|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion and analysis of changes in net assets and net assets in liquidation should be read in conjunction with the accompanying unaudited consolidated
financial statements of Woodbridge Liquidation Trust and the related notes thereto. The Trust, the Remaining Debtors, the Wind-Down Entity and the Wind-Down Subsidiaries, as used herein, are defined in Note 1 to the consolidated financial
statements and are collectively referred to herein as the Company.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include, without limitation, financial guidance,
projections and statements with respect to expectations 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 include, without limitation, statements (other than historical facts) that address future plans, goals, expectations, activities, events or developments. The Trust has tried, where possible, to use words such as
“anticipates”, “if”, “believes,” “estimates,” “plans,” “expects,” “intends,” “forecasts”, “initiative, “objective”, “goal, “projects”, “outlook”, “priorities”, “target”, “evaluate”, “pursue”, “seek”, “potential”, “continue”, “designed”,
“impact”, “may”, “could”, “would”, “should”, “will” and similar expressions to identify forward-looking statements. Forward-looking statements are based on current expectations and are subject to substantial risks, uncertainties and other
factors, many of which are beyond our control and not all of which can be predicted by the Trust. Such risks and uncertainties include the amount of funds needed for construction defect and other claims, the estimated completion date for the
Company’s operations, the amount of general and administrative costs, the number and amount of successful Causes of Action (as defined below) and/or settlements and the ability to recover thereon, the amount of funding required to continue
litigations, changes in tax and other governmental rules and regulations applicable to the Trust and its subsidiaries, and other risks identified and described in “Part I. Financial Information, Item 1A. Risk Factors” of the Company’s Annual
Report on Form 10-K, or contained in any of the Trust’s subsequent filings with the SEC including “Part II. Other Information, Item 1A. Risk Factors” of this Form 10-Q. Accordingly, the Trust cannot guarantee that any forward-looking statements
will be realized, as actual results may differ materially from those identified or implied in any forward-looking statement. 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 Securities Act of 1933 and the Exchange Act, 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 “Part II. Other Information, Item 1A. Risk Factors” of this Form 10-Q.)
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.
Overview
Pursuant to the Plan, the Trust was formed on February 15, 2019 to hold, either directly or indirectly through the Wind-Down Entity and the Wind-Down Subsidiaries, 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 to the Trust on the Plan Effective Date. 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 Administrative Claims and Priority 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 under the
supervision of its Supervisory Board. The Wind-Down Entity, a wholly-owned subsidiary of the Trust, operates pursuant to the Plan and the Wind-Down Entity LLC Agreement, as amended. The Wind-Down Entity was formed as a Delaware limited
liability company and is administered by its Board of Managers. The current sole member of the Board of Managers is also a member of the Supervisory Board of the Trust.
The Bankruptcy Court has retained certain jurisdictions 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 and its subsidiaries.
As of September 30, 2024, the number of Liquidation Trust Interests outstanding in each class is as follows:
|
Class of Interest
|
|
|
| |
|
|
|
Class A Liquidation Trust Interests
|
|
11,515,807
|
| |
|
|
|
Class B Liquidation Trust Interests
|
|
675,951
|
For each of the classes of Liquidation Trust Interests, the number of Liquidation Trust Interests outstanding will increase to the extent that the 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 September 30, 2024, the Wind-Down Subsidiaries have disposed of approximately 149 properties for aggregate net sales proceeds of
approximately $576.00 million. As of September 30, 2024, the Company owned two real estate assets with a net carrying value of approximately $0.49 million. Given the significantly smaller inventory of remaining real estate assets when compared
to the inventory as of the Plan Effective Date, the amount of net proceeds from the sale of real estate assets in the future will be negligible as compared to the amount realized from the Plan Effective Date through September 30, 2024. The
Company currently expects to complete its liquidation activities during the fiscal year ending June 30, 2026.
Discussion of the Company’s Operations
For the three months ended September 30, 2024
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the three months ended September 30, 2024 ($ in thousands):
| |
|
Restricted for
|
|
|
All
|
|
|
|
|
| |
|
Qualifying Victims
|
|
|
Interestholders
|
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
Net assets in liquidation as of beginning of period
|
|
$
|
4,110
|
|
|
$
|
35,759
|
|
|
$
|
39,869
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted for Qualifying Victims -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in carrying value of assets and liabilities, net
|
|
|
15
|
|
|
|
-
|
|
|
|
15
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
All Interestholders-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in carrying value of assets and liabilities, net
|
|
|
-
|
|
|
|
3,644
|
|
|
|
3,644
|
|
|
Distributions (declared) reversed, net
|
|
|
-
|
|
|
|
19
|
|
|
|
19
|
|
|
Net change in assets and liabilities
|
|
|
-
|
|
|
|
3,663
|
|
|
|
3,663
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets in liquidation, as of end of period
|
|
$
|
4,125
|
|
|
$
|
39,422
|
|
|
$
|
43,547
|
|
Net assets in liquidation – Restricted for Qualifying Victims increased by approximately $0.015 million during the three months ended September 30, 2024.
Net assets in liquidation – All Interestholders increased by approximately $3.66 million during the three-month period ended September 30, 2024. This increase was due to an
increase in the net carrying value of assets and liabilities of approximately $3.64 million and distributions reversed of approximately $0.02 million for Class A Interests being cancelled.
The components of the changes in the carrying value of assets and liabilities, net are as follows ($ in thousands):
| |
|
Restricted for
|
|
|
All
|
|
|
|
|
| |
|
Qualifying Victims
|
|
|
Interestholders
|
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
Settlement recoveries, net (1)
|
|
$
|
-
|
|
|
$
|
3,191
|
|
|
$
|
3,191
|
|
|
Remeasurement of assets and liabilities, net
|
|
|
15
|
|
|
|
434
|
|
|
|
449
|
|
|
Other
|
|
|
-
|
|
|
|
19
|
|
|
|
19
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in carrying value of assets and liabilities, net
|
|
$
|
15
|
|
|
$
|
3,644
|
|
|
$
|
3,659
|
|
| (1) |
Net of 5% payable to the Liquidation Trustee of approximately $256,000.
|
During the three months ended September 30, 2024, the Company:
|
• |
Reversed distributions of approximately $0.02 million from Class A Interests being cancelled.
|
|
• |
Received net proceeds from the sale of Forfeited Assets of approximately $0.02 million.
|
|
• |
Recorded approximately $3.19 million from the settlement of Causes of Action, net of 5% payable to the Liquidation Trustee.
|
| |
•
|
Paid development costs of approximately $0.20 million.
|
|
• |
Paid general and administrative costs of approximately $1.35 million, including approximately $0.08 million of board member fees and expenses, approximately $0.37 million of payroll and other general and
administrative costs and approximately $0.90 million of professional fees.
|
For the three months ended September 30, 2023
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the three months ended September 30, 2023 ($ in thousands):
| |
|
Restricted for
|
|
|
All
|
|
|
|
|
| |
|
Qualifying Victims
|
|
|
Interestholders
|
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
Net assets in liquidation as of beginning of period
|
|
$
|
3,491
|
|
|
$
|
3,282
|
|
|
$
|
6,773
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted for Qualifying Victims -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in carrying value of assets and liabilities, net
|
|
|
20
|
|
|
|
-
|
|
|
|
20
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
All Interestholders-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in carrying value of assets and liabilities, net
|
|
|
-
|
|
|
|
32,541
|
|
|
|
32,541
|
|
|
Distributions (declared) reversed, net
|
|
|
-
|
|
|
|
40
|
|
|
|
40
|
|
|
Net change in assets and liabilities
|
|
|
-
|
|
|
|
32,581
|
|
|
|
32,581
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets in liquidation, as of end of period
|
|
$
|
3,511
|
|
|
$
|
35,863
|
|
|
$
|
39,374
|
|
Net assets in liquidation – Restricted for Qualifying Victims decreased by approximately $0.02 million during the three months ended September 30, 2023.
Net assets in liquidation – All Interestholders increased approximately $32.58 million during the three months ended September 30, 2023. This increase was due to an
increase in the net carrying value of assets and liabilities of approximately $32.54 million and distributions reversed of approximately $0.04 million from Class A Interests being cancelled.
The components of the change in the carrying value of assets and liabilities, net are as follows ($ in thousands):
| |
|
Restricted for
|
|
|
All
|
|
|
|
|
| |
|
Qualifying Victims
|
|
|
Interestholders
|
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
Settlement recoveries (1)
|
|
$
|
-
|
|
|
$
|
31,948
|
|
|
$
|
31,948
|
|
|
Remeasurement of assets and liabilities, net
|
|
|
8
|
|
|
|
581
|
|
|
|
589
|
|
|
Sales proceeds in excess of carrying value
|
|
|
12
|
|
|
|
-
|
|
|
|
12
|
|
|
Other
|
|
|
-
|
|
|
|
12
|
|
|
|
12
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in carrying value of assets and liabilities, net
|
|
$
|
20
|
|
|
$
|
32,541
|
|
|
$
|
32,561
|
|
| (1) |
Net of 5% payable to the Liquidation Trustee of approximately $2,480,000.
|
During the three months ended September 30, 2023, the Company:
|
• |
Reversed distributions of approximately $0.04 million from Class A Interests being cancelled.
|
|
• |
Received net proceeds from the sale of Forfeited Assets of approximately $0.05 million.
|
|
• |
Recorded approximately $31.95 million for the settlement of Causes of Action, net of 5% payable to the Liquidation Trustee.
|
|
• |
Paid development costs of approximately $0.04 million.
|
|
• |
Paid holding costs of approximately $0.07 million.
|
|
• |
Paid general and administrative costs of approximately $3.11 million, including approximately $0.07 million of board member fees and expenses, approximately $0.36 million of payroll and other general and
administrative costs, approximately $1.47 million of professional fees and approximately $1.21 million paid to the Liquidation Trustee.
|
Liquidity and Capital Resources
Liquidity
The Company’s primary sources for meeting its capital requirements are its cash, cash equivalents, short-term investments and restricted cash, receipt of interest earned,
and proceeds from liquidating its other remaining assets. The Company’s primary uses of funds are and will continue to be for distributions, if any, and operating costs, including costs related to construction defect claims and other costs.
The Company expects to be able to adequately fund its operations over the next twelve months from its primary sources of capital. However, no assurance can be made in that regard due to the construction defect claim asserted against the
Development Entity. At this time, the amount of the liability exposure for this claim cannot be determined and may be in excess of the amount that was accrued or that may be available from third parties, including the Company’s insurers.
Capital Resources
In addition to cash, cash equivalents and short-term investments as of September 30, 2024 of approximately $63.28 million (of which approximately $4.86 million is
restricted), the capital resources available to the Company are as follows:
|
• |
Interest Earnings: During the three months ended September 30, 2024, the Company recorded interest earnings of approximately $0.55 million. At September 30, 2024, the Company had approximately
$1.88 million of accrued interest recorded. The Company expects to receive approximately $1.52 million of this accrued interest during the remainder of the year ending June 30, 2025.
|
|
• |
Proceeds from Real Estate Transactions: As of September 30, 2024, the Company owned two real estate assets with an estimated carrying value of approximately $0.49 million. Based on the remaining
real estate assets of the Company, future net proceeds will be negligible as compared to the proceeds the Company has realized in prior periods.
|
|
• |
Causes of Action Recoveries: During the three months ended September 30, 2024, the Company recognized approximately $3.45 million from the settlement of Causes of Action. Based on the limited
remaining Causes of Action, future recoveries will be negligible as compared to the proceeds the Company has realized in prior periods.
|
|
• |
Forfeited Assets: Forfeited Assets consist of restricted cash and other assets. During the three months ended September 30, 2024, the Trust sold a majority of the non cash assets and received net
proceeds of approximately $0.02 million. As noted earlier, net sale proceeds from Forfeited Assets are to be distributed only to Qualifying Victims. The Company does not expect to receive any additional Forfeited Assets. As noted
above, the Company sold the last non-cash asset in October 2024.
|
Uses of Liquidity
The primary uses of the Company’s liquidity are to pay distributions payable, operating costs and costs related to construction defect claim(s). As of September 30, 2024,
the Company’s total liabilities were approximately $22.24 million. The total liabilities recorded as of September 30, 2024 may not be indicative of the Company's future cash needs, which may vary materially from the current estimate.
Given current cash, cash equivalents, short-term investments and restricted cash balances, distributions payable, and expected cash needs, the Company does not expect a
deficiency in liquidity in the next twelve months. Due to the uncertain nature of potential recoveries from insurance claims and costs to be incurred, including costs related to construction defect claims and other costs, it is not possible
to be certain that the current liquidity will be adequate to cover all future financial needs of the Company.
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. On August 3, 2023, the Supervisory Board, at the recommendation of the Liquidation Trustee, suspended the making of additional Trust distributions to Interestholders, pending the result of the investigation of a
construction defect claim asserted against the Development Entity by the buyer of a single-family home sold by the Development Entity. Holders of Liquidation Trust Interests are advised that to date, the Trust has liquidated substantially
all of its real estate assets, and given the pending construction defect claim, the Trust is unable to estimate the timing and amount of future distributions, if any, other than the distribution described herein solely in respect of
Forfeited Assets to be made to Qualifying Victims. (See Notes 5, 6 and 12 to the Consolidated Financial Statement for additional information.)
On September 19, 2024, a distribution of the net sales proceeds of the Forfeited Assets of approximately $4,100,000 was approved by the Supervisory Board, which
represents a distribution of approximately $4.65 per $1,000 of Total Net Qualifying Victim Claims. The Trust expects to make the distribution, which is to be paid solely to Qualifying Victims, by December 31, 2024.
As of November 12, 2024, the Liquidation Trustee has declared eleven (11) distributions to the Class A Interestholders. The distributions include a cash distribution on
account of the then-allowed claims and a deposit 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 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.
As claims are resolved, additional Class A Interests may be issued or cancelled (see the Company’s Annual Report on Form 10-K filed on September 27, 2024, “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 may 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, for 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 September 30, 2024 and from
February 15, 2019 (inception) through November 12, 2024:
| |
|
|
|
|
|
During the Period from
February 15, 2019 (inception) through
September 30, 2024 ($ in Millions)
|
|
|
During the Period from
February 15, 2019 (inception) through
November 12, 2024 ($ 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
|
|
|
|
53.44
|
|
|
|
51.20
|
|
|
|
2.24
|
|
|
|
53.44
|
|
|
|
51.20
|
|
|
|
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
|
|
|
|
29.96
|
|
|
|
29.21
|
|
|
|
0.75
|
|
|
|
29.96
|
|
|
|
29.21
|
|
|
|
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
|
|
|
|
30.04
|
|
|
|
29.35
|
|
|
|
0.69
|
|
|
|
30.04
|
|
|
|
29.35
|
|
|
|
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
|
6/15/2022
|
|
|
5.63
|
|
|
|
65.02
|
|
|
|
64.19
|
|
|
|
0.83
|
|
|
|
65.02
|
|
|
|
64.19
|
|
|
|
0.83
|
|
|
Eleventh
|
5/10/2023
|
|
|
2.18
|
|
|
|
25.02
|
|
|
|
24.90
|
|
|
|
0.12
|
|
|
|
25.02
|
|
|
|
24.90
|
|
|
|
0.12
|
|
|
Subtotal
|
|
|
$
|
37.04
|
|
|
$
|
433.16
|
|
|
$
|
421.56
|
|
|
$
|
11.60
|
|
|
$
|
433.16
|
|
|
$
|
421.56
|
|
|
$
|
11.60
|
|
|
Distributions Returned / (Reversed)
|
|
|
|
|
|
|
|
|
|
Disallowed/cancelled (b)
|
|
|
|
(6.68
|
)
|
|
|
|
(6.68
|
)
|
|
Returned (c)
|
|
|
|
0.74
|
|
|
|
|
0.74
|
|
|
Forfeited (d)
|
|
|
|
(1.15
|
)
|
|
|
|
(1.15
|
)
|
|
Subtotal
|
|
|
|
(7.09
|
)
|
|
|
|
(7.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions Paid from Reserve Account (e)
|
|
|
|
(3.82
|
)
|
|
|
|
(3.82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions Payable, Net
|
as of 9/30/2024:
|
|
$
|
0.69
|
|
as of 11/12/2024:
|
|
$
|
0.69
|
|
| (a) |
The seventh distribution included the cash the Trust received from Fair Funds.
|
| (b) |
As a result of claims being disallowed or Class A Interests cancelled.
|
| (c) |
Distribution checks returned or not cashed.
|
| (d) |
Distributions forfeited as Interestholders did not cash checks that were over 180 days old.
|
| (e) |
Paid as claims are allowed or resolved.
|
Contractual Obligations
The Company has a month-to-month lease for office space. The Company expects that it will continue to lease office space until the liquidation process is completed.
The Wind-Down Entity has part-time employment agreements with its two executive officers that are renewed automatically on an annual basis, subject to the right of either
party to terminate the agreement at any time and for any reason on thirty days’ advance written notice.
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, general and administrative costs to be incurred until the completion of the
liquidation activities of the Company, the cost of potential construction defect claims, estimated reserves for contingent liabilities, and the administration of such claims after the Company’s liquidation activities are completed. 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 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 may be
received upon the disposition of the assets (on an undiscounted basis). Liabilities, including estimated costs associated with implementing and completing the Plan, are measured in accordance with U.S. GAAP that otherwise apply to those
liabilities. These estimated amounts are presented in the accompanying consolidated statements of net assets in liquidation. As additional information becomes available the estimated amounts may change. All changes in the estimated liquidation
value of the Company’s real estate, or other assets and liabilities are reflected as a change to the Company’s net assets in liquidation.
Other Assets
The Company recognizes recoveries from the settlement of unresolved Causes of Action when an agreement is executed, final court approval is received (if required) and
collectability is reasonably assured. An allowance for uncollectible settlement installment receivables is recorded when there is doubt about the collectability of the receivable. The Company records escrow receivables at the amount that is
expected to be received when the escrow receivable is released. The Forfeited Assets received from the DOJ, other than cash, have been recorded at their estimated net realizable value.
The Company accrues expected interest earnings when it can forecast the interest rate to be paid on its cash on deposit. The Company uses a forward yield curve to
estimate the interest rates to be earned and its expected future cash balances to estimate the dollar amount that will earn interest through the currently expected Trust termination date of March 31, 2026.
The measurement of real estate assets is based on current contracts (if any), if contingencies have been removed, estimates and other indications of sales value, net of
estimated selling costs. The performing loan is recorded at the amount of the contractual interest payments and principal repayment of the loan.
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 estimated costs associated with implementing and completing the Company’s plan of liquidation are recorded as accrued liquidation costs to the extent they are known and
reasonably determinable.
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. 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 also include a change to the accrued liquidation costs related to the asset.
All changes in the estimated liquidation value of the Company’s real estate, or other assets and liabilities are reflected as a change to the Company’s net assets in
liquidation.
|
Item 3.
|
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 4.
|
Controls and Procedures
|
Disclosure Controls and Procedures
As of the end of the period covered by this report, management and the Liquidation Trustee have 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-Q, our management and the Liquidation Trustee assessed the effectiveness of our internal control over financial reporting
as of September 30, 2024. 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 and the Liquidation Trustee believe that, as of September 30, 2024, 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 September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II. OTHER INFORMATION
|
Item 1.
|
Legal Proceedings
|
Below are descriptions of pending litigation. In matters in which the Company is the plaintiff, the Company 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. In matters in which the Company is the defendant, the Company records a liability when a loss is probable, and the Company can reasonably estimate
the amount of the loss.
Trust Litigation - Avoidance Actions
The Trust has pursued over 500 avoidance actions, many of which have been resolved. As of November 12, 2024, the Trust has entered into settlements in approximately 247
legal actions, with 19 actions still pending. In addition, as of November 12, 2024, the Trust has settled approximately 245 potential avoidance claims for which litigation was not filed. Since inception and as of November 12, 2024, the
resolution of avoidance actions has resulted in aggregate settlements of approximately $22.65 million of cash payments made or due to the Trust and approximately $11.28 million in reductions of claims against the Trust. Additionally, as of
November 12, 2024, the Trust has obtained judgments of approximately $169.95 million, including default judgments of approximately $152.72 million and stipulated judgments of approximately $17.23 million. It is unknown at this time how much, if
any, will ultimately be collected on these judgments, as stipulated and default judgments are commonly obtained where the defendant has insufficient assets, if any, to satisfy a judgment. The Trust is currently prosecuting several 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:
| • |
Preferential transfers and/or fraudulent transfers (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: (1) during the 90 days prior to the December 4, 2017 bankruptcy filing, including payments to former Noteholders and Unitholders; and/or (2) 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.
|
| • |
Fraudulent transfers and fraud (against former agents). Certain of the 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 Bankruptcy Court 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.
|
Wind-Down Group Litigation
