Court Ordered Auctions Presented By: Mike Jones CAI, GPPA, BAS President United Country Auction Services

Types of Property Owned Real Estate – REO and Corporations Owned Real Estate – Individuals Commercial Development Property Recreational & Specialty Residential Farm & Ranch Land Personal Property Industrial & Commercial Vehicles & Equipment Government Surplus Corporate Assets Trade Fixtures Banks & Commercial Lenders Leasing Companies 2 Trust Real Estate – Trust Companies, Estates Foreclosure Auctions – Trustee’s, Lender Initiated Bankruptcy Auctions – Federal Sale; Judge approves the sale process.

The “stay”, reorganize Purpose of Filing Recover money for unsecured creditors; certain exemptions apply Purpose of the Court 3 Basic Elements of Bankruptcy

Chapter 7 Liquidation, Straight Bankruptcy, Walk Away Individuals and Businesses can file Simplest and Quickest form available If 13 or 11 not successful, the case converts to a 7. Liquidations occur more often. Can be business or individuals. Valuations and underwriting are critical to the success of a Chapter 7 case. Chapter 11 Reorganization, Debtor in Possession Normally for Businesses, Can be Individuals Business reorganizes debt while operating and following a repayment plan Over $1 million; business and individuals; often need to sell assets to reorganize; many “convert”; some are pre-packaged. Bankruptcy Chapters

Chapter 9 Used for Municipalities Chapter 12 Reorganization for Family Farmers & Fisherman Chapter 13 Reorganization for Individuals Referred to as Wage Earners Bankruptcy Repayment plan for those with regular income Generally under $1 million; individuals; Trustee appointed, rarely an auction sale results. Chapter 15 International Debtors Bankruptcy

Know the Players Trustee Attorney for the Trustee Accountant for the Trustee or Debtor Debtor Debtor’s Counsel Attorney for the Debtor Attorney for Secured Creditors Attorney for Unsecured Creditors Committee of Unsecured Creditors US Trustee Attorney for the United States IRS Attorney for the Landlord 6

Most Bankruptcy Estates have no value Trustees can go years without an auction Make sure they know you - every mailing You will need a Auctioneer’s Bankruptcy Bond Set Commission Schedule – but there’s a trick You will front advertising and expenses for up to 90 days Everything is approved by the court Navigating Bankruptcy

How to Evaluate a Case This is the most important principle Equity RecoveryEvaluating the Schedule of Assets and LiabilitiesStructuring Your Deal 8

Equity Recovery Inspection of Assets Valuation Analysis Know what will and won’t be sold – exemptions Know what is missing when doing a site inspection Recovering value from leased equipment When calculating equity recovery, take into account: Realistic Valuation Your fees, expenses, marketing, security Holding costs – lease payments? Where stored? Attorney’s fees – all involved. Trustee commission Net Proceeds…Is this a meaningful number for the unsecured creditors? 9

Evaluating the Schedules Can obtain on PACER Can be misleading – often done quickly to “file” Understanding: Real Property Personal Property Secured Liens Unsecured Liens Watch out for equity vs. debt 10

Structuring Your Deal Listing Agreement Keep it simple, the judge must approve it Everybody will read it so make sure it is professional Don’t misrepresent anything Commission Structure Buyer’s Premium or not… See what other auctioneers are getting paid in the same bankruptcy court Commission Structure The case may be asset rich, cash poor Be ready to “loan” money to the estate to do a deal 11

Structuring Your Deal – Minimize Risk Hire counsel if you front money on a case Ask to recover attorney’s fees in your listing agreement Have some assets selling absolute without further court approval with repayment of marketing funds Make sure the sale has been properly noticed Make sure the adversaries are on board with a sale Show up in Court and see what is happening Talk to the other side with your attorney or general counsel – avoid last minute objections that can stop a sale Know if there are any legal issues that could get in the way of a sale Follow the case on PACER after you have been employed Make sure the proof of claim period has expired or you are comfortable with the Schedules Get an accurate payoff on the secured liens Get any “carve out” agreements in writing before proceeding with a sale

Structuring Your Deal - Minimize Risk Read the Local Rules – know what is and not acceptable to the Court; some Courts dictate the commission structure Make sure you are qualified to do the transaction Be sure you are a “disinterested party” You state in writing that you do not have a conflict of interest with any other party in the case. If you do have a conflict of interest, you cannot be in the case. Example: The debtor is your uncle. If you have done business with a creditor but have not worked with them on the case, then state: “Mike Jones has done business with Wachovia Bank but has not had any conversations with them about this case.”

Structuring Your Deal Commission Structure You can get creative in bankruptcy since there is a more sophisticated seller involved Since the goal is to recover money for the unsecured creditors, structure a commission that encourages that… Flat Commission Net Commission Graduated Scale Commission You are setting precedent 14

Structuring Your Deal 15 Process Fundamentals: – Subject to Bankruptcy Court Approval – Stalking Horse Bidders – Bidding Procedures – Courtroom Auctions – Receiverships – Small Business Administration – Government Auctions – Post Auction

Subject to Bankruptcy Court Approval All auctions have to be approved by the Court unless the Motion to Sell Potential Strategies: Seek Court approval of an Absolute Sale Seek Court approval to sell above a disclosed price Have hearing set for quick Court approval Purposely require the 20-day notice period Conduct the auction to get a stalking horse bidder and use the “2 nd auction” to finalize the transaction

Stalking Horse Bidder This is the bidder that has signed a contract with the Debtor or Trustee but the contract is still subject to Bankruptcy Court approval aka higher and better bids. Stalking Horse Bidders have an advantage over all other bidders: They set the terms They are on the inside during the case They can receive a break-up fee for expenses only The agree to allow you to “shop” their bid (they don’t like it but they don’t have a choice) Some buyers don’t know they are a Stalking Horse bidder and they get upset. 17

Bidding Procedures This can make or break your sale – be an active participant in this process. You must follow them since they set the rules for your auction. Comparable to your terms of sale but there is less auctioneer discretion, i.e., if the Bidding Procedures state each bidder must – no exceptions. If you make an exception for a buyer you know, another bidder could object to your sale and cause a problem. All interested buyers must receive a copy of the bidding procedures in your Property Information Package. 18

Courtroom Auctions Some Courts like them…others do not Some Judges want to do the auction themselves…others do not Some want you to conduct the auction in the Courtroom…others want you to conduct the auction in a conference room or hallway in the courthouse and report back with the results Be ready to do all of it Have an administrative person with you and your attorney You need your attorney in case there is a dispute over procedure Be ready for procedural objections, multi-par arguments (what is the raise amount, how long between raises, etc.)

Receivers are appointed by the court to manage assets Often found in SEC, IRS Criminal/Civil Cases, Divorces, Probates, Estate Settlement, Guardianships, etc. Know who they are and how they get paid Must file a motion with court to sell & Employ Normally No Required Bond Receivers are normally Attorneys but not always Auctioneer remits Net Proceeds Complete and Accurate Reporting Receiverships

Small Business Administration SBA Guarantees Loans for Small Businesses – Normally 90/10 – Diminishes risk to bank Bank Services the Loan – If Assets are liquidated, Bank manages Bank will need help recapturing assets Posts Legal Notice of Sale Bank Contracts with Auctioneer Auctioneer Delivers Net Proceeds to Bank May get Appraisal Work here

Most Federal Property Auctions are online – States Typically contract with one firm for many years Counties & Cities are largely online only Purchasing Director rules the world, wait for change Change is hard Extra work is not acceptable The “Save Money” Or “Higher Prices” Pitch likely will fall on deaf ears Government Auctions

Deliver Gross Proceeds to Trustee Invoice for Expenses and Commission Detailed Expense Reporting Detailed Settlement Statement Report of all Inquiries, Registered Buyers Copy of Terms and Conditions, any Contracts Patiently Wait for Payment Post Auction

Barriers To Doing The Deal Understand what “Subject to US Bankruptcy Court approval” really means Understand what it means to be a “disinterested party” Understand the significance of the Motion to Employ and Motion to Sell Free and Clear Understand the Bidding Procedures 24

To Learn More American Bankruptcy Institute American Bankruptcy Institute Journal Five Star Conference Turnaround Management Association Wall Street Journal Investor’s Business Daily Local Business Journal Internet Go to the Court Room

Q&A

Court Ordered Auctions Presented By: Mike Jones CAI, GPPA, BAS President United Country Auction Services