,000
|
$
|
1,508,654
|
|||||||
|
Wind-Down Entity, CEO
|
2021
|
$
|
861,808
|
$
|
862,500
|
(4)
|
|
$
|
163,834
|
$
|
1,888,142
|
|||||||
|
Marion W. Fong
|
2022
|
$
|
569,631
|
$
|
136,125
|
(4)
|
|
$
|
-
|
$
|
705,756
|
|||||||
|
Wind-Down Entity, CFO
|
2021
|
$
|
517,085
|
$
|
123,750
|
(4)
|
|
$
|
-
|
$
|
640,835
|
|||||||
|
David Mark Kemper II
|
2022
|
$
|
443,046
|
$
|
105,875
|
(4)
|
|
$
|
-
|
$
|
548,921
|
|||||||
|
Wind-Down Entity, COO and CIO
|
2021
|
$
|
402,177
|
$
|
96,250
|
(4)
|
|
$
|
-
|
$
|
498,427
|
|||||||
| (1) |
Includes all individuals who may be considered the executive officers of the Trust or the Wind-Down Entity. Each of such individuals has occupied his or her respective current position since February 15, 2019.
|
| (2) |
In addition to salary and bonus, the named executive officers (other than Mr. Goldberg) may receive other annual compensation in the form of health, dental, vision and life insurance coverages, paid vacation, paid
time off, and other personal benefits. For fiscal years ended June 30, 2022 and 2021, the total value of health, dental, vision, life insurance coverages and other personal benefits did not exceed $10,000 in the aggregate for any named
executive officer. Amount indicated is for paid vacation and paid time off.
|
| (3) |
Mr. Goldberg is eligible for incentive compensation equal to 5% of total gross settlement amounts by the Trust from the pursuit of Causes of Action as further discussed below. Bonus amounts are attributed to the
fiscal year in which they are settled. During fiscal years ended June 30, 2022 and 2021, $1,424,944 and $490,949, respectively, were paid.
|
| (4) |
Bonuses are attributed to the fiscal year in which they are earned. Mr. Chin, Ms. Fong and Mr. Kemper each is eligible for bonuses, as discussed below.
|
Liquidation Trustee of the Trust
As compensation in respect of service as Liquidation Trustee, Mr. Goldberg is entitled to (i) base compensation at an hourly rate of $598.95 per hour for calendar years 2022 and
2021 (these rates are net of a negotiated 10% discount of Mr. Goldberg’s customary rates) and (ii) incentive compensation equal to 5% of total gross amounts recovered by the Trust from the pursuit of Causes of Action. Mr. Goldberg is not entitled
to equity compensation, perquisites or personal benefits.
Mr. Goldberg’s base compensation was not determined by the Supervisory Board, but instead was established by, and the amount is fixed under, the Trust Agreement. Such base
compensation cannot be modified except by amendment of the Trust Agreement. Amendment of the Trust Agreement effecting a modification of the compensation of the Supervisory Board would require either (a) an order of the Bankruptcy Court or (b) a
written amendment signed by the Liquidation Trustee, which amendment has received the prior written approval of a majority of the members of the Supervisory Board. It is the understanding of the Supervisory Board that the base compensation is
intended to compensate Mr. Goldberg for his time spent performing services as Liquidation Trustee. The Supervisory Board believes that base compensation at an hourly rate is standard and customary for bankruptcy and insolvency trustees, and that
$665.50 does not exceed Mr. Goldberg’s customary hourly rate for legal services performed by him as a partner of Akerman LLP.
Part III
Item 11. Executive Compensation (Continued)
Mr. Goldberg’s incentive compensation has been determined by the Supervisory Board, in the exercise of its discretion as authorized by the Trust Agreement, as five percent (5%) of
the total gross proceeds recovered by the Trust from the pursuit of Causes of Action by the Trust. Such incentive compensation is intended to compensate Mr. Goldberg for services performed above and beyond the time commitment required of the
Liquidation Trustee. The Supervisory Board believes that incentive compensation based on the value of recoveries on Causes of Action is standard and customary for bankruptcy and insolvency trustees and is designed to maximize the value of
recoveries on Causes of Action and appropriately align the economic interests of the Liquidation Trustee with those of the Trust.
Payment of compensation to the Liquidation Trustee or his professionals in connection with any individual request for compensation is subject to the following procedures, specified
in the Trust Agreement:
| • |
the Liquidation Trustee must submit to the Supervisory Board an itemized statement or statements reflecting all fees and itemized costs to be reimbursed;
|
| • |
after seven (7) days after the delivery of the statements, the amount reflected in the statements may be paid by the Trust unless, prior to the expiration of such seven-day period, the Supervisory Board has
objected in writing to any compensation reflected in the Statement; and
|
| • |
in the case of any Supervisory Board objection to payment, the undisputed amounts may be paid, and the disputed amounts may only be paid by agreement of the Supervisory Board, or pursuant to order of the
Bankruptcy Court, which retains jurisdiction over all disputes regarding the Liquidation Trustee’s and his or her professionals’ compensation.
|
Chief Executive Officer of the Wind-Down Entity
Full-Time Employment Agreement (In Effect Through August 31, 2022)
Through August 31, 2022, the Wind-Down Entity and its Chief Executive Officer Frederick Chin were parties to an agreement providing for Mr. Chin’s full-time employment, which
agreement (the “Full-Time Employment Agreement”) was amended in September 2020 and subsequently expired on August 31, 2022. The following summarizes the material terms of Mr. Chin’s compensation under the Full-Time Employment. The material terms
of Mr. Chin’s compensation for periods following August 31, 2022 are set forth in the September 1, 2022 part-time employment agreement with Mr. Chin (see “Item 11. Executive Compensation--Part-Time Employment Agreement (Effective September 1,
2022)” of Part III of this Annual Report, below).
Under the Full-Time Employment Agreement, Mr. Chin was entitled to an annual base salary and incentive compensation. Mr. Chin’s current annual base salary was $975,000, subject to
annual increase not to exceed 10% of the prior year’s annual base salary based on a merit review by the Board of Managers.
Mr. Chin was eligible for certain potential bonuses based on the cumulative amount of distributions of cash made by the Wind-Down Entity to the Trust during certain specified
periods as set forth in the table below. For each period, a threshold amount of distributions were required to have been made during such period for any bonus to be earned. Any bonuses earned were required to have been paid within 30 days of the
end of the applicable period, however, Mr. Chin would not have been entitled to any bonus regardless of the cumulative amount of distributions in any period if his employment had been terminated by the Wind-Down Entity for “Cause” or if he had
voluntarily resigned other than for “Good Reason” before (i) February 15, 2022 with respect to a category A bonus or (ii) within 30 days of the end of the applicable period with respect to a category B bonus, in each case as identified in the chart
below. For purposes of determining the amount of cumulative distributions during the period for a category B bonus, cash amounts collected by the Wind-Down Group but not distributed to the Trust during any such period were includible in cumulative
distributions for such period so long as the Board of Managers of the Wind-Down Entity certified that such cash would be distributed to the Trust in a subsequent period.
Part III
Item 11. Executive Compensation (Continued)
|
Bonus
Category
|
Period
|
Threshold
Amount
|
Cumulative
Amount
Distributions
During Period
|
Bonus
Payment
Amount for
Period
|
|
|
A
|
February 15, 2019 through the earlier to occur of the expiration of the term of the Full-Time Employment Agreement and the completion of the liquidation process for the Wind-Down Entity
|
$351,093,000
|
$351,093,000 to $401,442,999
|
$1,125,000
|
|
|
$401,443,000 to $528,584,999
|
$1,500,000
|
||||
|
$528,585,000 or over
|
$1,875,000
|
|
Bonus
Category
|
Period
|
Threshold
Amount
|
Cumulative
Amount
Distributions
During Period
|
Bonus
Payment
Amount for
Period
|
|
|
B
|
February 15, 2019 through December 31, 2019
|
$97,332,000
|
$97,332,000 to $106,504,999
|
$487,500
|
|
|
$106,505,000 to $125,454,999
|
$637,500
|
||||
|
$125,455,000 or more
|
$862,500
|
||||
|
February 15, 2019 through December 31, 2020
|
$178,677,000
|
$178,677,000 to $206,372,999
|
$487,500
|
||
|
$206,373,000 to $262,744,999
|
$637,500
|
||||
|
$262,745,000 or more
|
$862,500
|
||||
|
February 15, 2019 through the expiration of the term of the Full-Time Employment Agreement
|
$351,093,000
|
$351,093,000 to $401,442,999
|
$487,500
|
||
|
$401,443,000 to $528,584,999
|
$637,500
|
||||
|
$528,585,000 or more
|
$862,500
|
The Full-Time Employment Agreement was amended in September 2020 to extend the initial term of his employment from August 14, 2021 to February 14, 2022 and to provide that if Mr.
Chin was employed by the Wind-Down Entity on December 31, 2021, Mr. Chin would be eligible for a discretionary bonus for calendar year 2021. These changes were approved by the Board of Managers and the Supervisory Board. Such changes were
considered necessary and appropriate in light of the then projected extended duration of the Wind-Down Entity’s liquidation activities.
If Mr. Chin’s employment was terminated by the Wind-Down Entity without “Cause,” or if Mr. Chin resigned for “Good Reason,” Mr. Chin would be entitled, in addition to accrued salary
and earned but unpaid bonuses, to a continued base salary for the remainder of the term of the Full-Time Employment Agreement plus payments of the bonus amounts as set forth in the chart above to which Mr. Chin would have been entitled if he had
remained employed during the entire term of the Full-Time Employment Agreement (such bonus amounts to be paid if and when otherwise due under the Full-Time Employment Agreement). If Mr. Chin’s employment was terminated by his death or disability,
Mr. Chin or his estate would be entitled to receive, in addition to accrued salary and earned but unpaid bonuses, payments of the bonus amounts set forth in the chart above to which Mr. Chin would have been entitled if he had remained employed
during the entire term of the Full-Time Employment Agreement (such bonus amounts to be paid if and when otherwise due under the employment agreement), prorated on the basis of the distributions actually made prior to the effective date of
termination for the period(s) applicable to the bonus determination.
The Wind-Down Entity was obligated, under the Full-Time Employment Agreement, the Wind-Down Entity LLC Agreement and an Indemnification Agreement with Mr. Chin dated February 27,
2019, to indemnify and hold harmless Mr. Chin from and against certain liabilities, losses, damages and expenses incurred by him by reason of his acts or omissions as an officer of the Wind-Down Entity.
Under the Full-Time Employment Agreement, Mr. Chin was entitled to four weeks of paid vacation each year and Mr. Chin and his eligible dependents are entitled to participate in the
Wind-Down Entity’s health, dental, vision and life insurance coverages.
Part III
Item 11. Executive Compensation (Continued)
Part-Time Employment Agreement (Effective September 1, 2022)
On September 1, 2022, the Wind-Down Entity entered into an agreement with its chief executive officer (the “Part-Time Employment Agreement”). The Part-Time Employment Agreement provides for the
continued employment of Mr. Chin as chief executive officer of the Company on a part-time basis following the expiration, on August 31, 2022, of the term of his full-time employment with the Company. Other than with respect to compensation and
certain other items, the Part-Time Agreement is substantially similar in form to Mr. Chin’s now-expired Full-Time Employment Agreement.
The Part-Time Employment Agreement established an initial term of employment that begins on September 1, 2022 and, subject to any earlier termination, ends on December 31, 2022 provided that the
Company’s principal remaining residential real property has been sold on or before December 1, 2022. If such asset has not been sold on or before December 1, 2022, the term of the Part-Time Employment Agreement will automatically be extended
until the date that is 30 days after the sale of such property, on which date the Part-Time Employment Agreement will automatically expire unless terminated earlier in accordance with its terms.
The Part-Time Employment Agreement is terminable by the death of Mr. Chin or by either the Wind-Down Entity or Mr. Chin at any time and for any reason on at least 30 days’ advance written notice.
Under the Part-Time Employment Agreement, Mr. Chin is entitled to a monthly salary of $50,000 during the initial term and $30,000 during any extension term. Additionally, during the term of the
Part-Time Employment Agreement, Mr. Chin and his eligible dependents are entitled to participation in the Wind-Down Entity’s health, dental, vision and life insurance coverages, but Mr. Chin will not accrue any paid vacation. In the Part-Time
Employment Agreement, the Wind-Down Entity acknowledges that Mr. Chin is entitled to payment of accrued but unused vacation time on August 31, 2022 and to the receipt, no later than September 30, 2022, of the bonus payments prescribed by his
now-expired Full-Time Employment Agreement.
Upon any termination of Mr. Chin’s employment, the Part-Time Employment Agreement entitles Mr. Chin to receive salary prorated to the effective date of termination and employee benefits through the
effective date of termination. Additionally, Mr. Chin is entitled to receive continued payments of his monthly salary and employee benefits through December 31, 2022 (but not thereafter), if before December 31, 2022 Mr. Chin’s employment is
terminated either by the Company without Cause or by Mr. Chin for Good Reason.
Other Executive Officers of Wind-Down Entity
The Wind-Down Entity is a party to at-will employment agreements with its Chief Financial Officer Marion W. Fong and its Chief Operating Officer and Chief Investment Officer David
Mark Kemper II. Unless sooner terminated, the terms of these employment agreements expire upon the dissolution of the Wind-Down Entity. Under their employment agreements, Ms. Fong and Mr. Kemper are entitled to an annual base salary and incentive
compensation.
Ms. Fong’s current annual base salary is $598,950 and Mr. Kemper’s annual base salary is $465,850, in each case subject to annual increase at the discretion of the Board of
Managers. Ms. Fong and Mr. Kemper are eligible for up to three discretionary bonuses as described below, a one-time wind-down bonus, and a one-time retention bonus.
Ms. Fong and Mr. Kemper earned bonuses of $123,750 and $96,250, respectively for calendar year 2020 and $136,125 and $105,875, respectively for calendar year 2021. The 2020 bonuses
were paid in December 2020 (fiscal year 2021) and the 2021 bonuses were paid in December 2021 (fiscal year 2022).
In accordance with their respective agreements, Ms. Fong and Mr. Kemper each is entitled to consideration for discretionary bonuses for the period from January 1, 2022 to the date
of the dissolution of the Wind-Down Entity in an amount up to 25% of such officer’s 2022 base salary, provided that such officer is still employed by the Wind-Down Entity upon its dissolution.
Ms. Fong and Mr. Kemper each is eligible to earn a wind-down bonus in an amount of either 50%, 100% or 150% of such officer’s then-current base salary (less any discretionary
bonuses paid), depending on whether the Wind-Down Entity achieves the low, base or high case, respectively, of the projected cumulative amount of distributions by the Wind-Down Entity to the Trust from February 15, 2019 (inception) to the date of
the dissolution of the Wind-Down Entity. No wind-down bonus is payable if the amount of such distributions is less than the low case. If earned, the wind-down bonus is payable within 30 days after the dissolution of the Wind-Down Entity, provided
that the officer has not been terminated for “Cause” and has not voluntarily resigned other than for “Good Reason” before such dissolution.
Neither Ms. Fong nor Mr. Kemper is entitled to severance benefits. In lieu of such benefits, each of them is eligible to earn, at the time of his or her termination of employment, a
retention bonus in an amount equal to six months of such officer’s base salary at the time of such termination. The retention bonus is payable only if (a) such officer resigns for “Good Reason,” (b) such officer’s employment term expires, or (c)
such officer is terminated without “Cause.”
Part III
Item 11. Executive Compensation (Continued)
The Wind-Down Entity is obligated, under the employment agreements with Ms. Fong and Mr. Kemper, the Wind-Down Entity LLC Agreement and indemnification agreements with each such
officer, to indemnify and hold harmless each such officer from and against certain liabilities, losses, damages and expenses incurred by either of them by reason of acts or omissions as an officer of the Wind-Down Entity.
Under their employment agreements, Ms. Fong and Mr. Kemper are entitled to four weeks of annual paid vacation, as well as participation in the Wind-Down Entity’s health, dental,
vision and life insurance coverages.
Ms. Fong’s and Mr. Kemper’s employment agreements were amended in September 2020 to provide for their eligibility for the discretionary bonus for 2021 and, if the Wind-Down Entity
dissolves after January 1, 2022, for period from January 1, 2022 to the date of dissolution. Any such discretionary bonuses will be deducted from any wind-down bonus earned by Ms. Fong and Mr. Kemper. These changes were approved by the Board of
Managers and the Supervisory Board. Such changes were considered necessary and appropriate in light of the currently projected extended duration of the Wind-Down Entity’s liquidation activities.
Compensation Committee Interlocks and Insider Participation
Neither the Trust nor the Wind-Down Entity has a compensation committee or other board committee performing equivalent functions. During the fiscal year ended June 30, 2022, there
were no deliberations by the Board of Managers related to the employment agreements of Mr. Chin, Ms. Fong or Mr. Kemper. However, subsequent to the fiscal year ended June 30, 2022, on August 18, 2022 and August 26, 2022, the Supervisory Board and
the Board of Managers, respectively, without participation by Mr. Chin in its deliberations, approved a new Part-Time Employment Agreement with Mr. Chin, which followed Mr. Chin’s previous Full-time Employment Agreement. The Part-Time Employment
Agreement was determined to be appropriate in light of the continuing need for Mr. Chin’s services on a part-time basis following the August 31, 2022 expiration of the Full-Time Employment Agreement. The principal objectives of the Part-Time
Employment Agreement include (i) incentivizing Mr. Chin’s continued retention through the anticipated closing date of the sale of the Company’s remaining residential real property asset, (ii) aligning Mr. Chin’s compensation with the increasingly
reduced level of the Company’s liquidation activities by means of a salary adjustment, (iii) acknowledging of the vesting of Mr. Chin’s incentive awards under the Full-Time Employment Agreement, and (iv) continuing of Mr. Chin’s existing employee
benefits through December 31, 2022. The award of equity-based compensation was not considered, as the Company’s legal structure does not permit such compensation. The Company did not consider the results of any shareholder advisory vote on the
compensation of Mr. Chin, as no such vote was required.
During the fiscal year ended June 30, 2022, there were no deliberations by the Supervisory Board regarding the compensation of Mr. Goldberg.
Compensation of Supervisory Board and Board of Managers
Each member of the Supervisory Board that does not serve on the Audit Committee receives, as compensation in respect of service on the Supervisory Board, (i) $10,000 per month
through January 31, 2020, (ii) $7,500 per month from February 1, 2020 through January 31, 2021, (iii) $5,000 per month from February 1, 2021 through January 31, 2022, and (iv) $2,500 per month for each calendar month thereafter until termination of
the Trust in accordance with the Plan (prorated as appropriate if a member commences his or her service other than on the first day of a month or terminates his or her service other than on the last day of a month). The sole member of the
Supervisory Board that serves on the Audit Committee receives, as compensation in respect of service, $7,500 per month. All Supervisory Board members also are entitled to reimbursement by the Trust of all actual, reasonable and documented
out-of-pocket expenses incurred in connection with their service on the Supervisory Board.
The compensation of the Supervisory Board was not determined by the Supervisory Board, but instead was established by, and is fixed under, the Trust Agreement and cannot be modified
except by amendment of the Trust Agreement. An amendment of the Trust Agreement effecting a modification in the compensation of the Supervisory Board would require either (a) an order of the Bankruptcy Court or (b) a written amendment signed by the
Liquidation Trustee, which amendment has received the prior written approval of a majority of the members of the Supervisory Board.
Each member of the Board of Managers (other than the CEO) receives, as compensation in respect of service on the Board of Managers, (i) $20,000 per month through January 31, 2020
and (ii) $15,000 per month for each calendar month of service thereafter. The Wind-Down Entity is required to reimburse each Manager in respect of all actual, reasonable and documented out-of-pocket expenses incurred by such Manager in accordance
with Wind-Down Entity policies.
Part III
Item 11. Executive Compensation (Continued)
Indemnification of the Liquidation Trustee
Under Delaware law, the Trust has the power to indemnify and hold harmless any person from and against any and all claims and demands whatsoever, subject to such standards and
restrictions, if any, as are set forth in its governing instrument. The Trust is governed by the Trust Agreement, which states that the Liquidation Trustee, the Supervisory Board and each of their respective accountants, agents, assigns, attorneys,
bankers, consultants, directors, employees, executors, financial advisors, investment bankers, real estate brokers, transfer agents, managers, members, officers, partners, predecessors, principals, professional persons, representatives, and
successors (each, a “Trustee Indemnified Party”) will be indemnified for, and defended and held harmless against, any loss, liability, damage, judgment, fine, penalty, claim, demand, settlement, cost, or expense, including the reasonable
fees and expenses of their respective professionals (collectively “Damages”) incurred without gross negligence, willful misconduct, or fraud on the part of the applicable Trustee Indemnified Party (which gross negligence, willful misconduct,
or fraud, if any, must be determined by a final, non-appealable order of a court of competent jurisdiction) for any action taken, suffered, or omitted to be taken by the Trustee Indemnified Parties in connection with the acceptance, administration,
exercise, and performance of their duties under the Plan or the Trust Agreement, as applicable. An act or omission taken with the approval of the Bankruptcy Court, and not inconsistent therewith, will be conclusively deemed not to constitute gross
negligence or willful misconduct.
In addition, the Trust Agreement provides that, to the fullest extent permitted by law, each Trustee Indemnified Party shall be indemnified for, and defended and held harmless
against, any and all Damages arising out of or due to their actions or omissions, or consequences of such actions or omissions, with respect to the Trust or the implementation or administration of the Plan if the applicable Trustee Indemnified
Party acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interest of the Trust or its Interestholders.
The Trust Agreement also authorizes, but does not require, the Liquidation Trustee to obtain all reasonable insurance coverage for itself, its agents, representatives, employees or
independent contractors, including coverage with respect to the liabilities, duties and obligations of the Liquidation Trustee and its agents, representatives, employees or independent contractors under the Trust Agreement and the Plan. The cost of
any such insurance coverage will be an expense of the Trust.
Indemnification of the Board of Managers, the CEO and Executive Officers of the Wind-Down Entity
The Wind-Down Entity and the Trust are required to indemnify the members of the Board of Managers, the Chief Executive Officer, and the other officers of the Wind-Down Group, and
each of their respective accountants, agents, assigns, attorneys, bankers, consultants, directors, employees, executors, financial advisors, investment bankers, brokers, managers, members, officers, partners, predecessors, principals, professional
persons, representatives, and successors (each, a “WDE Indemnified Party”) for, and shall defend and hold them harmless against, Damages incurred without gross negligence or willful misconduct on the part of the applicable WDE Indemnified
Party (which gross negligence or willful misconduct, if any, must be determined by a final, non-appealable order of a court of competent jurisdiction) for any action taken, suffered, or omitted to be taken by the WDE Indemnified Parties in
connection with the acceptance, administration, exercise, and performance of their duties under the Plan or the Wind-Down Entity LLC Agreement, as applicable. An act or omission taken with the approval of the Bankruptcy Court, and not inconsistent
therewith, will be conclusively deemed not to constitute gross negligence or willful misconduct.
In addition, the Wind-Down Entity and the Trust are required, to the fullest extent permitted by law, indemnify, defend, and hold harmless the WDE Indemnified Parties, from and
against and with respect to any and all Damages arising out of or due to their actions or omissions, or consequences of such actions or omissions, with respect to the Wind-Down Entity or the implementation or administration of the Plan if the
applicable WDE Indemnified Party acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interest of the Wind-Down Entity.
The Wind-Down Entity is a party to indemnification agreements with its Chief Executive Officer Frederick Chin, its Chief Financial Officer Marion W. Fong, and its Chief Operating
Officer and Chief Investment Officer David Mark Kemper II. Under these agreements, the Wind-Down Entity has agreed to indemnify each of these individuals, to the fullest extent permitted by applicable law and the Wind-Down Entity’s certificate of
formation and limited liability company agreement, and the Plan, if such individual becomes a party to or a witness or other participant in any proceeding (other than a derivative action) by reason of the fact that such individual is or was an
officer, manager or employee of the Wind-Down Entity, or by reason of anything done or not done by him in any such capacity, against all expenses and liabilities incurred without gross negligence or willful misconduct by such individual.
Part III
Item 11. Executive Compensation (Continued)
Under these indemnification agreements, the Wind-Down Entity has also agreed to indemnify Ms. Fong and Mr. Kemper, with respect to any derivative action to which such individual
becomes a party or a witness or in which such individual becomes a participant, against expenses actually and reasonably incurred in connection with the defense or settlement of such action, provided that such individual acted in good faith and in
a manner such individual reasonably believed to be in or not opposed to the best interests of the Company. These indemnification agreements provide for proportional contribution to the Wind-Down Entity based on relative benefit and relative fault
where indemnification is held by a court to be unavailable to the individual and for the advancement by the Wind-Down Entity of the individual’s expenses under certain circumstances.
| Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
The following table sets forth certain information regarding the equity securities of the Trust beneficially owned by each member of the Supervisory Board, the Liquidation Trustee
and each executive officer named in the Summary Compensation Table (see “Item 11. Executive Compensation” of this Annual Report), and all members of the Supervisory Board, the Liquidation Trustee and all executive officers of the Wind-Down Entity
as a group on September 23, 2022:
|
Name of and Address of Beneficial Owner(1)
|
Class of
Liquidation
Trust Interest
|
|
Amount and Nature of Beneficial Interest
|
|
|
Percent of
class(2)
|
|
||
|
Jay Beynon
|
Class A
|
|
|
6,666.67
|
(3)
|
|
Less than 1%
|
|
|
|
Class B
|
|
|
0
|
|
|
|
0
|
|
|
|
Raymond C. Blackburn, M.D.
|
Class A
|
|
|
35,788.06
|
(4)
|
|
Less than 1%
|
|
|
|
Class B
|
|
|
13,574.78
|
(5)
|
|
|
2.01%
|
||
|
Terry R. Goebel
|
Class A
|
|
|
0
|
|
|
|
0
|
|
|
Class B
|
|
|
0
|
|
|
|
0
|
|
|
|
Lynn Myrick
|
Class A
|
|
|
23,819.17
|
(6)
|
|
Less than 1%
|
|
|
|
Class B
|
|
|
1,590.81
|
(7)
|
|
Less than 1%
|
|
||
|
John J. O’Neill
|
Class A
|
|
|
8,786.60
|
(8)
|
|
Less than 1%
|
|
|
|
Class B
|
|
|
0
|
|
|
|
0
|
|
|
|
M. Freddie Reiss
|
Class A
|
|
|
0
|
|
|
|
0
|
|
|
Class B
|
|
|
0
|
|
|
|
0
|
|
|
|
Michael I. Goldberg
|
Class A
|
|
|
0
|
|
|
|
0
|
|
|
Class B
|
|
|
0
|
|
|
|
0
|
|
|
|
Frederick Chin
|
Class A
|
|
|
0
|
|
|
|
0
|
|
|
Class B
|
|
|
0
|
|
|
|
0
|
|
|
|
Marion W. Fong
|
Class A
|
|
|
0
|
|
|
|
0
|
|
|
Class B
|
|
|
0
|
|
|
|
0
|
|
|
|
David Mark Kemper II
|
Class A
|
|
|
0
|
|
|
|
0
|
|
|
Class B
|
|
|
0
|
|
|
|
0
|
|
|
|
All Supervisory Board members and the executive officers, as a group
|
Class A
|
|
|
75,060.50
|
|
|
Less than 1%
|
|
|
|
Class B
|
|
|
15,165.59
|
|
|
|
2.24%
|
||
| (1) |
A business address for each of the named beneficial owners is c/o Woodbridge Liquidation Trust, 201 N. Brand Blvd., Suite M, Glendale, California 91203.
|
| (2) |
Based on 11,514,190 Class A Interests and 675,617 Class B Interests outstanding as of September 23, 2022.
|
| (3) |
As trustee of a family trust.
|
| (4) |
Of which 25,485.81 are held individually and the remainder is beneficially owned in an individual retirement account.
|
Part III
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (Continued)
| (5) |
Of which 9,667.03 are held individually and the remainder is beneficially owned in an individual retirement account.
|
| (6) |
Of which 13,449.54 are held by a limited liability company of which Ms. Myrick is a member, 10,369.63 are held by a family trust of which Ms. Myrick is a beneficiary.
|
| (7) |
Held by a limited liability company, of which Ms. Myrick is a member.
|
| (8) |
Beneficially owned together with spouse.
|
The Trust does not have any compensation plans (including individual compensation arrangements) under which equity securities of the Trust are authorized for issuance.
| Item 13. |
Certain Relationships and Related Transactions, and Supervisory Board Member Independence
|
The Supervisory Board has chosen the director independence standards of the New York Stock Exchange (the “NYSE”) to determine the independence of the members of the
Supervisory Board. The Trust is not, however, a company listed with the NYSE and does not intend to apply for listing with the NYSE. Furthermore, the Trust believes that, if it were a NYSE-listed company, the Supervisory Board would be exempt from
the director independence requirements of the NYSE by reason of one or more available exemptions from such requirements, including exemptions for companies in bankruptcy proceedings, passive business organizations in the form of trusts, and the
issuers of special purpose securities.
Applying the NYSE independence standard, the Supervisory Board has determined that all of its members other than Terry Goebel are independent. In making this determination, the
Supervisory Board concluded that neither the fees paid by the Trust in respect of service on the Supervisory Board nor the ownership of Liquidation Trust Interests by any member of the Supervisory Board precluded a finding of independence.
The Supervisory Board was unable to determine the absence of a material relationship between the Wind-Down Group and Supervisory Board member Terry Goebel, who is president and a
principal owner of G3 Group LA, a construction firm specializing in the development of high-end, luxury residences. G3 Group LA is owned by Terry Goebel and his son Kelly Goebel. The Wind-Down Group is under contract with G3 Group LA for the
development of one residential real property in the Los Angeles area (the “G3 Contract”). The approximate aggregate estimated dollar value of the transactions under the G3 Contract as of June 30, 2022 is $35.7 million, of which $0.4 million
was unpaid as of June 30, 2022. On September 24, 2020, the Wind-Down Group entered into a change order increasing the estimated dollar value of the G3 Contract by approximately $3.6 million. On October 15, 2021, the Wind-Down Group entered into a
change order increasing the estimated dollar value of the G3 Contract by approximately $2.1 million. The change orders were determined to be necessary, and the amount thereof was determined to be appropriate, in light of increases in the
construction costs of the project incurred and expected to be incurred.
Michael I. Goldberg, the Liquidation Trustee, is a partner of Akerman LLP, a law firm based in Miami, Florida. In November 2019, the Trust entered into an arrangement with Akerman
LLP with the prior approval of the Supervisory Board, including the Audit Committee. Under the arrangement, Akerman LLP from time to time will provide, at the option of the Trust on an as-needed basis, e-discovery and related litigation support
services in connection with the Trust’s prosecution of the Causes of Action. “E-discovery” (also known as electronic discovery) refers to discovery in legal proceedings, including litigation, where the information sought, such as e-mails,
documents, records and files, is in electronic format. E-discovery services assist litigants to manage potentially large amounts of data in compliance with the technical requirements of court rules designed to preserve metadata and prevent
spoliation.
Under the arrangement, services available to the Trust include data processing, hosting, professional services, and forensic collection and analysis. The services are provided on a
“stand-alone” basis (i.e., they are made available to the Trust regardless of whether Akerman LLP is representing the Trust in connection with the subject litigation or any litigation). Currently, Akerman
LLP does not represent the Trust in connection with any Causes of Action or act as counsel to the Trust in any matter.
The Trust is charged for the services at scheduled rates per task which, depending on the specific task, include flat rates, rates based on the volume of data processed, rates based
on the number of data users, the hourly rates of Akerman LLP personnel, or other rates. The scheduled rates are believed to be the same as those charged by Akerman LLP to clients utilizing its legal services generally. The Supervisory Board,
including the Audit Committee, approved the arrangement after determining that Akerman LLP’s rates would be more favorable to the Trust than those proposed to be charged by at least one other major alternative provider of legal support services.
Due to uncertainty regarding the number, length and complexity of cases and the volume of discoverable documents, the Trust currently is unable to estimate the aggregate approximate dollar value of either Akerman LLP’s fees under this arrangement
or Mr. Goldberg’s interest in this arrangement. During the years ended June 30, 2022 and 2021, approximately $420,000 and $385,000, respectively, had been paid related to these services.
Part III
| Item 13. | Certain Relationships and Related Transactions, and Supervisory Board Member Independence (Continued) |
The Trust has a written Related Person Transaction Policy. It requires that any “Related Person Transaction” to which the Trust is a participant must be reviewed and approved
in advance by the Supervisory Board and any “Related Person Transaction” to which the Wind-Down Group is a participant must be reviewed and approved in advance by the Board of Managers (the applicable board, in each instance, whether the
Supervisory Board or the Board of Managers, the “Applicable Board”). Under the policy, a “Related Person Transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) that occurred
since the beginning of the Trust’s most recent fiscal year in which the Trust (including any of its subsidiaries) was, is or will be a participant and the amount involved exceeds $120,000 and in which any Related Person had, has or will have a
direct or indirect material interest. For purposes of this policy, a “Related Person” means:
| • |
any person who is, or at any time since the beginning of the Trust’s last fiscal year was, the Liquidation Trustee, a member of the Supervisory Board, a member of the Board of Managers, an executive officer of the
Wind-Down Entity or a nominee to become a member of the Board of Managers or a more than 5% beneficial owner of the Trust;
|
| • |
any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law of the Liquidation Trustee, a member of the Board of Managers, an executive officer of the Wind-Down Entity, or a nominee to become a member of the Board of Managers, or a more than 5% beneficial owner of the Trust, and any
person (other than domestic employees or tenants) sharing the household of any such person; and
|
| • |
any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership
interest.
|
The following transactions are not considered Related Person Transactions for purposes of this policy: (a) base compensation for services rendered as the Liquidation Trustee, paid
in accordance with the Liquidation Trust Agreement; (b) compensation for services rendered as a member of the Supervisory Board, paid in accordance with the Liquidation Trust Agreement; (c) in accordance with the Liquidation Trust Agreement,
reimbursement of expenses incurred by the Liquidation Trustee or any member of the Supervisory Board incurred in the ordinary course of carrying out their respective responsibilities in such capacities; (d) any transaction where the rates or
charges involved in the transaction are determined by competitive bids; or (e) any transaction that involves the rendering of services at rates or charges fixed in conformity with law or governmental authority.
Furthermore, neither the G3 Contract nor the payment or performance by the Wind-Down Group of its obligations thereunder in accordance with the current terms thereof is considered a
Related Person Transaction for purposes of the policy. The G3 Contract was entered into between the Debtors and G3 before the organization of the Trust and did not require any review, approval or ratification under the Related Person Transaction
Policy. However, the change orders entered into on September 24, 2020 and October 15, 2021 were reviewed under the Related Person Transaction Policy.
Under the policy, the Applicable Board is to consider all of the relevant facts and circumstances available, including (if applicable), but not limited to:
| • |
The benefits to the Trust and the Wind-Down Entity;
|
| • |
The impact on the independence of a member of the Supervisory Board or the Board of Managers in the event the Related Person is a member of the Supervisory Board, a member of the Board of Managers, an immediate
family member of any such member, or an entity in which any such member is a director, officer, manager, principal, member, partner, shareholder or executive officer;
|
| • |
The availability of other sources for comparable products or services;
|
| • |
The terms of the transaction; and
|
| • |
The terms available to unrelated third parties and employees generally.
|
Part III
| Item 13. | Certain Relationships and Related Transactions, and Supervisory Board Member Independence (Continued) |
The policy prohibits any member of the Applicable Board from participating in any review, consideration or approval of any Related Person Transaction with respect to which such
member or any of his or her immediate family members is the Related Person. The Applicable Board may approve only those Related Person Transactions that are in, or are not inconsistent with, the best interests of the Trust and its stakeholders, as
the Applicable Board determines in good faith. In addition, no immediate family member of the Liquidation Trustee or any member of the Supervisory Board, member of the Board or Managers, or executive officer of the Wind-Down Group may be hired as
an employee of the Trust or the Wind-Down Group unless the employment arrangement is approved in advance by the Applicable Board. In the event a person becomes a director or executive officer of the Trust or the Wind-Down Group and an immediate
family member of such person is already an employee of the Trust or the Wind-Down Group, no material change in the terms of employment, including compensation, may be made without the prior approval of the Applicable Board (except, if the immediate
family member is himself or herself an executive officer of the Trust or the Wind-Down Group, any proposed change in the terms of employment must be reviewed and approved in the same manner as other executive officer compensatory arrangements).
The Audit Committee of the Supervisory Board has the authority, subject to a final review by all disinterested members of the Supervisory Board, to review and approve all Related
Person Transactions in which the Trust is a participant.
| Item 14. |
Principal Accounting Fees and Services
|
Principal Independent Registered Public Accounting Firm Fees
Set forth below are aggregate fees for professional accounting services for the years ended June 30, 2022 and 2021:
|
Years Ended June 30,
|
||||||||
|
|
2022
|
2021
|
||||||
|
Audit Fees
|
$
|
280,800
|
$
|
345,600
|
||||
|
Audit-related Fees
|
-
|
-
|
||||||
|
Tax fees
|
-
|
-
|
||||||
|
All other fees
|
-
|
-
|
||||||
|
Total
|
$
|
280,800
|
$
|
345,600
|
||||
The professional fees incurred prior to November 1, 2020 were billed by Squar Milner and the professional fees incurred on or after November 1, 2020 were billed by Baker Tilly.
For purposes of the preceding table, the professional fees are classified as follows:
| • |
Audit Fees: These fees for professional services performed for the audit of our annual consolidated financial statements, the required review of quarterly consolidated
financial statements, registration statements and other procedures performed by independent auditors in order for them to be able to form an opinion on our consolidated financial statements.
|
| • |
Audit-Related Fees: These are fees for assurance and related services that traditionally are performed by independent auditors that are reasonably related to the performance
of the audit or review of the consolidated financial statements, such as due diligence related to acquisitions and dispositions, attestation services that are not required by statute or regulation, internal control reviews, and consultation
concerning financial accounting and reporting standards.
|
| • |
Tax Fees: These are fees for all professional services performed by professional staff in our independent auditor’s tax division, except those services related to the audit
of our consolidated financial statements. These include fees for tax compliance, tax planning, and tax advice, including federal, state, and local issues. Services may also include assistance with tax audits and appeals before the IRS and
similar state and local agencies, as well as federal, state and local tax issues related to due diligence.
|
| • |
All Other Fees: These are fees for any services not included in the above-described categories, including assistance with internal audit plans and risk assessments.
|
Pre-Approval Policies
In order to ensure that the provision of services by our independent registered public accounting firm does not impair the auditors’ independence, the Audit Committee pre-approves
all auditing services performed for the Company by our independent auditors, as well as all permitted non-audit services. In determining whether or not to pre-approve services, the Audit Committee considers whether the service is a permissible
service under the rules and regulations promulgated by the SEC.
All services rendered by Baker Tilly and Squar Milner for the years ended June 30, 2022 and 2021 were pre-approved by the Audit Committee in accordance with the policies and
procedures described above.
Part IV
| Item 15. |
Exhibits and Financial Statement Schedules
|
| (1) |
Consolidated Financial Statements
|
The consolidated financial statements of the Company are included in a separate section of this Annual Report commencing on the page numbers specified below:
Woodbridge Liquidation Trust
|
Page
|
|
|
Index to Consolidated Financial Statements
|
F-1
|
|
Audited Consolidated Financial Statements As of and For the Years Ended June 30, 2022 and 2021:
|
|
|
Report of Independent Registered Public Accounting Firm (PCAOB ID )
|
F-2
|
|
Consolidated Statements of Net Assets in Liquidation as of June 30, 2022 and 2021
|
F-3
|
|
Consolidated Statements of Changes in Net Assets in Liquidation for the Years Ended June 30, 2022 and 2021
|
F-4
|
|
Notes to Consolidated Financial Statements
|
F-5
|
| (2) |
Financial Statement Schedules
|
Financial statement schedules have been omitted because they are either not required or not applicable, or because the information required to be presented is included in the
consolidated financial statements or the notes thereto included in this Annual Report.
| (b) |
Exhibits
|
|
First Amended Joint Chapter 11 Plan of Liquidation of Woodbridge Group of Companies, LLC and its Affiliated Debtors dated August 22, 2018, incorporated herein by reference to the Registration
Statement on Form 10 filed by the Trust on October 25, 2019.
|
|
|
Certificate of Trust of Woodbridge Liquidation Trust dated February 14 and effective February 15, 2019, incorporated herein by reference to the Registration Statement on Form 10 filed by the
Trust on October 25, 2019.
|
|
|
Liquidation Trust Agreement of Woodbridge Liquidation Trust dated February 15, 2019, as amended by Amendment No. 1 dated August 21, 2019 and Amendment No. 2 dated September 13, 2019,
incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on October 25, 2019.
|
|
|
Amendment No. 3 to Liquidation Trust Agreement dated as of November 1, 2019, incorporated herein by reference to Amendment No. 1 to Registration Statement on Form 10 filed by the Trust on
December 13, 2019.
|
|
|
Amendment No. 4 to Liquidation Trust Agreement dated as of February 5, 2020, incorporated herein by reference to the Current Report on Form 8-K filed by the Trust on February 6, 2020.
|
|
|
Amended and Restated Bylaws of Woodbridge Liquidation Trust effective August 21, 2019, incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on October
25, 2019.
|
|
|
Limited Liability Company Agreement of Woodbridge Wind-Down Entity LLC dated February 15, 2019, incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on
October 25, 2019.
|
|
Amended and Restated Employment Agreement dated July 31, 2019 between Woodbridge Wind-Down Entity LLC and Frederick Chin, incorporated herein by reference to the Registration Statement on Form
10 filed by the Trust on October 25, 2019.
|
|
First Amendment to Amended and Restated Employment Agreement dated September 24, 2020 between Woodbridge Wind-Down Entity LLC and Frederick Chin, incorporated herein by reference to the Form
10-K filed by the Trust on September 28, 2020.
|
|
|
Indemnification Agreement dated February 27, 2019 between Woodbridge Wind-Down Entity LLC and Frederick Chin, incorporated herein by reference to the Registration Statement on Form 10 filed by
the Trust on October 25, 2019.
|
|
|
Part-Time Employment Agreement dated September 1, 2022 between Woodbridge Wind-Down Entity LLC and Frederick Chin, incorporated herein by reference to the Form 8-K filed by the Trust on
September 1, 2022.
|
|
|
Employment Agreement dated November 12, 2019 between Woodbridge Wind-Down Entity LLC and Marion W. Fong, incorporated herein by reference to Amendment No. 1 to Registration Statement on Form
10 filed by the Trust on December 13, 2019.
|
|
|
First Amendment to Employment Agreement dated September 24, 2020 between Woodbridge Wind-Down Entity LLC and Marion W. Fong, incorporated herein by reference to the Form 10-K filed by the
Trust on September 28, 2020.
|
|
|
Indemnification Agreement dated November 12, 2019 between Woodbridge Wind-Down Entity LLC and Marion W. Fong, incorporated herein by reference to Amendment No. 1 to Registration Statement on
Form 10 filed by the Trust on December 13, 2019.
|
|
|
Employment Agreement dated November 12, 2019 between Woodbridge Wind-Down Entity LLC and David Mark Kemper, incorporated herein by reference to Amendment No. 1 to Registration Statement on
Form 10 filed by the Trust on December 13, 2019.
|
|
|
First Amendment to Employment Agreement dated September 24, 2020 between Woodbridge Wind-Down Entity LLC and David Mark Kemper, incorporated herein by reference to the Form 10-K filed by the
Trust on September 28, 2020.
|
|
|
Indemnification Agreement dated November 12, 2019 between Woodbridge Wind-Down Entity LLC and David Mark Kemper, incorporated herein by reference to Amendment No. 1 to Registration Statement
on Form 10 filed by the Trust on December 13, 2019.
|
|
|
Stipulation and Settlement Agreement between the United States and Woodbridge Liquidation Trust, as approved by order of the United States Bankruptcy Court for the District of Delaware entered
September 17, 2020, incorporated herein by reference to the Form 10-K filed by the Trust on September 28, 2020.
|
|
|
Settlement Agreement dated August 6, 2021 by and among Mark Baker, Jay Beynon as Trustee for the Jay Beynon Family Trust DTD 10/23/1998, Alan and Marlene Gordon, Joseph C. Hull, Lloyd and
Nancy Landman, and Lilly A. Shirley on behalf of themselves and the proposed Settlement Class, Michael I. Goldberg, as Trustee for Woodbridge Liquidation Trust, and Comerica Bank, incorporated herein by reference to the Form 10-K filed by
the Trust on September 27, 2021.
|
|
|
Certification of Liquidation Trustee pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Certification of Liquidation Trustee pursuant to 18 U.S.C. 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
Findings of Fact, Conclusions of Law, and Order Confirming the First Amended Joint Chapter 11 Plan of Liquidation of Woodbridge Group of Companies, LLC and its Affiliated Debtors, entered
October 26, 2018, incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on October 25, 2019.
|
|
|
101
|
The following financial statements from the Woodbridge Liquidation Trust Quarterly Report on Form 10-K for the year ended June 30, 2022, formatted in eXtensible Business Reporting Language (XBRL): (i)
Consolidated Statements of Net Assets in Liquidation as of June 30, 2022 and 2021, (ii) Consolidated Statements of Changes in Net Assets in Liquidation for the years ended June 30, 2022 and 2021, (iii) the Notes to the Consolidated
Financial Statements. XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
|
|
104
|
Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101).
|
*Filed herewith
Woodbridge Liquidation Trust
|
Page
|
|
|
Index to Consolidated Financial Statements
|
F-1 |
|
Audited Consolidated Financial Statements As of and For the Years Ended June 30, 2022 and 2021:
|
|
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated Statements of Net Assets in Liquidation as of June 30, 2022 and 2021
|
F-3
|
|
Consolidated Statements of Changes in Net Assets in Liquidation for the Years Ended June 30, 2022 and 2021
|
F-4
|
|
Notes to Consolidated Financial Statements
|
F-5
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Supervisory Board and Liquidation Trustee of Woodbridge Liquidation Trust and Subsidiaries
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of net assets in liquidation of Woodbridge Liquidation Trust and subsidiaries (the
Company) as of June 30, 2022 and 2021, the related consolidated statements of changes in net assets in liquidation for the years ended June 30, 2022 and 2021, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the net assets in liquidation of the Company as of June 30, 2022 and 2021, and the changes in net assets in liquidation for the years
ended June 30, 2022 and 2021, in conformity with accounting principles generally accepted in the United States of America applied on the basis described below.
As described in Note 2, these consolidated financial statements have been prepared on the liquidation basis of accounting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Baker Tilly US, LLP
We have served as the Company’s auditors since 2019.
September 23, 2022
PART I. FINANCIAL INFORMATION
| Item 1. |
Financial Statements
|
Woodbridge Liquidation Trust and Subsidiaries
Consolidated Statements of Net Assets in Liquidation
As of June 30, 2022 and 2021
($ in Thousands)
|
6/30/2022
|
6/30/2021
|
|||||||
|
Assets
|
||||||||
|
Real estate assets held for sale, net (Note 3)
|
$ |
$ |
||||||
|
Cash and cash equivalents
|
|
|
||||||
|
Restricted cash (Note 4)
|
|
|
||||||
|
Other assets (Note 5)
|
|
|
||||||
|
Total assets
|
$
|
|
$
|
|
||||
|
Liabilities
|
||||||||
|
Accounts payable and accrued liabilities
|
$
|
|
$
|
|
||||
|
Distributions payable
|
|
|
||||||
|
Accrued liquidation costs (Note 6)
|
|
|
||||||
|
Total liabilities
|
$
|
|
$
|
|
||||
|
Commitments and Contingencies (Note 14)
|
||||||||
|
Net Assets in Liquidation
|
||||||||
|
Restricted for Qualifying Victims (Note 7)
|
$ |
|
$ |
|
||||
|
All Interestholders
|
|
|
||||||
|
Total net assets in liquidation
|
$
|
|
$
|
|
||||
See accompanying notes to consolidated financial statements.
PART I. FINANCIAL INFORMATION (CONTINUED)
| Item 1. |
Financial Statements (Continued)
|
Woodbridge Liquidation Trust and Subsidiaries
Consolidated Statements of Changes in Net Assets in Liquidation
For the Years Ended June 30, 2022
and 2021
($ in Thousands)
|
Year Ended June 30, 2022
|
Year Ended June 30, 2021
|
|||||||||||||||||||||||
| Restricted | Restricted | |||||||||||||||||||||||
| For Qualifying | All | For Qualifying | All | |||||||||||||||||||||
|
Victims
|
Interestholders
|
Total
|
Victims
|
Interestholders
|
Total
|
|||||||||||||||||||
|
Net Assets in Liquidation as of beginning of year
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Change in assets and liabilities (Note 8):
|
||||||||||||||||||||||||
|
Restricted for Qualifying Victims -
|
||||||||||||||||||||||||
|
change in carrying value of assets and liabilities, net
|
|
|
|
|
|
|
||||||||||||||||||
|
All Interestholders -
|
||||||||||||||||||||||||
|
Change in carrying value of assets and liabilities, net
|
|
|
|
|
|
|
||||||||||||||||||
|
Distributions (declared) reversed, net
|
|
(
|
)
|
(
|
)
|
|
(
|
)
|
(
|
)
|
||||||||||||||
|
Net change in assets and liabilities
|
|
(
|
)
|
(
|
)
|
|
(
|
)
|
(
|
)
|
||||||||||||||
|
Net Assets in Liquidation as of end of year
|
$
|
|
$
|
|
$ |
|
$
|
|
$
|
|
$
|
|
||||||||||||
See accompanying notes to consolidated financial statements.
PART I. FINANCIAL INFORMATION (CONTINUED)
| Item 1. |
Financial Statements (Continued)
|
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2022 and 2021
|
1)
|
Formation, Organization and Description of Business
|
Formation
Woodbridge Liquidation Trust (Trust) was established (i) for the purpose of collecting, administering, distributing and liquidating the Trust
assets for the benefit of the Trust beneficiaries in accordance with the Liquidation Trust Agreement and the First Amended Joint Chapter 11 Plan of Liquidation of Woodbridge Group of Companies, LLC and Its Affiliated Debtors dated August 22, 2018
(as amended, modified, supplemented or restated from time to time; the (Plan)); (ii) to resolve disputed claims asserted against the Debtors; (iii) to litigate and/or settle causes of action (Causes of Action); and (iv) to pay certain allowed
claims and statutory fees, as required by the Plan. Woodbridge Group of Companies, LLC and its affiliated debtors are individually referred to herein as a Debtor and collectively as Debtors. The Trust was formed on February 15, 2019 (Plan Effective
Date) as a statutory trust under Delaware law.
On the Plan Effective Date, in accordance with the Plan, (a) the following assets automatically vested in the Trust: (i) an aggregate $5,000 ,000 in cash from the Debtors for the purpose of funding the Trust’s initial expenses of operation; (ii) certain claims and Causes of Action; (iii)
all of the outstanding equity interests of the Wind-Down Entity (as defined below); and (iv) certain other non-real estate related assets, (b) the equity interests of Woodbridge Group of Companies, LLC and Woodbridge Mortgage Investment Fund 1, LLC
(together, the Remaining Debtors) were cancelled and new equity interests representing all of the newly issued and outstanding equity interests in the Remaining Debtors were issued to the Trust, (c) all of the other Debtors other than the Remaining
Debtors were dissolved and (d) the real estate-related assets of the Debtors were automatically vested in the Trust’s wholly-owned subsidiary, Woodbridge Wind-Down Entity LLC (Wind-Down Entity) or one of the Wind-Down Entity’s 43 wholly-owned single member LLCs (Wind-Down Subsidiaries) formed to own the respective real estate assets. The Trust, the Remaining Debtors, the
Wind-Down Entity and the Wind-Down Subsidiaries are collectively referred to herein as the Company.
As further discussed in Note 10, the Trust has two
classes of liquidation trust interests, Class A Liquidation Trust Interests (Class A Interests) and Class B Liquidation Trust Interests (Class B Interests). The holders of Class A Interests and Class B Interests are collectively referred to as All
Interestholders.
On December 24, 2019, the Trust’s Registration Statement on Form 10 became effective under the Securities Exchange Act of 1934 (Exchange Act). The
trading symbol for the Trust’s Class A Interests is WBQNL. Bid and ask prices for the Trust’s Class A Interests are quoted on the OTC Link ATS, the SEC-registered alternative trading system. 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.
Organization
The Trust does not have directors or executive officers. All of the management and executive authority of the Trust resides with the Liquidation
Trustee, subject to the supervision of a six -member supervisory board. The Wind-Down Entity is separately managed by its three -member board of managers, one of
whom is the chief executive officer.
The Liquidation Trust Interests are non-voting. The holders of the Class A Interests and the Class B Interests have the same rights, except with
respect to certification, transferability and payment of distributions. See Note 11 regarding the priority and manner of distribution of available cash.
The Wind-Down Entity, from time to time, will make distributions to the Trust, as available. The Trust will in turn make distributions, from time
to time, to the Trust beneficiaries, as available.
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 causes of action 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 assets. 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-5
Description of Business
The Trust is prosecuting various Causes of Action acquired by the Trust pursuant to the Plan and is resolving claims asserted against the Debtors.
As of June 30, 2022, the Company is the plaintiff in several pending lawsuits. During the years ended June 30, 2022 and 2021, the Company recorded settlement recoveries of approximately $26,922 ,000 and $9,839 ,000, respectively, from the settlement of
Causes of Action of which approximately $24,815 ,000 and $0 , respectively, was from Comerica Bank (see Note 13 for additional information). The Company also recorded liabilities of 5 % of the settlement recoveries as amounts payable to the Liquidation Trustee. The Company has accrued an estimate of the amount of legal costs to be incurred to pursue this litigation,
excluding contingent fees. As more fully discussed in Note 2, the Company’s consolidated financial statements do not include any estimate of future net recoveries from litigation and settlement, since the Company cannot reasonably estimate them.
As of June 30, 2022, the Wind-Down Subsidiaries owned one single-family home, located in Los Angeles, California. Construction of this single-family home was substantially complete, and it was listed for sale. The Wind-Down Subsidiaries are completing the punch list
items on three single-family homes they constructed. The Wind-Down Subsidiaries also own secured loans (performing and non-performing)
and other properties located in other states.
The Company is required to liquidate its assets and distribute available cash to the Trust beneficiaries. The liquidation activities are carried out by the Trust, the
Wind-Down Entity and the Wind-Down Subsidiaries. As of June 30, 2022, the Company estimates that the liquidation activities will be completed by February 15, 2024. As discussed in Note 2, the Company uses the Liquidation Basis of Accounting. The
Company currently operates as one reportable segment with activities comprised primarily of real estate assets held for sale.
Net assets in liquidation represent the remaining estimated aggregate value available to Trust beneficiaries upon liquidation, with no discount
for the timing of proceeds (undiscounted). Due to the unpredictability of real estate selling prices, the impact of the COVID-19 virus and other global health crises (see below), as well as the uncertainty in the timing of liquidation of the real
estate and other assets, net liquidation proceeds, other recoveries and actual liquidation costs may differ materially from the estimated amounts.
The Trust’s expectations about the amount of any additional distributions and when they will be paid are subject to risks and uncertainties and
are based on certain estimates and assumptions, one or more of which may prove to be incorrect. As a result, the actual amount of any additional distributions may differ materially, perhaps in adverse ways, from the Trust estimates. Furthermore,
it is not possible to predict the timing of any additional distributions and such distributions may not be made within the timing referenced in the consolidated financial statements.
No assurance can be given that total distributions will equal or exceed the estimate of net assets in liquidation presented
in the consolidated statements of net assets in liquidation.
The Company observes health and safety guidelines, including allowing its employees to work remotely. The Company will continue to evaluate the
impact of the COVID-19 virus and other global health crises on its activities, including the cost of construction, the timing of completion of the single-family homes that are under construction, the time needed to market and sell its remaining
real estate assets and the price at which these real estate assets will be sold.
F-6
The ultimate impact of the COVID-19 virus and other global health crises will depend on many factors, some of which cannot be foreseen,
including the duration, severity, and geographic concentrations of the pandemic.
| 2) |
Summary of Significant Accounting Policies
|
Basis of Presentation and Consolidation
The accompanying consolidated financial statements of the Company have been prepared in accordance with U.S. Generally Accepted Accounting
Principles (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). These consolidated financial statements have been presented in accordance with Accounting Standards Codification (ASC) Subtopic
205-30, “Liquidation Basis of Accounting,” as amended by, Accounting Standards Update (ASU) No. 2013-07, “Presentation of Financial Statements (Topic 205), Liquidation Basis of Accounting.”
All material intercompany accounts and transactions have been eliminated.
Use of Estimates
U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial statements and for the period then ended. Actual results could differ from these estimates. Estimates and assumptions are reviewed periodically, and the carrying amounts of
assets and liabilities are revised in the period that available information supports a change in the carrying amount.
Liquidation Basis of Accounting
Under the Liquidation Basis of Accounting, all assets are recorded at their estimated net realizable value or liquidation value, which represents
the estimated amount of net cash that will be received upon the disposition of the assets (on an undiscounted basis). The measurement of real estate assets held for sale is based on current contracts (if any), estimates and other indications of
sales value, net of estimated selling costs. To determine the value of real estate assets held for sale, the Company considered the three traditional approaches to value (cost, income and sales comparison) commonly used by the real estate appraisal
community. The applicability and relevancy of each valuation approach as applied may differ by asset. In most cases, the sales comparison approach was accorded the greatest weight. This approach compares a property to other properties with similar
characteristics that have recently sold. To validate management’s estimate, the Company also considers opinions from qualified real estate professionals and local real estate brokers and, in some cases, obtained third party appraisals. The
estimated selling costs range from 5.0 % to 6.5 %.
Liabilities, including estimated costs associated with implementing and completing the Plan, are measured in accordance with U.S. GAAP that
otherwise applies to those liabilities. The Company has also recorded the estimated development costs to be incurred to prepare the assets for sale as well as the estimated holding costs to be incurred until the projected sale date and the
estimated general and administrative costs to be incurred until the completion of the liquidation of the Company. When estimating development costs, the Company considered third party construction contracts and estimates of costs to complete based
on construction status, progress and projected completion timing. Estimated development costs also include the costs of design and furnishings necessary to prepare and stage the homes for marketing as well as an accrual for warranty claims. Holding
cost estimates consider property taxes, insurance, utilities, maintenance and other costs to be incurred until the sale of the property is closed. Projected general and administrative cost estimates take into account operating costs through the
completion of the liquidation of the Company.
F-7
These estimated amounts are presented in the accompanying consolidated statements of net assets in liquidation. All changes in the estimated
liquidation value of the Company’s real estate held for sale, other assets and liabilities are reflected as a change to the Company’s net assets in liquidation.
The Company has not recorded any amount from the future settlement of Unresolved Causes of Action or recoveries from Fair Fund or Forfeited Assets
in the accompanying consolidated financial statements since they cannot be reasonably estimated. The amount recovered may be material to the Company’s net assets in liquidation.
On a quarterly basis, the Company reviews the estimated net realizable values, liquidation costs and the estimated date of the completion of the
liquidation of the Company and records any significant changes. The Company will also revalue an asset when it is under contract for sale and the buyer’s contingencies have been removed. During the period when this occurs, the carrying value of the
asset and the estimated closing and other costs will be adjusted, if necessary. If the Company has a change in its plan for the disposition of an asset, the carrying value will be adjusted to reflect this change in the period that the change is
approved. The change in value may include the accrued liquidation costs related to the asset.
Other Assets
The Company recognizes recoveries from the settlement of Unresolved Causes of Action when an agreement is executed, and collectability is
reasonably assured. An allowance for uncollectible settlement installment receivables is recorded when there is doubt about the collectability of the receivable. Insurance claims are recognized when the insurance company accepts the claim or if a
claim is pending and the recoverable amount can be estimated. The Company records escrow receivables at the amount that is expected to be received when the escrow receivable is released. The Forfeited Assets (Note 7) received from the United
States Department of Justice (DOJ), other than cash, have been recorded at their estimated net realizable value. In addition, the Company recognizes other amounts to be received based on contractual terms or when the amounts to be received are
certain.
Accrued Liquidation Costs
The Company accrues for estimated liquidation costs to the extent they are reasonably determinable. These costs consist of (a) estimated
development costs of the single-family homes, including construction and other project-related costs, architectural and engineering, project management, city fees, bond payments (net of refunds), furnishings, marketing and other costs; (b)
estimated holding costs, including property taxes, insurance, maintenance, utilities and other; and (c) estimated general and administrative costs including payroll, legal and other professional fees, trustee and board fees, rent and other office
related expenses and other general and administrative costs to operate the Company.
Cash Equivalents
The Company considers short-term investments that have a maturity date of ninety days or less at the time of investment to be a cash equivalent.
The Company’s cash equivalents include money market savings deposits and money market funds.
Restricted Cash
Restricted cash includes cash that can only be used for certain specified purposes.
F-8
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and
restricted cash. At times, balances in any one financial institution may exceed the Federal Deposit Insurance Corporation insurance limits. The Company mitigates this risk by depositing its cash, cash equivalents and restricted cash in high-credit
quality financial institutions. In addition, the Company uses strategies to reduce deposits balances at any one financial institution consistent with FDIC insurance limits.
Income Taxes
The Trust is intended to be treated as a grantor trust for income tax purposes and, accordingly, is not subject to federal or state income tax on
any income earned or gain recognized by the Trust. The Trust’s beneficiaries will be treated as the owner of a pro-rata portion of each asset, including cash and each liability received by and held by the Trust. Each beneficiary will be required to
report on his or her federal and state income tax return his or her pro-rata share of taxable income, including gains and losses recognized by the Trust. Accordingly, there is no provision for federal or state income taxes recorded in the
accompanying consolidated financial statements.
The Company regularly analyzes its various federal and state filing positions and only recognizes the income tax effect in the consolidated
financial statements when certain criteria regarding uncertain income tax positions have been met. The Company believes that its income tax positions would more likely than not be sustained upon examination by all relevant taxing authorities.
Therefore, no provision for uncertain income tax positions has been recorded in the consolidated financial statements.
Net Assets in Liquidation - Restricted for Qualifying Victims
The Company separately presents the portion of net assets in liquidation that are restricted for Qualifying Victims (Note 7) from the net assets
in liquidation that are available to All Interestholders.
| 3) |
Real Estate Assets Held for Sale, Net
|
The Company’s real estate assets held for sale as of June 30, 2022 and 2021, are as follows ($ in thousands):
| June 30, 2022 | June 30, 2021 | |||||||||||||||||||||||||||||||
|
Number
of Assets
|
Gross Value
|
Closing and
Other Costs
|
Net Value
|
Number
of Assets
|
Gross Value
|
Closing and
Other Costs
|
Net Value
|
|||||||||||||||||||||||||
|
Single-family homes
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||||||
|
Other real estate assets:
|
||||||||||||||||||||||||||||||||
|
Secured loans
|
|
|
(
|
)
|
|
|
|
(
|
)
|
|
||||||||||||||||||||||
|
Other properties
|
|
|
(
|
)
|
|
|
|
(
|
)
|
|
||||||||||||||||||||||
|
Subtotal
|
|
|
(
|
)
|
|
|
|
(
|
)
|
|
||||||||||||||||||||||
|
Total
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||||||
F-9
As of June 30, 2022, the single-family home was listed for sale and is located in the Los Angeles, California area. The loans are secured by
properties located primarily in the eastern United States. The other properties are located in the states of Hawaii and New York.
During the year ended June 30, 2022, the Company sold six single-family homes and settled two secured loans for net proceeds of approximately $131,716 ,000. During the year ended June 30, 2021, the Company sold six single-family homes, two lots and eleven other properties for net proceeds of approximately $134,159 ,000.
| 4) |
Restricted Cash
|
The Company’s restricted cash as of June 30, 2022 and 2021, is as follows ($ in thousands):
|
June 30, 2022
|
June 30, 2021
|
|||||||
|
Distributions restricted by the Company related to unresolved claims, distributions for recently allowed claims, uncashed distribution checks, distributions withheld due
to pending avoidance actions and distributions that the Trust is waiting for further beneficiary information
|
$
|
|
$
|
|
||||
|
Forfeited Assets (Note 7)
|
|
|
||||||
|
Interest reserve (Note 9)
|
|
|
||||||
|
Total restricted cash
|
$
|
|
$
|
|
||||
| 5) |
Other Assets
|
The Company’s other assets as of June 30, 2022 and 2021, are as follows ($ in thousands):
|
June 30, 2022
|
June 30, 2021
|
|||||||
|
Escrow receivables (a)
|
$
|
|
$
|
|
||||
|
Forfeited Assets (Note 7)
|
|
|
||||||
|
Settlement installment receivables, net (b)
|
|
|
||||||
|
Other
|
|
|
||||||
|
Total other assets
|
$
|
|
$
|
|
||||
| (a) |
|
| (b) |
|
F-10
| 6) |
Accrued Liquidation Costs
|
The following is a summary of accrued liquidation costs as of June 30, 2022 and 2021 ($ in thousands):
|
June 30, 2022
|
June 30, 2021
|
|||||||
|
Development costs:
|
||||||||
|
Construction costs
|
$
|
|
$
|
|
||||
|
Construction warranty
|
|
|
||||||
|
Indirect costs
|
|
|
||||||
|
Bond refunds
|
(
|
)
|
(
|
)
|
||||
|
Total development costs
|
|
|
||||||
|
Holding costs:
|
||||||||
|
Property tax
|
|
|
||||||
|
Insurance
|
|
|
||||||
|
Maintenance, utilities and other
|
|
|
||||||
|
Total holding costs
|
|
|
||||||
|
General and administrative costs:
|
||||||||
|
Legal and other professional fees
|
|
|
||||||
|
Payroll and payroll-related
|
|
|
||||||
|
Directors and officers insurance
|
|
|
||||||
|
Board fees and expenses
|
|
|
||||||
|
State, local and other taxes
|
|
|
||||||
|
Other
|
|
|
||||||
|
Total general and administrative costs
|
|
|
||||||
|
Total accrued liquidation costs
|
$
|
|
$
|
|
||||
As of June 30, 2022, the Company estimates that its liquidation activities will be completed by February 15, 2024.
In the fourth quarter of the year ended June 30, 2021, the Company determined that additional time may be needed to resolve its various Unresolved
Causes of Action. An analysis was completed and the Company concluded that an additional year would be needed to carry out the Company’s liquidating activities. As a result, the Company accrued approximately $12,952 ,000 of additional general and administrative costs. The costs are primarily legal and other professional fees, payroll and payroll-related,
directors’ and officers’ insurance and board fees and expenses.
| 7) |
Forfeited Assets - Restricted for Qualifying Victims
|
The Trust entered into a resolution agreement with the DOJ which provided that the Trust would receive the assets forfeited (Forfeited Assets) by
Robert and Jeri Shapiro. The Bankruptcy Court approved the settlement on September 17, 2020 and the District Court approved the settlement on October 1, 2020.
F-11
The agreement provided for the release of specified Forfeited Assets by the DOJ to the Trust and for the Trust to liquidate those assets and
distribute the net sale proceeds to Qualifying Victims. Qualifying Victims include the vast majority of Trust beneficiaries (specifically, all former holders of allowed Class 3 and 5 claims and their permitted assigns), but do not include former
holders of Class 4 claims. Distributions to Qualifying Victims are allocated pro-rata based on their net allowed claims without considering the (i) 5 %
enhancement for contributing their causes of action and (ii) 72.5 % Class 5 coefficient.
In March 2021, the Trust received certain Forfeited Assets from the DOJ, including cash, wine, jewelry, handbags, clothing, shoes, art, gold, and
other assets. The Company recorded the total estimated net realizable value of the Forfeited Assets of approximately $3,459 ,000. During
the year ended June 30, 2022, the Company sold the wine and gold and some of the handbags, clothing and shoes. The Forfeited Assets included in the Company’s June 30, 2022 and 2021 consolidated financial
statements are as follows ($ in thousands):
|
June 30, 2022
|
June 30, 2021
|
|||||||
|
Restricted cash (Note 4)
|
$
|
|
$
|
|
||||
|
Other assets (Note 5)
|
|
|
||||||
|
Accrued liquidation costs - primarily legal and other professional fees
|
(
|
)
|
(
|
)
|
||||
|
Net assets in liquidation - restricted for Qualifying Victims
|
$
|
|
$
|
|
||||
| 8) |
Net Change in Assets and Liabilities
|
Restricted for Qualifying Victims
The following is a summary of the change in the carrying value of assets and liabilities, net during the year ended June 30, 2022 ($ in
thousands):
| Cash | Remeasure- | |||||||||||
|
Activities
|
ment
|
Total
|
||||||||||
|
Real estate assets, net
|
$
|
|
$
|
|
$
|
|
||||||
|
Cash and cash equivalents
|
|
|
|
|||||||||
|
Restricted cash
|
|
|
|
|||||||||
|
Other assets
|
(
|
)
|
|
(
|
)
|
|||||||
|
Total assets
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||
|
Accounts payable and accrued liabilities
|
$
|
|
$
|
|
$
|
|
||||||
|
Accrued liquidation costs
|
(
|
)
|
|
(
|
)
|
|||||||
|
Total liabilities
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||
|
Change in carrying value of assets and liabilities, net
|
$
|
|
$
|
|
$
|
|
||||||
F-12
The following is a summary of the change in the carrying value of assets and liabilities, net during the year ended June 30, 2021 ($ in thousands):
|
Cash
|
Remeasure-
|
|||||||||||
|
Activities
|
ment
|
Total
|
||||||||||
|
Real estate assets, net
|
$
|
|
$
|
|
$
|
|
||||||
|
Cash and cash equivalents
|
|
|
|
|||||||||
|
Restricted cash
|
|
|
|
|||||||||
|
Other assets
|
|
|
|
|||||||||
|
Total assets
|
$
|
|
$
|
|
$
|
|
||||||
|
Accounts payable and accrued liabilities
|
$
|
|
$
|
|
$
|
|
||||||
|
Accrued liquidation costs
|
|
|
|
|||||||||
|
Total liabilities
|
$
|
|
$
|
|
$
|
|
||||||
|
Change in carrying value of assets and liabilities, net
|
$
|
|
$
|
|
$
|
|
||||||
All Interestholders
The following provides details of the change in carrying value of assets and liabilities, net during the year ended June 30, 2022 ($ in
thousands):
| Cash | Remeasure- | |||||||||||
|
Activities
|
ment
|
Total
|
||||||||||
|
Real estate assets, net
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||
|
Cash and cash equivalents
|
|
|
|
|||||||||
|
Restricted cash
|
(
|
)
|
|
(
|
)
|
|||||||
|
Other assets
|
(
|
)
|
|
|
||||||||
|
Total assets
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||
|
Accounts payable and accrued liabilities
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||
|
Accrued liquidation costs
|
(
|
)
|
(
|
(
|
)
|
|||||||
|
Total liabilities
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||
|
Change in carrying value of assets and liabilities, net
|
$
|
|
$
|
|
$
|
|
||||||
F-13
The following provides details of the distributions declared, net during the year ended June 30, 2022 ($ in thousands):
|
Distributions declared
|
$
|
(
|
)
|
|
|
Distributions reversed
|
|
|||
|
Distributions declared, net
|
$
|
(
|
)
|
Distributions payable increased by approximately $64,080 ,000 during the year
ended June 30, 2022.
The following provides details of the change in carrying value of assets and liabilities, net during the year ended June 30, 2021 ($ in
thousands):
| Cash | Remeasure- | |||||||||||
|
Activities
|
ment
|
Total
|
||||||||||
|
Real estate assets, net
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Cash and cash equivalents
|
|
|
|
|||||||||
|
Restricted cash
|
|
|
|
|||||||||
|
Other assets
|
(
|
)
|
|
(
|
)
|
|||||||
|
Total assets
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Accounts payable and accrued liabilities
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||
|
Accrued liquidation costs
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Total liabilities
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Change in carrying value of assets and liabilities, net
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
The following provides details of the distributions declared, net during the year ended June 30, 2021 ($ in thousands):
|
Distributions declared
|
$
|
(
|
)
|
|
|
Distributions reversed
|
|
|||
|
Distributions declared, net
|
$
|
(
|
)
|
Distributions payable increased by approximately $2,319 ,000 during the year
ended June 30, 2021.
F-14
| 9) |
Credit Agreements
|
Revolving Line of Credit
On June 19, 2020, two wholly-owned
subsidiaries of the Wind-Down Entity entered into a $25,000 ,000 revolving line of credit (LOC) with a financial institution. The LOC
matured on June 19, 2022 , but may be extended for additional year thereafter. The LOC required the borrowers to establish an interest reserve of $1,750 ,000
(Note 4), which was to be used to pay the potential monthly interest payments. Outstanding borrowings bear interest at a fixed rate of 3.50 %
per annum. Indebtedness under the LOC was secured by a deed of trust on one property, the personal property associated therewith and the interest reserve. The Wind-Down Entity was the guarantor of the LOC. The Company was required to keep a cash
balance of $20,000 ,000 on deposit with the lender in order to avoid a non-compliance fee of 2 % of the shortfall in the required deposit and was required to comply with various covenants.
The property that was collateral for the LOC was sold in December 2020. The LOC agreement provided that the borrower had 60 days after the sale of the collateral to add borrower(s) and additional property(ies) as collateral. During the 60-day period, the available borrowings under the LOC were reduced to $100 ,000. On February 11, 2021, the LOC was amended. Two additional wholly-owned subsidiaries of the
Wind-Down Entity were joined to the LOC as co-borrowers and two properties were added as replacement collateral as allowed for in the
original agreement. As a result of this amendment, the available borrowing commitment was adjusted back up to $25,000 ,000. The maturity
date of the LOC was changed to January 31, 2023 with an option to extend for additional year, subject to the availability of collateral. There were no other significant changes to the LOC.
On May 16, 2022, the LOC was terminated by the Wind-Down Entity through its two
wholly-owned subsidiaries.
PPP Loan
On April 20, 2020, the Wind-Down Entity obtained unsecured credit in the form of a loan under the federal government’s Paycheck Protection Program
(PPP) in the amount of $324,700 . The loan accrued interest at a rate of 1.00 % per annum. The loan had a maturity date of April 20, 2022 .
The Company expected to have 100 %
of the loan balance forgiven and therefore no amounts were accrued under the liquidation basis of accounting as of June 30, 2020. On
February 16, 2021, the PPP loan and the related interest were forgiven.
F-15
| 10) |
Beneficial Interests
|
The following table summarizes the Liquidation Trust Interests (rounded) for the years ended June 30, 2022 and 2021:
|
Year ended June 30, 2022
|
Year ended June 30, 2021
|
|||||||||||||||
|
Liquidation Trust Interests
|
Class A
|
Class B
|
Class A
|
Class B
|
||||||||||||
|
Outstanding at beginning of year
|
|
|
|
|
|
|||||||||||
|
Allowed claims
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
||||||||||||
|
Settlement of claims by cancelling Liquidation Trust Interests
|
(
|
)
|
(
|
(
|
)
|
(
|
)
|
|||||||||
|
Outstanding at end of year
|
|
|
|
|
||||||||||||
Of the 11,513,535 Class A
Interests outstanding as of June 30, 2022, 11,433,802 are held by Qualifying Victims (Note 7).
At the Plan Effective Date, certain claims were disputed. As the claims are resolved, additional Class A Interests and (if applicable) Class B
Interests are issued on account of allowed claims and no Class A Interests or (if applicable) Class B Interests are issued on account of disallowed claims. The following table summarizes the Trust’s unresolved claims against the Debtors as
they relate to Liquidation Trust Interests (rounded) for the years ended June 30, 2022 and 2021:
| Year ended June 30, 2022 | Year ended June 30, 2021 | |||||||||||||||
|
Liquidation Trust Interests
|
Class A
|
Class B
|
Class A
|
Class B
|
||||||||||||
|
Reserved for unresolved claims at beginning of year
|
|
|
|
|
|
|||||||||||
|
Allowed claims
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|||||||||
|
5% enhancement for certain allowed claims
|
|
|
(
|
)
|
|
|||||||||||
|
Disallowed claims
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Reserved for unresolved claims at end of year
|
|
|
|
|
||||||||||||
Of the 90,793 Class A Interests
relating to unresolved claims as of June 30, 2021, 3,601 would be held by Qualifying Victims (Note 7).
| 11) |
Distributions
|
The Plan provides for a distribution waterfall that specifies the priority and manner of distribution of available cash to all Interestholders,
excluding distributions of the net sales proceeds from Forfeited Assets (Note 7). Distributions are to be made (a) to the Class A Interests until they have received distributions of $75.00 per Class A Interest; thereafter (b) to the Class B Interests until they have received distributions of $75.00 10 %, compounded annually, accrued on the
aggregate principal amount of all Net Note Claims, Allowed General Unsecured Claims and Net Unit Claims, all as defined, treating each distribution pursuant to (a) and (b) above as reductions of such principal amount; and thereafter (d) to the
holders of Allowed Subordinated Claims, as defined, until such claims are paid in full, including interest, at a per annum fixed rate of 10 %
or such higher rate as may be agreed to, as provided for in the Plan, compounded annually, accrued on the principal amount of each Allowed Subordinated Claim, as defined.
F-16
The following distributions were declared and paid during the years ended June 30, 2022 and 2021 ($ in millions, except
for $ per Class A Interest):
|
Year ended June 30, 2022
|
Year ended June 30, 2021
|
||||||||||||||||||||||||||||
|
Deposits Into
|
Deposits Into
|
||||||||||||||||||||||||||||
|
$ per
|
Restricted
|
Restricted
|
|||||||||||||||||||||||||||
| Date |
Class A
|
Total
|
Cash
|
Total
|
Cash
|
||||||||||||||||||||||||
| Declared |
Interest
|
Declared
|
Paid
|
Account
|
Declared
|
Paid
|
Account
|
||||||||||||||||||||||
|
Tenth
|
|
$ |
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Ninth
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Eighth
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Seventh
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Sixth
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Fifth
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Fourth
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||||||
| (a) |
|
| (b) |
|
For each distribution, a deposit was made into a restricted cash account for amounts (a) payable for Class A Interests that may be issued in the
future upon the allowance of unresolved claims, (b) in respect of Class A Interests issued on account of recently allowed claims (c) for holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions
(d) for distributions that were withheld due to pending avoidance actions and (e) for holders of Class A Interests for which the Trust is waiting for further beneficiary information.
During the years ended June 30, 2022 and 2021, as (a) claims were resolved, (b) claims were recently allowed, (c) addresses for holders of
uncashed distribution checks were obtained, (d) pending avoidance actions were resolved and (e) further beneficiary information was received, distributions of approximately $700 ,000 and $660 ,000, respectively, were paid to holders of Class
A Interests that were issued on account of claims that became allowed during such periods.
During the years ended June 30, 2022 and 2021, as a result of claims being disallowed or Class A Interests being cancelled, approximately $815 ,000 and $1,168 ,000 were released from
the restricted cash account and distributions payable were reduced by the same amount.
During the years ended June 30, 2022 and 2021, approximately $0 and $590 ,000 were received from the Company’s transfer agent and others relating to Claass A Interest
distribution checks that were returned or not cashed. This amount was deposited into the restricted cash account and distributions payable were increased by the same amount.
As a result of
distribution checks that had not been cashed within 180 days of their issuance Interestholders were deemed to have forfeited their rights to reserved and future Class A Interest distributions, therefore during the fourth quarter
and the year ended June 30, 2022 approximately $1,159 no distributions were
deemed to have been forfeited.
F-17
| 12) |
Related Party Transactions
|
Terry Goebel, a member of the Trust Supervisory Board, is president and a principal owner of G3 Group LA, a construction firm specializing in the
development of high-end luxury residences. G3 Group LA is owned by Terry Goebel and his son Kelly Goebel. As of June 30, 2022, the Company was under contract with G3 Group LA for the development of one single-family home in the Los Angeles area. As of June 30, 2022 and 2021, the remaining amounts payable under these contracts was approximately $438 ,000 and $4,391 ,000, respectively.
During the years ended June 30, 2022 and 2021, approximately $6,050 ,000 and $7,341 ,000, respectively, were paid by the Company to G3 Group LA related to these contracts.
The Liquidation Trustee of the Trust is entitled to receive 5 % of the total gross amount recovered by the Trust from the pursuit of Causes of Action. During the years ended June 30, 2022 and 2021, approximately $1,346 ,000 and $532 ,000 were accrued as amounts due to the
Liquidation Trustee, respectively. As of June 30, 2022 and 2021, approximately $81 ,000 and $160 ,000, respectively, were payable to the Liquidation Trustee. These amounts are included in accounts payable and accrued expenses in the accompanying consolidated statement
of net assets in liquidation. During the years ended June 30, 2022 and 2021, approximately $1,425 ,000 and $491 ,000, respectively, were paid to the Liquidation Trustee.
In November 2019, the Trust entered into an arrangement with Akerman LLP, a law firm based in Miami, Florida of which the Liquidation Trustee is a
partner, for the provision, at the option of the Trust on an as-needed basis, of e-discovery and related litigation support services in connection with the Trust’s prosecution of the Causes of Action. Under the arrangement, the Trust is charged for
the services at scheduled rates per task which, depending on specific task, include flat rates, rates based on volume of data processed, rates based on the number of data users, the hourly rates of Akerman LLP personnel, or other rates. During the
years ended June 30, 2022 and 2021, approximately $420 ,000 and $385 ,000, respectively, were paid related to these services and there were no
The executive officers of the Wind-Down Entity are entitled to a bonus based on the Wind-Down Entity achieving certain specified cumulative
amounts of distributions to the Trust. Based on the carrying amounts of the net assets in liquidation included in the accompanying consolidated statement of net assets in liquidation, approximately $3,000 ,000 and $3,040 ,000 were accrued as of June 30, 2022 and
2021, respectively, as the estimated amount of the bonus (including associated payroll taxes). During the years ended June 30, 2022 and 2021, approximately $652 ,000
and $0 were accrued as amounts due to the Liquidation Trustee, respectively. This amount is included in the payroll and payroll
related costs portion of accrued liquidation costs in the accompanying consolidated statement of net assets in liquidation. During the years ended June 30, 2022 and 2021, approximately $692 ,000 and $1,083 ,000, respectively, were paid related to the
bonuses.
| 13) |
Causes of Action
|
During the years
ended June 30, 2022 and 2021, the Company recorded the following amounts from the settlement of Causes of Action ($ in thousands):
|
|
For the Year Ended June 30, | |||||||
|
2022
|
2021
|
|||||||
|
Comerica Bank
|
$
|
|
$
|
|
||||
|
Other settlement recoveries
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
The Company also
recorded liabilities of 5 % of the above amounts payable to the Liquidation Trustee.
F-18
On August 6, 2021, the
Trust agreed to settle two pending actions against Comerica Bank. The terms of the settlement reached in a putative class action against
Comerica Bank in the United States Court for the Central District of California (the “District Court”) were the subject of a Settlement Agreement among the plaintiffs, Comerica Bank, and the Trust (the “Settlement Agreement”).
The Settlement Agreement resolved two actions. One of the actions, captioned In re Woodbridge Investments
Litigation, Case No.2:18-cv-00103-DMG-MRW (C.D. Cal.), was a consolidated putative class action in the District Court brought on behalf of former noteholders and unitholders of the Debtors (the “California Class Action”). The California Class
Action was comprised of five separate lawsuits filed between January 4, 2018 and April 26, 2018 and, as consolidated, asserted claims
for aiding and abetting fraud, aiding and abetting breach of fiduciary duty, negligence, and violations of California’s unfair competition law. The Trust was the largest member of the putative class in the California Class Action, as holder of
approximately 60.9 % of all claims against Comerica Bank based on the claims contributed to the Trust by former investors of the
Debtors.
The other action
resolved by the settlement, captioned Michael I. Goldberg as trustee for the Woodbridge Liquidation Trust v. Comerica Bank, Adv. Pro. No. 20-ap-50452-BLS (Bankr. D. Del.), was an adversary proceeding pending in the United States Bankruptcy Court
for the District of Delaware, in which the Trust asserted claims against Comerica Bank for fraudulent transfers under the California Civil Code (the “Delaware Adversary Action”). The Delaware Adversary Action also incorporated the claims asserted
against Comerica Bank in the California Class Action to the extent that such claims may ultimately be determined to belong to the Debtors’ estates rather than the individual former noteholders and unitholders.
Under the terms of the
Settlement Agreement, the California Class Action was settled as a class action, on the basis of a class defined to consist of (i) the Trust and (ii) the holders of Net Claims (as defined in the Settlement Agreement) (the “Non-Contributing
Claimants”). Under the terms of the Settlement Agreement, Comerica Bank paid (including through its insurers) an aggregate of $54.5
million, consisting of $54.2 million to settle the California Class Action (Class Payment) and $0.3 million to settle the Delaware Adversary Action (the “FT Payment”). The Class Payment was intended to provide recoveries to members of the plaintiff class and to fund, in
amounts to be determined by the District Court, the legal fees of plaintiffs’ counsel in the California Class Action, totaling 25 % of
the California Class Action settlement payment, the costs of administering the settlement, and certain incentive awards for class representatives. Under the Settlement Agreement, Comerica Bank (and certain related parties) was released from all
claims advanced, or that could have been advanced, related to the facts alleged in the California Class Action or the Delaware Adversary Action.
The Net Class
Consideration (defined in the Settlement Agreement as the Class Payment minus Court-awarded attorneys’ fees and costs) was distributed to class members as set forth in the Settlement Agreement, resulting in a distribution to the Trust of
approximately 60.9 % of the Net Class Consideration (corresponding to the Trust’s holding of approximately 60.9 % of all claims against Comerica based on the claims contributed to the Trust by former investors of the Debtors). No costs of administration or incentive award were deducted from the Trust’s share of the Net Class Consideration. The FT Payment was made to the Trust.
The FT Payment was not subject to reduction for any reason, including attorneys’ fees, costs of administration, or incentive awards.
On September 3, 2021,
the District Court entered an order granting preliminary approval to the settlement of the California Class Action. The District Court granted final approval on December 17, 2021.
F-19
During the year ended June 30, 2022, the Company received
proceeds of approximately $54,500 ,000 from the settlement. The allocation of the proceeds is as follows ($ in thousands):
|
Trust’s net portion
|
$
|
|
||
|
Payable to non-contributing claimants
|
|
|||
|
Payable for approved legal fees and litigation costs
|
|
|||
|
Payable for incentive awards
|
|
|||
|
Payable for administrative costs relating to non-contributing claimants
|
|
|||
|
Total
|
$
|
|
The Settlement
Agreement provides for the Trust to serve as administrator of the settlement. In that capacity, the Trust received the full settlement amount from the defendant (or its insurers), and, from such amount, paid the court-approved legal fees and
litigation costs to plaintiffs’ class counsel, court-approved incentive awards for class representatives, and costs relating to notice and administration of the settlement. In addition, in its role as administrator of the settlement, the Trust paid
the Non-Contributing Claimants their portion of the settlement, constituting approximately 39.1 % of the Net Class Consideration, less
incentive awards and costs of notice and administration. All of the proceeds have been distributed according to the settlement except for approximately $13 ,000
payable to non-contributing claimants and approximately $25 ,000 payable for court approved notice and administrative costs as the Company
has not received all of the necessary documentation.
|
14)
|
Commitments and Contingencies
|
As of June 30, 2022, the Company had construction contracts of which approximately $1,500 ,000 was unpaid.
The Company had a lease for its office space that expired on August 31, 2021. The Company also had one three-month option to extend the
lease. The amount of rent paid, including common area maintenance and parking charges, during the year ended June 30, 2021 was approximately $291 ,000.
On June 4, 2021, the Company opted not to extend its existing lease and entered into a new office lease at a different location. The new lease is for the period from August 1, 2021 through July 31, 2022. The annual rent is approximately $43 ,000 plus common area maintenance charges. On May 16, 2022, the Company extended its lease for six months . The Company has one additional six-month option to extend the lease. The Company paid approximately $55 ,000 relating to prepaid rent, common area maintenance charges and a security deposit for the new lease during the year ended June 30, 2022. The monthly rent during the six-month extension is approximately $4 ,000 per month.
The Company is not presently the defendant in any material litigation nor, to the Company’s knowledge, is any material litigation threatened
against the Company.
The Company is not aware of any environmental liabilities that it believes would have a material adverse effect on its net assets in liquidation.
| 15) |
Subsequent Events
|
The Company evaluates subsequent events up until the date the unaudited consolidated financial statements are issued.
Distributions
A cash distribution on account of then-allowed claims in the amount of approximately $64,194 ,000 was paid on July 15, 2022 and a deposit into a restricted account of approximately $825 ,000 was made on July 26, 2022.
During the period from July 1, 2022 through September 23, 2022, as (a) claims were resolved, (b) claims were recently allowed, (c)
addresses for holders of uncashed distribution checks were obtained, (d) pending avoidance actions were resolved and (e) further beneficiary information was received, distributions of approximately $698 ,000 were paid to holders of Class A Interests from the restricted cash account and distributions payable were
reduced by the same amount.
F-20
During the period from July 1, 2022 through September 23, 2022, as a result of claims being disallowed or Class A Interests being
cancelled, approximately $2,629 ,000 was released from the restricted cash account and
distributions payable was reduced by the same amount.
Beneficial Interests
The following table summarizes the Liquidation Trust Interests for the period from July 1, 2022 through September 23, 2022:
|
Liquidation Trust Interests
|
Class A
|
Class B
|
||||||
|
Outstanding at June 30, 2022
|
|
|
||||||
|
Allowed during the period
|
|
|
||||||
|
|
||||||||
|
Settlement of claims by cancelling Liquidation Trust Interests
|
(
|
)
|
|
|||||
|
Outstanding at September 23, 2022
|
|
|
||||||
Of the 11,514,190 Class A Interests outstanding as of
September 23, 2022, 11,436,259 are held by Qualifying Victims (Note 7).
The following table summarizes unresolved claims against the Debtors as they relate to Liquidation Trust Interests (rounded) for the period from
July 1, 2022 through September 23, 2022:
|
Liquidation Trust Interests
|
Class A
|
Class B
|
||||||
|
Outstanding at June 30, 2022
|
|
|
||||||
|
Allowed during the period
|
(
|
)
|
|
|||||
|
Disallowed during the period
|
(
|
)
|
|
|||||
|
Outstanding at September 23, 2022
|
|
|
||||||
Of the 13,875 Class A Interests relating to unresolved claims as of September 23, 2022, 1,880 would be
held by Qualifying Victims (Note 7).
Employment Agreement
On September 1, 2022, the Wind-Down Entity executed a part-time employment agreement with its Chief Executive Officer. On September 9, 2022, Mr. Chin was paid
approximately $24 ,000 of unused and accrued vacation in accordance with this agreement.
F-21
Escrow Receivable
On August 8, 2022, the Company received the certificate of occupancy for 1520 Carla Ridge and on August 10, 2022, the
Company received its $2,500 ,000 escrow receivable. On August 1, 2022, the Company received the certificate of occupancy for 10733 Stradella and on August 31, 2022, the Company received its $400 ,000 escrow receivable related to the receipt of certificate of occupancy.
Causes of Action
During the period from July 1, 2022 through September 23, 2022, the Trust recorded approximately $190 ,000 from the settlement of Causes of Action. The Company recorded approximately $9 ,000 as the amount due to the Liquidation Trustee on account of such settlements.
Forfeited Assets
During the period from July 1, 2022 through September 23, 2022, the Company realized net proceeds of approximately $154 ,000 from the sale of Forfeited Assets.
Bond Refunds
During the period from July 1, 2022 through September 23, 2022, the Company received approximately $130 ,000 of bond refunds.
F-22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, this 23rd day of September, 2022.
|
|
By:
|
/s/ Michael I. Goldberg
|
|
|
|
|
|
|
Name:
|
Michael I. Goldberg
|
|
|
Title:
|
Liquidation Trustee
|
Exhibit 31.1
Certification of Liquidation Trustee pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
I, Michael I. Goldberg, certify that:
| 1. |
I have reviewed this Annual Report on Form 10-K of Woodbridge Liquidation Trust;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the net assets in liquidation and changes in net assets
in liquidation of the registrant as of, and for, the periods presented in this report;
|
| 4. |
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
|
| a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
|
| b) |
(Omitted pursuant to SEC Release Nos. 33-8238/34-47986 and 33-8392/34-4933);
|
| c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
|
| d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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| 5. |
I have disclosed, based on my recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
|
| a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
|
| b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: September 23, 2022
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By:
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/s/ Michael I. Goldberg
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Michael I. Goldberg,
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Liquidation Trustee
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Exhibit 32.1
Certification of Liquidation Trustee pursuant to 18 U.S.C. 1350,
as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Woodbridge Liquidation Trust (the “Registrant”) for the year ended June 30, 2022, as filed with the Securities and exchange Commission on the date
hereof (the “Report”), the undersigned, Michael I. Goldberg, Trustee of the Registrant, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge and
belief:
| 1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
| 2. |
The information contained in the Report fairly presents, in all material respects, the net assets in liquidation and changes in net assets in liquidation of the Registrant.
|
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Date: September 23, 2022
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By:
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/s/ Michael I. Goldberg
|
|
Michael I. Goldberg,
|
||
|
Liquidation Trustee
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