1. Secured Transactions Assignment 11 Tracing Collateral Value During Bankruptcy

2. The Big Picture Chapters 1 and 2. Creditors’ Remedies Chapter 3. Creation of Security Interests Assignment 8: Formalities for Attachment Assignment 9: What Collateral and Obligations are Covered? Assignment 10: Proceeds (State Law) Assignment 11: Proceeds (Bankruptcy)

3. Basic Concepts Security agreement Property acquisition After acquired property clauses aren’t good in bankruptcy: Commencement of bankruptcy

4. §552(a). Except as provided in subsection (b)... property acquired by the estate... after the commencement of the case Basic Concepts Security agreement Property acquisition After acquired property clauses aren’t good in bankruptcy: Commencement of bankruptcy

5. §552(a). Except as provided in subsection (b)... property acquired by the estate... after the commencement of the case is not subject to any lien resulting from any security agreement entered into by the debtor before the commencement of the case. Basic Concepts Security agreement Property acquisition After acquired property clauses aren’t good in bankruptcy: Commencement of bankruptcy

6. Basic Concepts Security agreement Property acquisition The secured party’s right to proceeds continues in bankruptcy: Commencement of bankruptcy

7. §552(b)(1).... [If] the debtor and an entity entered into a security agreement before [commencement] and if the security interest... extends to property... acquired before [commencement] and to proceeds, products, offspring or profits... ten such security interest extends to proceeds... except to the extent that the court... based on the equities of the case, orders otherwise. Basic Concepts Commencement of bankruptcy Security agreement Property acquisition The secured party’s right to proceeds continues in bankruptcy:

8. §552(b)(1).... [If] the debtor and an entity entered into a security agreement before [commencement] and if the security interest... extends to property... acquired before [commencement] and to proceeds... then such security interest extends to proceeds, products, offspring or profits acquired after [commencement]... except to the extent that the court... based on the equities of the case, orders otherwise. Basic Concepts Security agreement Property acquisition The secured party’s right to proceeds continues in bankruptcy: Commencement of bankruptcy

9. §552(b)(2).... if the debtor and an entity entered into a security agreement before [commencement] and if the security interest... extends to property of the debtor acquired before the commencement of the case and to amounts paid as rents of such property or the fees, charges, accounts, or other payments for the use or occupancy of rooms and other public facilities in hotels, motels, or other lodging properties, then such security interest extends to such rents and such fees, charges, accounts, or other payments..., except to any extent that the court,... based on the equities of the case, orders otherwise. Basic Concepts Security agreement Property acquisition The secured party’s right to proceeds continues in bankruptcy: Commencement of bankruptcy

10. 10 Basic Concepts After-acquiredProceeds After security agreement signed Security agreement description §9-203(f) Does the collateral fit the description? §9-102(a)(64) Policy justification ContractValue-tracing Available during bankrup No. §552(a)Yes. §552(b) Available during bankrup NoYes, but loosely

11. 11 Basic Concepts After-acquiredProceeds Time debtor acquires property After security agreement signed Security agreement description §9-203(f) Does the collateral fit the description? §9-102(a)(64) Policy justification ContractValue-tracing Available during bankrup No. §552(a)Yes. §552(b) Available during bankrup NoYes, but loosely

12. 12 Basic Concepts After-acquiredProceeds Time debtor acquires property After security agreement signed Source of the right Security agreement description §9-203(f) Does the collateral fit the description? §9-102(a)(64) Policy justification ContractValue-tracing Available during bankrup No. §552(a)Yes. §552(b) Available during bankrup NoYes, but loosely

13. 13 Basic Concepts After-acquiredProceeds Time debtor acquires property After security agreement signed Source of the right Security agreement description §9-203(f) Extent of the rightSecurity agreement description §9-102(a)(64) Policy justification ContractValue-tracing Available during bankrup No. §552(a)Yes. §552(b) Available during bankrup NoYes, but loosely

14. 14 Basic Concepts After-acquiredProceeds Time debtor acquires property After security agreement signed Source of the right Security agreement description §9-203(f) Extent of the rightSecurity agreement description §9-102(a)(64) Policy justification ContractValue-tracing Available during bankrup No. §552(a)Yes. §552(b) Available during bankrup NoYes, but loosely

15. 15 Basic Concepts After-acquiredProceeds Time debtor acquires property After security agreement signed Source of the right Security agreement description §9-203(f) Extent of the rightSecurity agreement description §9-102(a)(64) Policy justification ContractValue-tracing Valid during bankruptcy? No. §552(a)Yes. §552(b) Is the Value- tracing? NoYes, but loosely

16. 16 Basic Concepts After-acquiredProceeds Time debtor acquires property After security agreement signed Source of the right Security agreement description §9-203(f) Extent of the rightSecurity agreement description §9-102(a)(64) Policy justification ContractValue-tracing Valid during bankruptcy? No. §552(a)Yes. §552(b) Is the right value- tracing? NoYes, but loosely

17. 17 Proceeds is broader than value tracing. Example: Bank has SI in the inventory of Furniture Store Furniture Store buys a sofa for $500 and incurs labor costs to sells it for $1000. Bank has a SI in the entire $1000. §9-102(a)(64) Proceeds is narrower than value tracing. Example: Bank has SI in the inventory of Carpenter (nails) Carpenter uses $170,000 of services and $50 worth of nails fulfilling a $200,000 contract to build floats for a parade. Probably none of the $200,000 account is proceeds of the nails. Inman, page 186. Basic Concepts

18. 18 Basic Concepts “Equities of the case” exception to the right to proceeds:

19. 19 Basic Concepts “Equities of the case” exception to the right to proceeds: §552(b)(1).  Except as provided in sections 363 and 548 of this title,  if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends ( to property acquired before the commencement of the case ) and ( to proceeds, products, offspring, or profits of such property ), then such security interest extends ( to such proceeds, products, offspring or profits acquired by the estate after the commencement of the case ) to the extent provided by such security agreement and by applicable bankruptcy law,  except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise. 

20. 20 Basic Concepts “Equities of the case” exception to the right to proceeds: §552(b)(1).  Except as provided in sections 363 and 548 of this title,  if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends ( to property acquired before the commencement of the case ) and ( to proceeds, products, offspring, or profits of such property ), then such security interest extends ( to such proceeds, products, offspring or profits acquired by the estate after the commencement of the case ) to the extent provided by such security agreement and by applicable bankruptcy law,  except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise.  Interpretation: strict value-tracing

21. 21 Collateral Contributions Cafeteria Operators rule: The cost of collateral is reimbursed Three “equitable” ways to trace value Labor and expenses

22. 22 Collateral ContributionsProceeds Cafeteria Operators rule: The cost of collateral is reimbursed Three “equitable” ways to trace value Labor and expenses

23. 23 Collateral ContributionsProceeds Cafeteria Operators rule: The cost of collateral is reimbursed Three “equitable” ways to trace value Labor and expenses

24. 24 Collateral Cafeteria Operators rule: The cost of collateral is reimbursed; what remains is not proceeds Collateral ContributionsProceeds Three “equitable” ways to trace value Labor and expenses

25. 25 ContributionsProceeds Cafeteria Operators rule: The cost of collateral is reimbursed; what remains is not proceeds Three “equitable” ways to trace value Collateral Labor and expenses

26. 26 ContributionsProceeds Collateral Cafeteria Operators rule: The cost of collateral is reimbursed; what remains is not proceeds Three “equitable” ways to trace value Collateral Labor and expenses Labor and expenses

27. 27 Contributions Delbridge rule: The contributors to proceeds Three “equitable” ways to trace value Collateral Labor and expenses

28. 28 ContributionsProceeds Delbridge rule: The contributors to proceeds Three “equitable” ways to trace value Collateral Labor and expenses

29. 29 Delbridge rule: The contributors to proceeds share in proportion to their contributions... Contributions Collateral Proceeds Three “equitable” ways to trace value Collateral Labor and expenses

30. 30 ContributionsProceeds Delbridge rule: The contributors to proceeds share in proportion to their contributions... Three “equitable” ways to trace value Collateral Labor and expenses

31. 31 ContributionsProceeds Collateral Delbridge rule: The contributors to proceeds share in proportion to their contributions... Three “equitable” ways to trace value Collateral Labor and expenses

32. 32 Collateral Contributions Three “equitable” ways to trace value Gunnison rule: Labor and expenses are reimbursed; what is left is proceeds. Labor and expenses

33. 33 ContributionsProceeds Three “equitable” ways to trace value Gunnison rule: Labor and expenses are reimbursed; what is left is proceeds. Collateral Labor and expenses

34. 34 ContributionsProceeds Collateral Three “equitable” ways to trace value Gunnison rule: Labor and expenses are reimbursed; what is left is proceeds. Collateral Labor and expenses

35. 35 ContributionsProceeds Three “equitable” ways to trace value Gunnison rule: Labor and expenses are reimbursed; what is left is proceeds. Collateral Labor and expenses

36. 36 Expenses ContributionsProceeds Gunnison rule: Labor and expenses are reimbursed; what is left is proceeds. Labor Three “equitable” ways to trace value Collateral Labor and expenses

37. Proceeds tracing in bankruptcy: Four theories §9-102a)(64)Whatever is received upon disposition of collateral plus rights arising out of collateral Former §9-306(a)Whatever is received upon disposition of collateral DelbridgePart tio of the depreciation to all expenses) Hotel Sierra VistaPartvvvvvvvvvvv receipts minus the expenses)

38. Proceeds tracing in bankruptcy: Four theories §9-102a)(64)Whatever is received upon disposition of collateral plus rights arising out of collateral Former §9-306(a)Whatever is received upon disposition of collateral DelbridgePa the depreciation to all expenses) Hotel Sierra VistaPart of xxxxwhat is received upon disposition (

39. Proceeds tracing in bankruptcy: Four theories §9-102(a)(64)Whatever is received upon disposition of collateral plus rights arising out of collateral 552(b)Can be used to limit application of the definition which is a yes no distinction of proceeds.... el Sierra Vistaccccrt o(the receipts minus the expenses)

40. Proceeds tracing in bankruptcy: Four theories §9-102(a)(64)Whatever is received upon disposition of collateral plus rights arising out of collateral 552(b)proceeds, product, offspring, rents, or profits. Equities of the Case “The Bankruptcy Code provides a second, alternative basis to limit the Bank Group’s post-petition security interest in Debtors’ post-petition revenues and thereby allow the use of post-petition income.... [T]he Court finds that the equities of the case...”

41. Proceeds tracing in bankruptcy: Four theories §9-102(a)(64)Whatever is received upon disposition of collateral plus rights arising out of collateral 552(b)proceeds, product, offspring, rents, or profits. Equities of the Case Dealing with Proceeds or no proceeds dichotomy Cafeteria Operators Delbridge Gunnison Apartments The value of the inventory contributed to make the proceeds CC = D x P D+E+L Lender gets net rents after paying normal operating expenses

42. 363(c) regulates the use of cash collateral in bankruptcy. Must have creditor’s consent or order of the court to use cash collateral. Need to give adequate protection E.g. Use cash to make new inventory and give a lien in the new “after acquired” inventory to the cash collateral secured party in exchange. Basic Concepts

43. Security agreement Horace wins purse Problem 11.1, page 194 Problem 10.3. Horace wins the purse. Is the purse “proceeds?” Answer: Maybe.

44. BankruptcySecurity agreement Track pays purse Horace wins purse Problem 11.1, page 194 Problem 10.3. Horace wins the purse. Is the purse “proceeds?” Answer: Maybe. Problem 11.1. Debtor files bankruptcy and track pays. Is the secured party’s case stronger, weaker, or unchanged?

45. BankruptcySecurity agreement Track pays purse Horace wins purse Problem 11.1, page 194 Problem 10.3. Horace wins the purse. Is the purse “proceeds?” Answer: Maybe. Problem 11.1. Debtor files bankruptcy and track pays. Is the secured party’s case stronger, weaker, or unchanged? Answer: Unchanged. §552(a) does not apply to the purse

46. 46 Basic Concepts §552(b)(1).  Except as provided in sections 363 and 548 of this title,  if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends ( to property acquired before the commencement of the case ) and ( to proceeds, products, offspring, or profits of such property ), then such security interest extends ( to such proceeds, products, offspring or profits acquired by the estate after the commencement of the case ) to the extent provided by such security agreement and by applicable bankruptcy law,  except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise. 

47. BankruptcySecurity agreement Track pays purse Horace wins purse Problem 11.1, page 194 Problem 10.3. Horace wins the purse. Is the purse “proceeds?” Answer: Probably. Problem 11.1. Debtor files bankruptcy and track pays. Is the secured party’s case stronger, weaker, or unchanged? Answer: Unchanged. §552(b) does not apply to the purse winning. Article 9 does apply. Horace Purse payable Money 552(b)Article 9

48. 48 Security agreement Problem 11.2, page 194 Description of collateral: “Equipment, inventory, and accounts.”

49. 49 Polly files bankruptcy Security agreement Problem 11.2, page 194 Description of collateral: “Equipment, inventory, and accounts.” Polly works Customer pays

50. 50 Polly files bankruptcy Security agreement Problem 11.2, page 194 Description of collateral: “Equipment, inventory, and accounts.” Did the work create an account? Polly works Customer pays

51. Description of collateral: “Equipment, inventory, and accounts.” Did the work create an account? Yes. 51 Polly files bankruptcy Security agreement Problem 11.2, page 194 Polly works Customer pays Account

52. 52 Polly files bankruptcy Security agreement Problem 11.2, page 194 Description of collateral: “Equipment, inventory, and accounts.” Did the work create an account? Yes. Is the account collateral? Polly works Customer pays As after acquired property? Account

53. 53 Polly files bankruptcy Security agreement Problem 11.2, page 194 Description of collateral: “Equipment, inventory, and accounts.” Did the work create an account? Yes. Is the account collateral? Polly works Customer pays As after acquired property? §552(a). Except as provided in subsection (b)... property acquired by the estate... after the commencement of the case... Account

54. 54 Polly files bankruptcy Security agreement Problem 11.2, page 194 Description of collateral: “Equipment, inventory, and accounts.” Did the work create an account? Yes. Is the account collateral? Polly works Customer pays As after acquired property? §552(a). Except as provided in subsection (b)... property acquired by the estate... after the commencement of the case is not subject to any lien resulting from any security agreement entered into by the debtor before the commencement of the case. Account

55. 55 Polly files bankruptcy Security agreement Problem 11.2, page 194 Description of collateral: “Equipment, inventory, and accounts.” Did the work create an account? Yes. Is the account collateral? Polly works Customer pays As after acquired property? §552(a). Except as provided in subsection (b)... property acquired by the estate... after the commencement of the case is not subject to any lien resulting from any security agreement entered into by the debtor before the commencement of the case. No. Account

56. 56 Polly files bankruptcy Security agreement Problem 11.2, page 194 Description of collateral: “Equipment, inventory, and accounts.” Did the work create an account? Yes. Is the account collateral? Polly works Customer pays As after acquired property? §552(a). Except as provided in subsection (b)... property acquired by the estate... after the commencement of the case is not subject to any lien resulting from any security agreement entered into by the debtor before the commencement of the case. No. As proceeds? Account

57. 57 Polly files bankruptcy Security agreement Problem 11.2, page 194 Description of collateral: “Equipment, inventory, and accounts.” Did the work create an account? Yes. Is the account collateral? Polly works Customer pays As after acquired property? §552(a). Except as provided in subsection (b)... property acquired by the estate... after the commencement of the case is not subject to any lien resulting from any security agreement entered into by the debtor before the commencement of the case. No. As proceeds? No, the account is not proceeds. §9-102(a)(64) Account

58. 58 Polly files bankruptcy Security agreement Problem 11.2, page 194 Description of collateral: “Equipment, inventory, and accounts.” Did the work create an account? Yes. Is the account collateral? Polly works Customer pays As after acquired property? §552(a). Except as provided in subsection (b)... property acquired by the estate... after the commencement of the case is not subject to any lien resulting from any security agreement entered into by the debtor before the commencement of the case. No. As proceeds? No, the account is not proceeds. §9-102(a)(64) Account Washers as inventory?

59. 59 Problem 11.3, page 194 XT-100 Copier #XEX30 Insurance payable Check Bank account DepositsWithdrawalsBalance Start$5,000 Insurance$35,000$40,000 Rent check$2,000$38,000 Next check$32,000$6,000 Check to rent Same facts as Problem 10.5 New copier

60. 60 Problem 11.3, page 194 Bankruptcy XT-100 Copier #XEX30 Insurance payable Check Bank account DepositsWithdrawalsBalance Start$5,000 Insurance$35,000$40,000 Rent check$2,000$38,000 Next check$32,000$6,000 Check to rent Same facts as Problem 10.5, except debtor filed bankruptcy. New copier

61. 61 Problem 11.3, page 194 Bankruptcy XT-100 Copier #XEX30 Insurance payable Check Bank account DepositsWithdrawalsBalance Start$5,000 Insurance$35,000$40,000 Rent check$2,000$38,000 Next check$32,000$6,000 Same facts as Problem 10.5, except debtor filed bankruptcy. What is ELP’s collateral? Check to rent New copier

62. 62 Problem 11.3, page 194 Bankruptcy XT-100 Copier #XEX30 Insurance payable Check Bank account DepositsWithdrawalsBalance Start$5,000 Insurance$35,000$40,000 Rent check$2,000$38,000 Next check$32,000$6,000 Check to rent Same facts as Problem 10.5, except debtor filed bankruptcy. What is ELP’s collateral? $6,000, maybe the new copier. New copier

63. 63 Problem 11.3, page 194 Bankruptcy XT-100 Copier #XEX30 Insurance payable Check Bank account DepositsWithdrawalsBalance Start$5,000 Insurance$35,000$40,000 Rent check$2,000$38,000 Next check$32,000$6,000 Check to rent Same facts as Problem 10.5, except debtor filed bankruptcy. What is ELP’s collateral? $6,000, maybe the new copier. Our collateral may be gone. Do we have a remedy? New copier

64. 64 Problem 11.3, page 194 Bankruptcy XT-100 Copier #XEX30 Insurance payable Check Bank account DepositsWithdrawalsBalance Start$5,000 Insurance$35,000$40,000 Rent check$2,000$38,000 Next check$32,000$6,000 Check to rent Same facts as Problem 10.5, except debtor filed bankruptcy. What is ELP’s collateral? $6,000, maybe the new copier. Our collateral may be gone. Do we have a remedy? §363(c)(2)? New copier

65. 65 Problem 11.3, page 194 Bankruptcy XT-100 Copier #XEX30 Insurance payable Check Bank account DepositsWithdrawalsBalance Start$5,000 Insurance$35,000$40,000 Rent check$2,000$38,000 Next check$32,000$6,000 Same facts as Problem 10.5, except debtor filed bankruptcy. What is ELP’s collateral? $6,000, maybe the new copier. Our collateral may be gone. Do we have a remedy? §363(c)(2)? Maybe under Craddock-Terry Shoe, page 102. Check to rent New copier

66. 66 Problem 11.4, page 195 Description of collateral: “real property, equipment, inventory... and all income, rents, royalties, revenues, issues, profits, fees, accounts, and other proceeds (including without limitation, room sales and revenues from sales of services, food and drink), currently owned or after-acquired.”

67. 67 Problem 11.4, page 195 Description of collateral: “real property, equipment, inventory... and all income, rents, royalties, revenues, issues, profits, fees, accounts, and other proceeds (including without limitation, room sales and revenues from sales of services, food and drink), currently owned or after-acquired.” TypeAmount RoomsRevenues$510,000 Expenses-$520,000 Total-$10,000 Food/drinkRevenues$121,000 Expenses-$100,000 Total$21,000 Profit$11,000

68. 68 Problem 11.4, page 195 TypeAmount RoomsRevenues$510,000 Expenses-$520,000 Total-$10,000 Food/drinkRevenues$121,000 Expenses-$100,000 Total$21,000 Profit$11,000 a. If the court follows Gunnison, how much is cash collateral? 363(a) “Cash collateral” means cash... in which the estate and an entity other than the estate have an interest....” Description of collateral: “real property, equipment, inventory... and all income, rents, royalties, revenues, issues, profits, fees, accounts, and other proceeds (including without limitation, room sales and revenues from sales of services, food and drink), currently owned or after-acquired.”

69. 69 Problem 11.4, page 195 TypeAmount RoomsRevenues$510,000 Expenses-$520,000 Total-$10,000 Food/drinkRevenues$121,000 Expenses-$100,000 Total$21,000 Profit$11,000 a. If the court follows Gunnison, how much is cash collateral? 363(a) The net revenues, which are $11,000 – if the food and drink money is “proceeds” at all! Description of collateral: “real property, equipment, inventory... and all income, rents, royalties, revenues, issues, profits, fees, accounts, and other proceeds (including without limitation, room sales and revenues from sales of services, food and drink), currently owned or after-acquired.”

70. §552(a): Property acquired... after the commencement of the case is not subject to any lien resulting from any security agreement entered into... before the commencement of the case. 70 Problem 11.4, page 195 Description of collateral: “real property, equipment, inventory... and all income, rents, royalties, revenues, issues, profits, fees, accounts, and other proceeds (including without limitation, room sales and revenues from sales of services, food and drink), currently owned or after-acquired.” Hotel files bankruptcy Security agreement Hotel sells food/drink Customer pays Accounts

71. §552(b): [I]f the debtor... entered into a security agreement before the commencement of the case [that extended] to property... acquired before the commencement of the case and to proceeds... of such property, then such security interest extends to such proceeds... acquired after the commencement of the case.... 71 Problem 11.4, page 195 Description of collateral: “real property, equipment, inventory... and all income, rents, royalties, revenues, issues, profits, fees, accounts, and other proceeds (including without limitation, room sales and revenues from sales of services, food and drink), currently owned or after-acquired.” Hotel files bankruptcy Security agreement Hotel sells food/drink Customer pays AccountsFood/drink inventory

72. 72 Problem 11.4, page 195 TypeAmount RoomsRevenues$510,000 Expenses-$520,000 Total-$10,000 Food/drinkRevenues$121,000 Expenses-$100,000 Total$21,000 Profit$11,000 b.If the court follows Delbridge, how much is cash collateral? CC = D x P D+E+L Description of collateral: “real property, equipment, inventory... and all income, rents, royalties, revenues, issues, profits, fees, accounts, and other proceeds (including without limitation, room sales and revenues from sales of services, food and drink), currently owned or after-acquired.”

73. 73 Problem 11.4, page 195 TypeAmount RoomsRevenues$510,000 Expenses-$520,000 Total-$10,000 Food/drinkRevenues$121,000 Expenses-$100,000 Total$21,000 Profit$11,000 b.If the court follows Delbridge, how much is cash collateral? CC = D x P D+E+L Depreciation is zero, so cash collateral is zero. Description of collateral: “real property, equipment, inventory... and all income, rents, royalties, revenues, issues, profits, fees, accounts, and other proceeds (including without limitation, room sales and revenues from sales of services, food and drink), currently owned or after-acquired.”

74. 74 Problem 11.4, page 195 TypeAmount RoomsRevenues$510,000 Expenses-$520,000 Total-$10,000 Food/drinkRevenues$121,000 Expenses-$100,000 Total$21,000 Profit$11,000 b.If the court follows Delbridge, how much is cash collateral? CC = D x P D+E+L Depreciation is zero, so cash collateral is zero. Is that formula right? Description of collateral: “real property, equipment, inventory... and all income, rents, royalties, revenues, issues, profits, fees, accounts, and other proceeds (including without limitation, room sales and revenues from sales of services, food and drink), currently owned or after-acquired.”

75. 75 Contributions Delbridge rule: The contributors to proceeds Three “equitable” ways to trace value Collateral Labor and expenses

76. 76 ContributionsProceeds Collateral Delbridge rule: The contributors to proceeds share in proportion to their contributions... Three “equitable” ways to trace value Collateral Labor and expenses

77. 77 ContributionsProceeds Collateral Delbridge rule: The contributors to proceeds share in proportion to their contributions... Three “equitable” ways to trace value Collateral Labor and expenses How much did Globus contribute to the existence of the Hotel operations proceeds?

78. 78 Problem 11.4, page 195 §552(b)(2). [I]f the security interest created by such security agreement extends to... amounts paid as... the fees, charges, accounts, or other payments for the use or occupancy of rooms and other public facilities in hotels... then such SI extends to... such payments acquired [after filing]. TypeAmount RoomsRevenues$510,000 Expenses-$520,000 Total-$10,000 Food/drinkRevenues$121,000 Expenses-$100,000 Total$21,000 Profit$11,000 c.If the court reads §552(b)(2) literally, how much is cash collateral?

79. 79 Problem 11.4, page 195 TypeAmount RoomsRevenues$510,000 Expenses-$520,000 Total-$10,000 Food/drinkRevenues$121,000 Expenses-$100,000 Total$21,000 Profit$11,000 c.If the court reads §552(b)(2) literally, how much is cash collateral? $510K. The statute does not authorize deduction of expenses. The food and drink revenue still may not be “proceeds.” §552(b)(2). [I]f the security interest created by such security agreement extends to... amounts paid as... the fees, charges, accounts, or other payments for the use or occupancy of rooms and other public facilities in hotels... then such SI extends to... such payments acquired [after filing].

80. 80 Basic Concepts §552(b)(1).... [I]f the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends ( to property acquired before the commencement of the case ) and ( to amounts paid as rents of such property or the fees charges, accounts, or other payment for the use or occupancy of rooms and other public facilities in hotels, motels, or other lodging properties ), then such security interest extends ( to such rents and such fees, charges, accounts, or other payments acquired by the estate after the commencement of the case ) to the extent provided in such security agreement,  except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise. 

81. 81 Problem 11.5, page 195 Description of collateral: building and “rents and proceeds” $9M $7M

82. 82 Problem 11.5, page 195 Description of collateral: building and “rents and proceeds” Building is debtor’s only asset, value is not changing $9M $7M

83. 83 Problem 11.5, page 195 Description of collateral: building and “rents and proceeds” Building is debtor’s only asset, value is not changing Rents are $100K per month $9M $7M

84. 84 Problem 11.5, page 195 Description of collateral: building and “rents and proceeds” Building is debtor’s only asset, value is not changing Rents are $100K per month a.What is Globus’ secured claim at filing? $9M $7M

85. 85 Problem 11.5, page 195 Description of collateral: building and “rents and proceeds” Building is debtor’s only asset, value is not changing Rents are $100K per month a.What is Globus’ secured claim at filing? $7M $9M $7M

86. 86 Problem 11.5, page 195 Description of collateral: building and “rents and proceeds” Building is debtor’s only asset, value is not changing Rents are $100K per month a.What is Globus’ secured claim at filing? $7M b.Was Globus entitled to interest or adequate protection? $9M $7M

87. 87 Problem 11.5, page 195 Description of collateral: building and “rents and proceeds” Building is debtor’s only asset, value is not changing Rents are $100K per month a.What is Globus’ secured claim at filing? $7M b.Was Globus entitled to interest or adequate protection? No. Timbers. $9M $7M

88. 88 Problem 11.5, page 195 Description of collateral: building and “rents and proceeds” Building is debtor’s only asset, value is not changing Rents are $100K per month a.What is Globus’ secured claim at filing? $7M b.Was Globus entitled to interest or adequate protection? No. Timbers. c.Is the rent received collateral? $9M $7M

89. 89 Problem 11.5, page 195 Description of collateral: building and “rents and proceeds” Building is debtor’s only asset, value is not changing Rents are $100K per month a.What is Globus’ secured claim at filing? $7M b.Was Globus entitled to interest or adequate protection? No. Timbers. c.Is the rent received collateral? Yes. §552(b). $9M $7M

90. 90 Problem 11.5, page 195 Description of collateral: building and “rents and proceeds” Building is debtor’s only asset, value is not changing Rents are $100K per month a.What is Globus’ secured claim at filing? $7M b.Was Globus entitled to interest or adequate protection? No. Timbers. c.Is the rent received collateral? Yes. §552(b). d.If debtor uses the rent, is Globus entitled to adequate protection? $9M $7M

91. 91 Problem 11.5, page 195 Description of collateral: building and “rents and proceeds” Building is debtor’s only asset, value is not changing Rents are $100K per month a.What is Globus’ secured claim at filing? $7M b.Was Globus entitled to interest or adequate protection? No. Timbers. c.Is the rent received collateral? Yes. §552(b). d.If debtor uses the rent, is Globus entitled to adequate protection? Yes. §363(e). $9M $7M

92. 92 Problem 11.5, page 195 Description of collateral: building and “rents and proceeds” Building is debtor’s only asset, value is not changing Rents are $100K per month a.What is Globus’ secured claim at filing? $7M b.Was Globus entitled to interest or adequate protection? No. Timbers. c.Is the rent received collateral? Yes. §552(b). d.If debtor uses the rent, is Globus entitled to adequate protection? Yes. §363(e). No, quote at bottom of page 185. $9M $7M

93. 93 Problem 11.5, page 195 Description of collateral: building and “rents and proceeds” Building is debtor’s only asset, value is not changing Rents are $100K per month a.What is Globus’ secured claim at filing? $7M b.Was Globus entitled to interest or adequate protection? No. Timbers. c.Is the rent received collateral? Yes. §552(b). d.If debtor uses the rent, is Globus entitled to adequate protection? Yes. §363(e). No, quote at bottom of page 185. If yes, how will debtor provide it? $9M $7M

94. 94 Problem 11.5, page 195 Description of collateral: building and “rents and proceeds” Building is debtor’s only asset, value is not changing Rents are $100K per month a.What is Globus’ secured claim at filing? $7M b.Was Globus entitled to interest or adequate protection? No. Timbers. c.Is the rent received collateral? Yes. §552(b). d.If debtor uses the rent, is Globus entitled to adequate protection? Yes. §363(e). No, quote at bottom of page 185. If yes, how will debtor provide it? Debtor can’t unless court applies “equities” exception. End of reorganization. $9M $7M