Practice Areas
We guide California businesses through the Chapter 11 process to reorganize and improve operations, reform troubled assets, assume and assign or reject leases and contracts, undo certain transactions, recover from third parties and eliminate burdensome claims, all to maximize value and minimize liabilities. Chapter 11 bankruptcy is a good option for many businesses because the business remains in possession and control of all assets.
This means the business continues to operate with the goal of reorganizing and paying creditors – in whole or in part – through a Chapter 11 plan of reorganization. Our goal is to create a plan of reorganization that frees the business from burdensome claims while preserving and improving key relationships, operations and assets.
Experience allows us to creatively tailor Chapter 11 to the client’s actual business goals. For example, the plan of reorganization may allow the debtor to sell assets free and clear of disputed liens, assume and assign a valuable contract without consent, terminate a burdensome lease and reduce the landlord’s claim, reverse certain events (such as attachment liens and judgment liens), and otherwise adjust operations to return to profitability.
Our goal is to work for the financial success of our clients, not to achieve an abstract legal result. We empower business leaders to move forward with confidence.
CHAPTER 11 BANKRUPTCY
An entrepreneur needs to be free to move to the next project with a minimum of interference. A Chapter 7 bankruptcy can be the best way to accomplish this goal. It allows business leaders to terminate a business and move forward because an independent trustee does the work of liquidation and is paid from the proceeds.
Corporations, limited liability companies (LLCs) and many other business entities are automatically eligible for Chapter 7. Also, individuals with primarily business debts are automatically eligible. However, an individual with mostly consumer debt must pass a means test to qualify. If the income is in excess of certain thresholds, the debtor is not eligible for Chapter 7.
A Chapter 7 case is a liquidation in which an independent trustee takes control of the assets of the debtor, liquidates the assets, reviews claims and makes distributions to creditors. Usually, a company must cease operations upon filing a Chapter 7 case, but an individual may continue in business under certain circumstances. The Chapter 7 trustee can apply to the court for permission to operate the business for a limited time, but this is rare.
A disadvantage of Chapter 7 is that the process is public and involves scrutiny by the trustee. If privacy is a paramount concern, consider out-of-court solutions such as winding up and dissolving or an assignment for the benefit of creditors (ABC). On the other hand, a chief advantage of Chapter 7 is that it carries a high degree of certainty and finality.
At Macdonald & Associates, we have successfully handled Chapter 7 cases for businesses with annual sales as high as $20 million and as small as individual home-office businesses. In one example, we represented a restaurant design and equipment supply company owned by a family who had guaranteed the bank’s secured line of credit of approximately $500,000. We strategically managed the case and worked with the trustee to structure the liquidation to fetch top dollar, resulting in payment of the guaranteed debt in full.
CHAPTER 7 BANKRUPTCY
ASSIGNMENT FOR THE BENEFIT OF CREDITORS
Unlike several other states, California’s assignment for the benefit of creditors (ABC) statute law provides for a robust and effective out-of-court procedure for smoothly terminating a business. This process is preferred by many technology companies, startups and entrepreneurs because it helps principals to easily move on to new projects.
An ABC provides for several advantages. For example, an ABC is initiated by the business itself, not by its creditors, and the business can set the stage for a controlled termination. Specifically, the business evaluates and selects its own general assignee to handle the termination, and the professionals who will be involved are known in advance. (By contrast, the trustee appointed in a Chapter 7 bankruptcy case is unknown, and the trustee’s investigation of assets and financial affairs can be expensive and uncomfortable.) Moreover, the business has the opportunity to plan, prepare and marshal its resources prior to initiating the ABC.
A chief advantage is that an ABC allows the business to take steps to maximize value, including by potentially selling assets as a going concern and identifying potential asset purchasers in advance. Approaches to asset sales can be tailored to maximize value, including strategic marketing, private sales, and simple or highly structured auctions. An ABC is also a low-profile, out-of-court procedure that minimizes the principals’ exposure to unwanted scrutiny. Other advantages of an ABC include:
• Streamlined process for finally resolving claims
• Priority claims for employees
• Opportunity to undo certain transactions (fraudulent transfers and preferences)
• Avoidance of unperfected liens
Our lawyers represent businesses, general assignees and creditors in ABCs. Specifically, in one example, we represented a creditor in a large technology company’s ABC. Through careful and practical negotiation, we were able to obtain a carve-out agreement such that our client was entitled to be paid certain funds that would have gone to the former principal of the company while simultaneously preserving key business relationships.
CREDITOR REPRESENTATION
Business depends upon a worldwide web of accounts receivable and accounts payable. One of the most common challenges our clients often face is delayed or unpaid invoices, especially when products have already been delivered or services have been provided. At Macdonald Fernandez LLP, we take swift and effective action to collect on loans and unpaid bills. We work toward your actual business goals to recover upon your loan or claim; we do not buy claims or collect claims in bulk.
Our lawyers bring extensive insolvency and litigation experience to bear in every aspect of collection. We represent creditors throughout California in state court, bankruptcy court and federal district court. There are potentially many actions that can be taken to collect outstanding debt and take control over a business’s accounts receivable.
We assist creditors with a full range of matters, including:
• Obtaining and enforcing judgments
• Receivership
• Foreclosure
• Involuntary bankruptcy
• Proofs of claim in bankruptcy
• Defending claim objections
• Relief from the automatic stay
• Negotiations
• Assignments for the benefit of creditors
Obtaining a judgment against a creditor does not mean much unless it is enforceable. We are strategic in helping our clients collect on the debts they are owed.
Creditors in Chapter 11 bankruptcy cases may have the opportunity to serve on an official committee of unsecured creditors or other committee appointed under Section 1102(a) of the Bankruptcy Code. If a committee has not been appointed but is warranted, the creditor may take action to encourage or compel the appointment of a committee.
One of the committee’s first and most important actions is to retain counsel. When we serve as committee counsel, our goal is to maximize the distribution to creditors. Committee counsel is paid by the debtor’s estate, not by the committee members themselves. However, achieving meaningful results in an efficient manner, and keeping costs down, is a key concern of ours as committee counsel.
In one example, our attorneys assisted investors in bringing an alleged $85 million Ponzi scheme into an involuntary bankruptcy (the investors’ legal fees were later reimbursed by the bankruptcy estate). Thereafter, we represented the official committee of unsecured creditors, on whose behalf we worked to obtain the appointment of an independent trustee to liquidate assets and make distributions to creditors. We assisted the trustee in bringing an action against one of the fraud participants, during which we assisted with investigations by the Federal Bureau of Investigation (FBI) and the Securities and Exchange Commission (SEC). The perpetrator pled guilty and was sentenced to 18 months in prison.
The United States Trustee appoints the official committee of unsecured creditors. The committee’s members are usually unsecured creditors who hold the largest unsecured claims against the debtor, although committee members with smaller claims are sometimes appointed for the sake of diversity. The committee has significant power, including the right to appear and be heard on virtually every aspect of the administration of the case. In particular, the committee consults with the debtor in possession on administration of the case, investigates the debtor’s conduct and operation of the business, and participates in formation of a Chapter 11 plan.
CREDITORS’ COMMITTEES
Trustees, Receivers, Assignees, CROs and Other Fiduciaries.
We have had the pleasure of representing several Chapter 7 bankruptcy trustees, Chapter 11 trustees, post-confirmation liquidating trustees and general assignees in assignments for the benefit of creditors (ABCs) in the Northern and Eastern Districts of California. Partner Iain A. Macdonald has served as Chapter 11 trustee himself. We also represent receivers, corporate restructuring officers (CROs), turnaround managers, temporary directors and other fiduciaries.
For our fiduciary clients, we bring to bear our extensive experience in commercial litigation and bankruptcy to identify and recover assets, including causes of action, avoidable transfers (fraudulent transfers, preferences and unperfected liens), insurance proceeds and other hidden assets. We also handle sales of distressed assets, such as real estate, loan portfolios, equipment and going concerns, often with special features like sales free and clear of liens and co-owner interests or highly structured bidding procedures. We apply project management skills to assist in and streamline the administration of estates, including employment and compensation of professionals, court approval of use of assets and other actions, compliance with local rules and guidelines and interim and final reports.
FIDUCIARY SERVICES
Estate planning is about helping you protect yourself, your loved ones and your assets during your lifetime and after. Why Do You Need An Estate Planning Attorney?
Estate planning with our approach enables you to:
• Help your family: Avoid putting your family through the stress that comes with the probate process while they are trying to adjust to life without you.
• Protect your assets: Save potentially thousands of dollars in probate fees and estate taxes so that more of your assets will go to your loved ones rather than to attorneys and the government.
• Maintain control over your assets: Control who receives your assets after your lifetime, how much they receive and under what conditions. Estate planning is a great way to ensure your assets will go to the people and organizations you feel will appreciate the gifts and use them in ways that are consistent with your values and beliefs.
• Protect your beneficiaries from themselves: Structure gifts to your children and grandchildren so that they can receive money for things like education, buying a home or retirement, without giving them unrestricted access to any money until the age(s) you deem appropriate.
• Protect minor children: Identify whom you would want to raise your young children in the event you and your child’s other parent become incapacitated or pass away. Identifying your guardianship preferences before it’s too late can make the guardianship process easier on your kids.
• Have less stress: No matter what happens to you, you have already predetermined how you and your family will be taken care of and by whom.
• Prevent family arguments: When your financial and medical wishes are clearly spelled out in a comprehensive estate plan, there is often more family support for your decisions and less second-guessing by family members.
How can Macdonald & Associates help you?
Integrated Estate Plans: We help our clients by crafting customized estate plans using tools such as:
• Wills
• Revocable trusts
• Irrevocable trusts
• Durable powers of attorney
• Advance health care directives
Probate and Estate Administration: When a person passes away, many things have to be done to complete the administration of the estate. We can assist executors and trustees with their responsibilities, including:
• Preparing or reviewing documents for the court
• Distributing property to heirs and beneficiaries
• Communicating required information to beneficiaries
Choosing Fiduciaries: An executor should be named in a will to administer the estate. Similarly, a trustee should be named in a trust to administer a trust estate. Executors and trustees are fiduciaries, which means they are required to:
• Put the beneficiaries’ (or estate’s) interests ahead of their own personal interests and
• Remain impartial
Most people’s initial inclination is to name their children as their fiduciaries in their estate plans. We have found, however, that sometimes children are not the best choice for this role. This is especially true when the children do not have the skills, interest, time or ability to remain impartial or put their personal interests aside. There are professional fiduciaries we work with who can step into the role of executor or trustee in situations like these.
Taxes: We assist our clients with various tax-related issues, including:
• Estate taxes
• Gift taxes
• Property taxes
ESTATE PLANNING
Through the creation of a living trust, a person can protect his/her assets from the probate process upon death, saving loved ones the time, the expense, and the public exposure of a long, drawn-out legal proceeding. Probate is a legal process through which a deceased person’s assets and debts are handled, and it should generally be avoided due to its cost, extensive court paperwork, and exposure to the public. Unlike probate, the creation and administration of a living trust is usually private. The trust administration process is used to pay off creditors and distribute assets from an estate to the designated beneficiaries.
In California, a successor trustee—often a close friend or family member of the person who created the trust—is granted the authority to act on the person’s behalf and becomes responsible for managing the assets held within the trust. Serving as a trustee during a trust administration involves many important responsibilities, such as filing income tax returns, managing those investments held by the trust, and maintaining communication with the beneficiaries on a regular basis.
Not only does the trustee have a fiduciary duty under California law to perform their role in accordance with the trust’s terms for the benefit of the beneficiaries, but they also can incur legal liability if they mishandle their responsibilities. As you can imagine, being a trustee comes with plenty of paperwork during a trust administration.
Understanding and fulfilling the responsibilities imposed on a trustee by California law and the trust itself can feel overwhelming, but an experienced trust administration attorney can guide you through the process and help you come to a firm understanding of your new role. With expert guidance, you can eliminate a lot of stress and uncertainty. Trust administration lawyer Amber K. Gill can help you perform your trustee duties correctly. Trustees often need guidance on:
What records they need to keep and how to maintain those records
What information they need to provide to beneficiaries
Strategies and legal options available to resolve problems
Navigating court proceedings
When and how to modify or terminate a trust
Determining appropriate and lawful trustee compensation
What are the steps in the Trust Administration Process?
Every trust administration is a little different because the terms of a particular trust will in part determine what steps must be taken. However, in general, the basic steps of a trust administration include the following:
Read the trust to determine the extent of the trustee’s responsibilities.
Determine if the trust should be modified in any way or if there are any ambiguities in the trust’s language which need clarification. Sometimes there are problems with the trust that need to be resolved before the real administration can begin. Those problems may be resolved with or without the court, but either way, they should be resolved ASAP.
Obtain a tax identification number (aka employer identification number or “EIN”) so that the tax authorities know that this particular trustee is serving as trustee of this trust.
Inform certain persons of the existence of the trust (for example, beneficiaries and nominated successor trustees).
Create an inventory of the assets and debts.
Protect and manage the assets in the trust. This requires the trustee to transfer title to his/her name as trustee of the trust. The trustee will also need to ensure the assets are properly insured and set up a bookkeeping system to track the trust income and expenses.
File the deceased person’s tax returns; pay taxes owed.
File fiduciary income tax returns.
Give information to the beneficiaries about income and expenses that flow into and out of the trust (usually done in the form of an accounting).
Keep beneficiaries reasonably well-informed about what the trustee is doing to administer the trust. This is an important part of managing beneficiaries. Beneficiaries tend to get suspicious when they feel like the trustee is not being forthcoming with information about what is going on.
Ultimately distribute the assets to the beneficiaries.
There is a lot to know to be a competent trustee, and it is very common for trustees to make mistakes–and fail to follow the law–without even knowing it. Working with an attorney who is experienced in trust administration can be a great way to:
Become informed about what the law requires from a trustee
Learn how to best fulfill the responsibilities that come with the trustee’s job
Help the trustee prepare the required paperwork
Will a Trustee be compensated for their role?
In the state of California, a trustee can usually be paid for the work they perform in their role administering the trust. The fee depends on the circumstances of the particular trust. Generally the trustee may charge a reasonable hourly rate or a small percentage of the trust assets, though many waive this fee if they’re also a beneficiary.
Amber K. Gill is a seasoned trust administration attorney who can help you determine appropriate compensation based on your particular situation.
TRUST ADMINISTRATION
We help entrepreneurs form, govern and fund their businesses pursuant to a process unique among law firms of starting with the client’s practical goals and letting those goals drive the process. We advise and assist our clients throughout the business lifecycle, from formation, governance and fundraising to mergers, sales, other significant changes and exit strategies.
Our services include:
• Business formation
• Operating agreements
• Shareholder and stock purchase agreements
• Contracts, leases and licenses
• Capitalization, fundraising and securities
• Mergers, sales and other changes
• Reorganization, winding up and dissolving or bankruptcy
BUSINESS FORMATION