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Valuing Unvested Contingent Interests
I recently had a certain Chapter 7 Trustee in Los Angeles demand that I amend Schedule B for a client to state a value on a stream of future oil lease royalty payments, which our client had scheduled as "unknown". I told him that the present value of the royalties was indeed unknown to the debtor and he said that was not acceptable. I then provided the Trustee with a 9th Circuit opinion holding that listing the value of such an asset as unknown is indeed acceptable. Cusano v. Klein, 264 F.3d 936, 946 (9th Cir. 2001), which held, in a case dealing with the value of a debtors song royalties (from the rock bank Kiss), that there are assets whose value is unknown, and when a debtor who files a bankruptcy petition owns such an asset, a simple statement to that effect will suffice to fulfill the debtors duty to schedule his assets.
James R. Selth
Weintraub & Selth, APC
12121 Wilshire Boulevard, Suite 1300
Los Angeles, California 90025
Telephone: (310) 207-1494
Facsimile: (310) 442-0660
E-Mail: jim@wsrlaw.net
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I suggest you tell the Trustee that you do not intend to amend the schedules
and see what the trustee does. Will they file a motion to dismiss over
that? I doubt it. Would the Judge dismiss a case in light of your
explanation? I doubt it. The only possible result would be an Order from
the Court to amend the schedules and, most likely, some guidance for ALL OF
US on how to do this.
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, Glendale, CA 91206
Tel: 818-507-6000 Fax: 818-507-6800
* Bankruptcy specialist cert. by State Bar of CA Bd of Legal
Specialization.
Mark
Sent: Monday, January 04, 2010 9:52 PM
To: cdcbaa@yahoogroups.com
Subject: [cdcbaa] Valuing Unvested Contingent Interests
What is the best way to list the value of unvested contingent interests
which are fully disclosed and described in Schedule B? List the value as
zero because the contingency has not occurred? Ignore the contingency
requirement and just value it based upon the price on the petition date? Or
come up with some discounted value calculation, based upon some logical
basis to determine the likelihood of the contingency occurring?
My example: Debtor has stock grants in publically traded company that are
not vested. They are granted annually to vest 1/4 over each of the following
4 years only if client is still employed by employer. There are thus
currently 4 different sets of grants that vest this year, three different
sets of grants that vest next year, two different sets of grants that vest
in two years and one stock grant that vests in 3 years, all for small
numbers of shares. As they are unvested on the date of filing, I have
difficulty seeing them having a value on the petition date. They only have
value once the contingency occurs, which is entirely based upon the debtor's
postpetition efforts. Debtor could quit or more likely be laid off prior to
the vesting date and the stock price varies by the second. I listed the
grants as a contingent asset in paragraph 21 of Schedule B. The Chapter 7
trustee insists even though I fully described the stock grants and vesting
terms I must assign a value to them other than zero because if the debtor
remains employed and if the trustee kept the case open the trustee could
administer the assets.
Am I correct in assuming the trustee has the right to share in postpetition
vesting even though it only occurs as a result of the debtor's postpetition
voluntary efforts of continuing to work for the same employer?
Assuming the estate has an interest in the grants vesting postpetition, I
see how the asset could acquire a value postpetition, even if it has none on
the petition date. Regardless the estate portion should only relate to that
portion of share grants that relate to the debtor's prepetition efforts,
right?
If I am forced to put a value other than zero, is the best way to determine
the alleged value to ignore the contingency and calculate based on the
fraction of prepetition months expired divided by the length of each grant
period and then apply that to the number of shares and stock value on the
petition date?
My high school algebra teachers would be chuckling right now...!
Mark Jessee
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Message
I suggest you tell the
Trustee that you do not intend to amend the schedules and see what the trustee
does. Will they file a motion to dismiss over that? I doubt
it. Would the Judge dismiss a case in light of your explanation? I
doubt it. The only possible result would be an Order from the Court to
amend the schedules and, most likely, some guidance for ALL OF US on how to do
this.
David A.
Tilem
Certified Bankruptcy
Specialist*
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What is the best way to list the value of unvested contingent interests which are fully disclosed and described in Schedule B? List the value as zero because the contingency has not occurred? Ignore the contingency requirement and just value it based upon the price on the petition date? Or come up with some discounted value calculation, based upon some logical basis to determine the likelihood of the contingency occurring?
My example: Debtor has stock grants in publically traded company that are not vested. They are granted annually to vest 1/4 over each of the following 4 years only if client is still employed by employer. There are thus currently 4 different sets of grants that vest this year, three different sets of grants that vest next year, two different sets of grants that vest in two years and one stock grant that vests in 3 years, all for small numbers of shares. As they are unvested on the date of filing, I have difficulty seeing them having a value on the petition date. They only have value once the contingency occurs, which is entirely based upon the debtor's postpetition efforts. Debtor could quit or more likely be laid off prior to the vesting date and the stock price varies by the second. I listed the grants as a contingent asset in paragraph 21 of Schedule B. The Chapter 7 trustee insists even though I fully described the stock grants and vesting terms I must assign a value to them other than zero because if the debtor remains employed and if the trustee kept the case open the trustee could administer the assets.
Am I correct in assuming the trustee has the right to share in postpetition vesting even though it only occurs as a result of the debtor's postpetition voluntary efforts of continuing to work for the same employer?
Assuming the estate has an interest in the grants vesting postpetition, I see how the asset could acquire a value postpetition, even if it has none on the petition date. Regardless the estate portion should only relate to that portion of share grants that relate to the debtor's prepetition efforts, right?
If I am forced to put a value other than zero, is the best way to determine the alleged value to ignore the contingency and calculate based on the fraction of prepetition months expired divided by the length of each grant period and then apply that to the number of shares and stock value on the petition date?
My high school algebra teachers would be chuckling right now...!
Mark Jessee
The post was migrated from Yahoo.