CRASHING THROUGH THE DEBTOR’S BANKRUPTCY…AND DOING THE NECESSARY TO FOLLOW THE MONEY

1. CRASHING THROUGH THE DEBTOR’S BANKRUPTCY…AND DOING THE NECESSARY TO FOLLOW THE MONEY by Paul D. Keenan and Jeffrey D. Cohen Keenan Cohen & Howard PC freightlaw.net 215-609-1110

2. YOUR RESPONSIBILITY: COLLECT FREIGHT TRANSPORTATION REVENUE FROM PARTIES THAT FAIL TO PAY IN THE ORDINARY COURSE OF BUSINESS • BANKRUPTCY: A REMEDY PROVIDED TO DEBTORS BY FEDERAL LAW TO ALLOW FOR A “FRESH START” • DEBTORS’ MOST POWERFUL ARSENAL OF REMEDIES • CREDITORS OWED FOR SERVICES SUCH AS TRANSPORTATION ARE AT A DISADVANTAGE (NO RECLAMATION RIGHTS, ADMINISTRATIVE LEVEL)

3. YOUR RESPONSIBILITY: COLLECT FREIGHT TRANSPORTATION REVENUE FROM PARTIES THAT FAIL TO PAY IN THE ORDINARY COURSE OF BUSINESS • BANKRUPTCY: A REMEDY PROVIDED TO DEBTORS BY FEDERAL LAW TO ALLOW FOR A “FRESH START” • DEBTORS’ MOST POWERFUL ARSENAL OF REMEDIES • CREDITORS OWED FOR SERVICES SUCH AS TRANSPORTATION ARE AT A DISADVANTAGE (NO RECLAMATION RIGHTS, ADMINISTRATIVE LEVEL)

4. BANKUPTCY COURT:A FORUM CREATED BY FEDERAL LAW TO ADMINISTER THE PROCEDURE BY WHICH DEBTORS CAN OBTAIN A “FRESH START”, AND ASSETS ARE DISTRIBUTED FAIRLY TO CREDITORS • ENEMY TERRITORY • FLOOR IS SLANTED • NO PARTY OR ATTORNEY ACTUALLY WANTS TO LITIGATE • EVERYTHING IS NEGOTIATED

5. STRATEGIC OVERVIEW • DO EVERYTHING POSSIBLE TO PURSUE CLAIMS OUTSIDE OF BANKRUPTCY COURT • DETERMINE IF BANKRUPTCY IS LEGITIMATE ATTEMPT FOR FRESH START, OR SIMPLY FRAUDULENT ESCAPE BY PRINCIPAL • IF DEBTOR CORPORATION IMPROPERLY CONVEYED CASH TO THE PRINCIPAL, AND PRINCIPAL FILES BANKRUPTCY – PURSUE NONDISCHARGEABILITY • IF DEBTOR CONVEYED ASSETS TO NEW COMPANY OWNED BY SAME PRINCIPAL – PURSUE NEW COMPANY FOR SUCCESSOR LIABILITY

6. AVOIDING BANKRUPTCY WITH THEREPAYMENT AGREEMENT –BUT CAN YOU AVOID A PREFERENCE? • PREFERENCES ARE PAYMENTS RECEIVED BY CREDITOR FROM DEBTOR THAT ARE RECEIVED BY CREDITOR WITHIN 90 DAYS OF THE DEBTOR FILING BANKRUPTCY. SUCH PAYMENTS ARE VOIDABLE, AND CREDITORS MUST REFUND THE PREFERENCE PAYMENTS RECEIVED. 11 U.S.C. § 547 POLICY: AVOID “RACE TO DILIGENCE” RESULT: YOUR TIMELY DILIGENCE IS WORTHLESS

7. KEY PREFERENCE EXCEPTIONS (THERE ARE 8EXCEPTIONS LISTED IN THE STATUTE) • PAYMENT TO CREDITOR WAS INTENDED TO BE CONTEMPORANEOUS EXCHANGE FOR “NEW VALUE” • WHAT IS “NEW VALUE”? • DEBT WAS INCURRED AND PAID IN THE “ORDINARY COURSE OF BUSINESS” -OR- PAYMENT MADE ACCORDING TO “ORDINARY BUSINESS TERMS”. • WHAT IS “ORDINARY”?

8. LATE PAYMENTS CAN BE ORDINARY COURSE IF THERE IS A HISTORY OF LATE PAYMENTS OR THEY CONFORM WITH PARTICULAR INDUSTRY PRACTICE • 3d CIRCUIT: LOOK TO THE PERSONAL HISTORY • COURT RULINGS ON PREFERENCES ARE CONFLICTING, CONFUSING, AND VARY BY LOCATION • GREY IS GREEN FOR BANKRUPTCY LAWYERS, AND TRUSTEES WILL EASILY SETTLE FOR A FRACTION OF THE AMOUNT CLAIMED

10. ATTEMPTING TO PROTECT THE SETTLEMENT OR REPAYMENT AGREEMENT FROM SUBSEQUENT PREFERENCE CLAIMS • EXTREMELY DIFFICULT, BUT ONE POSSIBLE EXAMPLE: HAVING A THIRD PARTY USE THEIR ASSETS TO SATISFY DEBTOR’S OBLIGATIONS • THIRD PARTY MAKES LOAN TO DEBTOR EARMARKED TO PAY SPECIFIC CREDITOR • THIRD PARTY GUARANTEES OBLIGATION(S) • BUT 7TH CIRCUIT FOUND IF GUARANTOR IS INSIDER, INSIDER PREFERENCE RULE APPLIES

11. THIRD PARTY CANNOT TAKE SECURITY INTEREST IN DEBTOR’S PROPERTY AS A CONDITION TO PAYING CREDITOR- IF IT DOES, THEN IT’S A PREFERENCE • CREDITOR SHOULD DEMAND THAT GUARANTOR WAIVE ALL RIGHT TO SPECIFIC REIMBURSEMENT FROM DEBTOR • MUTUAL RELEASE OF CLAIMS -- MAKE IT EFFECTIVE 90 DAYS AFTER EXECUTION --AVOID THE ONE-WAY LOSS • TRY TO HAVE THE COURT ENTER AN ORDER IDENTIFYING SPECIFIC PROPERTY TO BE USED IN SETTLEMENT PAYMENT • IF PAYMENT IS SECURED BY DEPOSIT WITH ESCROW AGENT, TAKE PAYMENT FROM AGENT -- NOT DEBTOR

12. …AND IF THE DEBTOR FILES BANKRUPTCY …ASK TWO QUESTIONS: • WHY? • WHERE DID THE MONEY GO? UNFAVORABLE ECONOMY OR UNCONTROLABLE GREED?

14. “The vice of greed gives birth to the sin of theft.” -Solomon Schimmel, psychologist and author “The Seven Deadly Sins” (1992)

15. THE “NEW COMPANY” SCAM: DEBTOR CORPORATION FILES BANKRUPTCY, BUT CONVEYS KEYASSETS TO NEW CORPORATION, WHICH HIRES SAME PERSONNEL AND OPERATES IN THE SAME LOCATION • NEW CORPORATION MAY BE LIABLE FOR OLD CORPORATION’S DEBTS UNDER STATES’ LAWS IF: • THERE WAS A DE FACTO MERGER OF THE OLD CORPORATION INTO NEW CORPORATION • THE NEW CORPORATION HELD ITSELF OUT AS THE MERE CONTINUATION OF THE OLD CORPORATION • THE TRANSCATION WAS INTENDED TO DEFRAUD THE CREDITORS OF THE FIRST CORPORATION

16. ELEMENTS NEEDED TO PROVE DE FACTO MERGER/MERE CONTINUATION: • CONTINUITY OF MANAGEMENT, PERSONNEL, AND LOCATION • CONTINUITY OF SHAREHOLDERS OR CONTROLLING INTERESTS • OLD CORPORATION STOPS DOING BUSINESS OR LIQUIDATES • NEW CORPORATION ASSUMES SOME OBLIGATIONS TO ASSURE CONTINUITY • USUALLY ORCHESTRATED BY ONE LARGE SECURED CREDITOR

17. WHEN CASH IS TRANSFERRED FROM DEBTOR CORPORATION TO OTHER PARTIES, BUT EVENTUALLY GOES TO THE PRINCIPAL, THE TRANSFERS ARE MOST LIKELY FRAUDULENT. • “Follow the money” – Deep Throat, All the President’s Men • THE NORTH CENTRAL TEXAS RAILWAY SCAM

18. NCTR BANKRUPTCY $ $ CENTRAL HOLDING CENTRAL INDUSTRIES $ DIVIDEND CONSULTING CONSULTING $ TRUST PRINCIPAL DAVID & ESTHER BANKRUPTCY FREIGHT REVENUE TRUST FUNDS COLORADO RANCH DAVID’S CHILDRENS’ TRUST TRUST PROPERTY

19. IN NEW YORK: • TRANSFERS OF CASH BY A CORPORATION TO AN INSIDER, WHILE CORPORATION IS INSOLVENT, ARE DEEMED FRAUDULENT AS A MATTER OF LAW • IF THERE IS MORE THAN ONE INSIDER, AND THEY ACTED TOGETHER IN CONSPIRACY, THEY MAY ALL BE JOINTLY AND SEVERALLY LIABLE

20. FOLLOWING THE CASH TO THE INDIVIDUAL -- WHO THEN FILES PERSONAL BANKRUPTCY • SCRUTINIZE THE CREDITORS LISTED – ARE THEY PERSONAL CREDITORS OR CREDITORS OF THE BUSINESS? • IF THE VAST MAJORITY OF CREDITORS ARE NOT PERSONAL, DEBTOR IS SEEKING FRAUDULENT ESCAPE • PURSUING NONDISCHARGEABILITY TO CRASH THRU THE DEBTOR’S BANKRUPTCY