Source: https://businesslawtoday.org/month-in-brief/january-brief-bankruptcy-finance-2019/
Timestamp: 2019-04-23 00:20:24+00:00

Document:
The prepetition lenders to General Motors Corporation, faced with clawback litigation pending in an adversary proceeding against them for money they were paid when Old GM sold its assets in its Chapter 11 case, asserted an earmarking defense. U.S. Bankruptcy Judge Martin Glenn recently granted partial summary judgment to the plaintiff, concluding that the earmarking defense was not available to defend the transfers in question. Motors Liquidation Company Avoidance Action Trust v. JP Morgan Chase Bank, N.A., et al., Adv. Pro. Case No. 09-00504 (Bankr. S.D.N.Y. Jan. 29, 2019). When it was discovered early in the Chapter 11 case that a key UCC financing statement had been terminated prepetition, the resulting potential unsecured status of the lenders created concern about achieving a successful asset sale, and timing was critical. In order to preserve a quick asset sale, the DIP financing order was negotiated to include language that provided for payment of sale proceeds to the lenders notwithstanding the perfection issues, with a provision that the Committee could subsequently challenge the payment and seek recovery from the lenders. That challenge is currently being pursued by a post-confirmation trust. Although the earmarking doctrine, which depends on proof that a lender provided funds to the debtor subject to a clear obligation to use the funds to pay off a preexisting debt, typically comes up in defense of preference cases, the court did not rule out its application to a Section 549 (unauthorized postpetition transfer) case. Nonetheless, the court held that the defense was not available to the lenders, because there was no clear obligation to use the funds to pay the lenders. The DIP financing order clearly made the payment to the lenders subject to the challenge that was subsequently timely filed regarding the extent, validity and priority of the lenders’ liens. The court also held that use of the allegedly earmarked funds to pay the lenders would diminish the estate, whereas the earmarking doctrine requires that the court determine that there was no diminishment to the estate based on the challenged payment. The decision is an interesting review of the elements of the equitable doctrine of earmarking in the context of a proposed novel application of the defense, and another meaningful exercise in the analysis of the terms of a heavily negotiated DIP financing order.
Colorado: House Bill 1037 was introduced on 1/4/2019 to enact the Colorado Energy Impact Assistance Act. This act includes a provision for perfection of a security interest in the revenue due a utility under the act by filing a financing statement. The act also sets forth special requirements for the collateral statement of any such financing statement. The bill was assigned to the House Energy and Environment Committee.
Kansas: House Bill 2105 was introduced on 1/30/2019 to address limited liability companies (proposing an amendment to existing law to provide for series LLCs and a registration requirement for such series) and amends the definition of “registered organization” in UCC § 9-102(a) to include a series of a registered organization if the law of the state of organization requires that the public organic record of the series be filed with the state. The bill was assigned to the House Judiciary Committee.
New Mexico: House Bill 191 was pre-filed on 1/9/2019 to make certain amendments to the UCC. The bill would amend the state’s version of UCC § 3-309 regarding a lost or stolen instrument; amend the state’s version of UCC § 9-102(a) to add the definition of “public-finance transaction,” which was omitted when current law was enacted; and provide that certain subsections of UCC § 9-406 and UCC § 9-408 do not apply to a security interest in an ownership interest in a general partnership, limited partnership or a limited liability company.
Wyoming: Senate Bill 125 was introduced on 1/18/2019 to provide that digital assets are personal property and shall be considered general intangibles for purposes of UCC Article 9; that digital securities are investment property for purposes of UCC Article 8 and Article 9; and that virtual currency is intangible personal property and shall be considered money only for purposes of UCC Article 9. The bill was assigned to the Judiciary Committee.
Iowa: Senate Bill 137 was introduced on 1/29/2019 to define “smart contracts” and to amend the state’s version of the Uniform Electronic Transactions Act. The amendments clarify that a signature obtained through distributed ledger (blockchain) technology is an electronic signature and that a document obtained through distributed ledger technology is an electronic document. The bill was assigned to the Senate Commerce Committee.
North Dakota: House Bill 1045 was introduced on 1/3/2019 to amend the Uniform Electronic Transactions Act (UETA). The amendments add definitions for “blockchain technology” and “smart contracts.” It also provides that a signature secured through blockchain technology is considered to be in electronic form and an electronic signature. Likewise, a record or contract secured through blockchain technology is considered to be in electronic form and an electronic record. Finally, the bill provides that a person using blockchain technology to secure information the person owns or has the right to use retains the same rights of ownership or use with respect to that information as before the person secured the information using blockchain technology. The bill also includes business entity provisions described below. The bill was assigned to the House Industry Business and Labor Committee.
Wyoming: House Bill 70 was introduced on 1/8/2019 and passed the House Revenue Committee on 1/14/19. The bill requires the secretary of state to implement a new blockchain-based filing system through which all commercial records required by law to be filed with the secretary of state may be submitted. This would apply to business entity, UCC financing statements, statutory liens, and similar records. It has been assigned to the House Appropriations Committee.
Utah: Senate Bill 100 was introduced on 1/28/2019 to require the Driver’s License Division to issue “Electronic License Certificates,” which would appear to serve as electronic driver’s licenses. The bill does not amend the state’s version of UCC § 9-503(a) regarding the use of such certificates as the source of an individual debtor name, so it is unclear what the impact would be on Article 9 requirements. The bill has already passed the Senate Transportation and Public Utilities and Technology Committee and is awaiting further action.

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