EDGAR 10-K Filing

Company CIK: 1785494
Filing Year: 2023
Filename: 1785494_10-K_2023_0001140361-23-045568.json

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ITEM 1. BUSINESS
Item 1.
Business
A.
Overview
The Trust and its wholly-owned subsidiary Woodbridge Wind-Down Entity LLC (the “Wind-Down Entity”) were formed pursuant to the Plan. The purpose of the Trust is to prosecute various causes of action owned by the Trust (the “Causes of Action”), to litigate and resolve claims filed against the Debtors, to pay allowed administrative and priority claims against the Debtors (including professional fees), to receive cash from certain sources and, in accordance with the Plan, to make distributions of cash to Interestholders subject to the retention of various reserves and after the payment of Trust expenses and administrative and priority claims. The Trust has no other purpose. Sources and potential sources of cash include the net proceeds from settlements of various Causes of Action, remittances of cash distributed from the Wind-Down Entity, “Fair Fund” recoveries from the SEC, and assets forfeited to the U.S. Department of Justice by former owners and principals of the Debtors (“Forfeited Assets”).
The purpose of the Wind-Down Entity is, through its subsidiaries (the “Wind-Down Subsidiaries” and, with the Wind-Down Entity, the “Wind-Down Group”), to develop (as applicable), market, and sell the real estate assets owned by the Wind-Down Subsidiaries to generate cash to be remitted to the Trust after the payment of Wind-Down Group expenses and subject to the retention of various reserves. The Trust, the Remaining Debtors (as defined in Section B of this Item 1) and the Wind-Down Group are collectively referred to in this Annual Report as the “Company.”
Most of the Debtors filed for chapter 11 bankruptcy protection in December 2017 (certain other Debtors filed cases on later dates). During the Bankruptcy Cases, the major constituencies reached agreements on several matters, including new management for the Debtors, the manner and timing of the liquidation of the Debtors’ assets, and relative priorities to such distributions among creditors. Certain of these agreements were embodied in the Plan, which was confirmed in October 2018 and became effective on February 15, 2019. Under the Plan, holders of certain claims against the Debtors received Class A Interests, which became registered pursuant to Section 12(g) of the Exchange Act on December 24, 2019.
The Trust will be terminated upon the first to occur of (i) the making of all distributions required to be made and a determination by the Liquidation Trustee that the pursuit of additional Causes of Action held by the Trust is not justified or (ii) February 15, 2024. However, the Bankruptcy Court may approve an extension of the term if deemed necessary to facilitate or complete the recovery on, and liquidation of, the Trust’s assets.
During the year ended June 30, 2023, the Company concluded that its liquidation activities would not be completed by February 15, 2024, the current outside termination date of the Trust, for a number of reasons. First, there have been significant delays in certain legal proceedings where the Company is the plaintiff as more fully described in "Item 3. Legal Proceedings". Second, a construction defect claim has been asserted against one of the Wind-Down Subsidiaries by the buyer of one of the subsidiary’s single-family homes. The subsidiary has tendered the claim to its insurance carrier. At this time, the amount of the liability exposure, if any, has not been determined and it is not known if the subsidiary has any exposure in excess of its insurance coverage. The subsidiary is investigating the claim, including the extent and causes of the alleged damage and the identification of other potentially responsible persons. Based on the foregoing, the Company currently projects a revised estimated completion date for the Company’s operations of approximately March 31, 2026.
The Company is required to file a motion with the Bankruptcy Court to extend the termination date of the Trust beyond February 15, 2024. The motion is required to be filed within six months before February 15, 2024. The Company expects that the motion will be filed as required and that the Bankruptcy Court will grant the motion as the extension is needed to pursue additional Trust actions that are expected to yield additional proceeds to the Trust and to address the construction defect claim.
The Trust is administered by a Liquidation Trustee. The Liquidation Trustee is authorized, subject to the oversight of a six-member supervisory board (the “Supervisory Board”), to carry out the purposes of the Trust. The Wind-Down Entity was initially managed by a three-member board of managers (the “Board of Managers”), one of whom was the Chief Executive Officer. The Board of Managers was reduced to two members following the effectiveness of the Chief Executive Officer’s resignation on December 31, 2022, and was reduced to one person on April 29, 2023, following the sale of the last single-family home and the resignation of Richard Nevins.
Part I
Item 1.
Business (Continued)
Pursuant to the Plan and the Liquidation Trust Agreement of the Trust (as amended, the “Trust Agreement”), a copy of which is referenced as Exhibits 3.2, 3.3 and 3.4 to this Annual Report, distributions to Interestholders are net of any costs and expenses incurred by the Trust, including in connection with administering the Trust and litigating or otherwise resolving the various Causes of Action and disputed claims. Amounts withheld from distribution may include cost of collecting, administering, distributing, and liquidating the Trust assets such as fees and expenses of the Liquidation Trustee, premiums for directors’ and officers’ insurance, and fees and expenses of attorneys and consultants. Furthermore, cash received from the Wind-Down Group is net of the payment of Wind-Down Group expenses and the retention of reserves by the Wind-Down Group for contingent liabilities, including potential construction defect claims.
Distributions will be made by the Trust only to the extent that the Trust has sufficient net assets to make such payments in accordance with the Plan and the Trust Agreement. No distribution is required to be made to any Interestholder unless such Interestholder is to receive in such distribution at least $10.00. If the Trust mails a distribution check to an Interestholder and the Interestholder fails to cash the check within 180 calendar days, or if the Trust mails a distribution check to an Interestholder and such check is returned to the Trust as undeliverable and is not claimed by the Interestholder within 180 days, then the Interestholder may not only lose its right to the amount of that distribution, but also may be deemed to have forfeited its right to any reserved and future distributions under the Plan.
Distributions will be made at the sole discretion of the Liquidation Trustee in accordance with the provisions of the Plan and the Trust Agreement. Since the Plan Effective Date, the Liquidation Trustee and the Supervisory Board have authorized eleven cash distributions to the holders of Class A Interests. On August 3, 2023, at the recommendation of the Liquidation Trustee, the Trust suspended the making of additional Trust distributions pending the result of the investigation of a construction defect claim asserted against one of the Wind-Down Subsidiaries by the buyer of one of the subsidiary's single-family homes.
Since its inception, the Wind-Down Entity has made substantial progress toward completion of its liquidation activities and has liquidated all but two real estate assets with a net carrying value of approximately $0.77 million. Holders of Liquidation Trust Interests are advised that future distributions from the Trust, if any, will be limited and will be materially reliant on future recoveries from litigation, net of accrued liquidation costs, including amounts for potential construction defect claims, which are uncertain and the amount and timing of which, if any, are difficult to determine.
Part I
Item 1.
Business (Continued)
The following table shows the Trust’s eleven cash distributions to Class A Interestholders since its February 15, 2019 Plan Effective Date:
The Trust’s distributions have primarily come from the net proceeds of real estate sales, except for the ninth distribution, which included the Trust’s net proceeds from the settlement of litigation against Comerica Bank.
Part I
Item 1.
Business (Continued)
Reflective of the progress toward the completion of its liquidation activities, the following two tables show the Wind-Down Group’s decreasing number of real estate assets and amount of net carrying values of the real estate assets since the Plan Effective Date and through June 30, 2023:
The Trust’s distributed cash through June 30, 2023, together with its distributions payable as of June 30, 2023, totaled approximately $426.55 million. The Trust’s consolidated net assets in liquidation as of June 30, 2023 were approximately $6.77 million.
Part I
Item 1.
Business (Continued)
B.
Organization of the Company
On the Plan Effective Date, the Plan was implemented, and the Trust and the Wind-Down Entity were formed.
1.
The Trust
The Trust was established for the benefit of its Interestholders and for the purpose of collecting, administering, distributing and liquidating the Trust assets in accordance with the Plan and the Trust Agreement, to resolve disputed claims asserted against the Debtors, to litigate and/or settle the Causes of Action, and to pay certain allowed claims and statutory fees, in each case to the extent required by the Plan. The Trust has no objective to continue or engage in the conduct of a trade or business, except to the extent reasonably necessary to, and consistent with, the purpose of the Trust as set forth in the Plan.
By operation of the Plan, (i) the real estate assets of the Debtors were automatically vested in the Wind-Down Group; (ii) all existing equity interests in Woodbridge Group of Companies, LLC and Woodbridge Mortgage Investment Fund 1, LLC (together, the “Remaining Debtors”) were cancelled and extinguished and new equity interests in the Remaining Debtors, representing all of the issued and outstanding equity interests of the Remaining Debtors, were issued to the Trust; and (iii) all of the Debtors other than the Remaining Debtors were automatically dissolved.
As of the Plan Effective Date, each of the Debtors’ directors, officers and managers was terminated and the Trust succeeded to all of their powers in respect of the assets vested in the Trust. Each of the Debtors other than the Remaining Debtors was automatically dissolved on the Plan Effective Date pursuant to the Plan.
By operation of the Plan, the following assets were transferred to the Trust on the Plan Effective Date:
•
an aggregate of $5.0 million in cash from the Debtors for the purpose of funding the Trust’s initial expenses of operation;
•
the following Causes of Action: (i) all claims and causes of action formerly held or acquired by the Debtors and (ii) all causes of action contributed by Noteholders or Unitholders (as defined in Section C of this Item 1) to the Trust as “Contributed Claims” pursuant to the Plan;
•
all of the outstanding membership interests of the Wind-Down Entity; and
•
certain other non-real estate related assets and entities.
Part I
Item 1.
Business (Continued)
2.
The Wind-Down Entity
On the Plan Effective Date and by operation of the Plan, the Wind-Down Entity became a wholly-owned subsidiary of the Trust. The Wind-Down Entity was organized for the purpose of accepting, holding, and administering the Debtors’ real estate assets and distributing the net proceeds of liquidating such real estate assets to the Trust in accordance with the Plan and the Limited Liability Company Agreement of the Wind-Down Entity (as amended, the “Wind-Down Entity LLC Agreement”), consistent with the purposes of the Trust. As of the Plan Effective Date, the Wind-Down Group received, in the aggregate, assets consisting of approximately $31.34 million in cash and approximately $585.01 million of real estate and other assets.
C.
Material Developments Leading to Confirmation of the Plan
Prior to the commencement of the Bankruptcy Cases, the Debtors were part of a group of more than 275 affiliated entities formed by, and formerly controlled by, Robert Shapiro (“Shapiro”)
which were used by Shapiro to perpetrate a large-scale “Ponzi” scheme. As part of the scheme, Shapiro is believed to have used the group of affiliated entities to raise more than $1.22 billion from over 10,000 investors nationwide. Money was raised in the form of one of two primary products: (1) five-year private placement products that were styled, marketed or sold as “units” in Woodbridge Mortgage Investment Fund 1, LLC, Woodbridge Mortgage Investment Fund 2, LLC, Woodbridge Mortgage Investment Fund 3, LLC, Woodbridge Mortgage Investment Fund 3a, LLC, Woodbridge Mortgage Investment Fund 4, LLC, Woodbridge Commercial Bridge Loan Fund 1, LLC, and Woodbridge Commercial Bridge Loan Fund 2, LLC (each, a “Fund Debtor”) and (2) purportedly secured promissory products of 12 to 18 months that were styled, marketed or sold as “notes,” “mortgages” or “loans” by one or more Fund Debtors. In this Annual Report, any and all investments, interests or other rights with respect to any of the Fund Debtors that were styled, marketed or sold as “units” are referred to as “Units” and the holders of Units are referred to as “Unitholders.” Similarly, in this Annual Report, any and all investments, interests or other rights with respect to any of the Fund Debtors that were styled, marketed or sold as “notes,” “mortgages” or “loans” are referred to as “Notes” and the holders of Notes are referred to as “Noteholders.”
The proceeds of the sale of Units and Notes were not used for the purposes that were represented to investors, but were instead used to pay (i) over $400 million of “interest” and “principal” to existing investors, (ii) approximately $64.5 million in commissions to sales agents engaged in the sale of the investments, and (iii) at least $21.2 million for the personal benefit of Shapiro or his related entities or family members (including, for example, the purchase of luxury items, travel, wine, and the like). Additionally, the Debtors and Shapiro used investor funds to purchase at least 193 residential and commercial properties located primarily in Los Angeles, California, and Carbondale, Colorado. The Debtors had one segment, known as “Riverdale,” which did, in fact, originate loans to unrelated third parties, but the dollar amount of these third-party loans was a fraction of the amount of the loans made to disguised affiliates.
In the years leading up to the commencement of their Bankruptcy Cases, the Debtors faced a variety of inquiries from state and federal regulators. In particular, in or around September 2016, the SEC began investigating certain of the Debtors (and certain non-debtor affiliates) in connection with possible securities law violations, including the alleged offer and sale of unregistered securities, the sale of securities by unregistered brokers, and the commission of fraud in connection with the offer, purchase, and sale of securities.
In late 2017, the Debtors found it increasingly difficult to raise new capital from investors. The Debtors were unable to make the December 1, 2017 interest and principal payments due on the Notes. Shapiro hired an outside financial restructuring firm and a chief restructuring officer to manage the Debtors on or about December 1, 2017, and on December 4, 2017 chapter 11 bankruptcy cases for 279 of the Debtors were commenced (cases for the 27 other Debtors were filed on later dates). An immediate effect of commencement of the Bankruptcy Cases was the imposition of the automatic stay under Bankruptcy Code section 362(a), which, with limited exceptions, enjoined the commencement or continuation of all collection efforts by creditors, the enforcement of liens against property of the Debtors, and the continuation of litigation against the Debtors during the pendency of the Bankruptcy Cases. Under Chapter 11 of the Bankruptcy Code, a company may continue to operate its business under the supervision of the Bankruptcy Court while it attempts to reorganize.
Part I
Item 1.
Business (Continued)
As of the commencement of the Bankruptcy Cases, certain discovery-related disputes regarding administrative subpoenas issued by the SEC were proceeding before the United States District Court for the Southern District of Florida, but the SEC had not yet asserted any claims against any of the Debtors or their affiliates. Subsequent to the commencement of the Bankruptcy Cases, the SEC commenced legal proceedings in the Florida district court against, among other defendants, Shapiro, a trust related to Shapiro or his family, and the Debtors.
In addition to the SEC investigation, certain of the Debtors received information requests from state securities regulators in approximately 25 states. As of the commencement of the Bankruptcy Cases, regulators in eight states had filed civil or administrative actions against one or more of the Debtors and certain of their sales agents, alleging they engaged in the unregistered offering of securities in their respective jurisdictions and unlawfully acted as unregistered investment advisors or broker-dealers. Six states-Massachusetts, Texas, Arizona, Pennsylvania, South Dakota and Michigan-entered permanent cease and desist orders against one or more of the Debtors related to their alleged unregistered sale of securities. Several of these inquiries were resolved prior to the commencement of the Bankruptcy Cases through settlements, which included the entry of consent orders. Certain of the Debtors entered into consent orders with California, Arizona, Michigan, Oregon, Idaho, and Colorado during the Bankruptcy Cases.
On December 14, 2017, the Office of the United States Trustee for the District of Delaware (the “U.S. Trustee’s Office”) formed the Official Committee of Unsecured Creditors (the “Unsecured Creditors’ Committee”). On December 20, 2017, the SEC filed its action in the Florida district court, as discussed above, detailing much of the massive fraud perpetrated by Shapiro before the commencement of the Bankruptcy Cases. The SEC asked the Florida district court to appoint a receiver who would displace the Debtors’ management in the Bankruptcy Cases, but the Florida district court declined to immediately act on this request in light of the pending Bankruptcy Cases.
On December 28, 2017, the Unsecured Creditors’ Committee filed a motion seeking appointment of a chapter 11 trustee to replace the Debtors’ management team, arguing that the team was “hand-picked by Shapiro, and ha[d] done his bidding both before and after the filing of these cases.” The SEC later made a similar request, arguing that the new “independent” management team was “completely aligned [with Shapiro] in controlling this bankruptcy.”
On or about January 23, 2018, the Debtors, the Unsecured Creditors’ Committee, the SEC, and groups of Noteholders and Unitholders entered into a term sheet (the “Joint Resolution”) that resolved the trustee motions and several other matters. The Joint Resolution included, among other provisions, the following key provisions:
•
A new board of managers (with no ties whatsoever to Shapiro) was formed to govern the Debtors (the “New Board”). The New Board consisted of Richard Nevins, M. Freddie Reiss, and Michael Goldberg.
•
The New Board was empowered to select a CEO or CRO, subject to the consent of the Unsecured Creditors’ Committee and the SEC.
•
The New Board was empowered, subject to the SEC’s consent, to select new counsel for the Debtors or to re-confirm Gibson Dunn & Crutcher LLP as counsel for the Debtors.
•
The holders of Units were permitted to form a single one- or two-member fiduciary Unitholder committee (the “Unitholder Committee”) to advocate for the interests of Unitholders.
•
The holders of Notes were permitted to form a single six- to nine-member fiduciary Noteholder committee (the “Noteholder Committee”) to advocate for the interests of Noteholders.
As authorized by the Joint Resolution, the New Board selected Frederick Chin to serve as the Chief Executive Officer and Bradley D. Sharp to serve as the Chief Restructuring Officer during the pendency of the Bankruptcy Cases. Under the direction of the New Board, the Debtors also retained and employed Development Specialists, Inc. as the Debtors’ restructuring advisor and Klee, Tuchin, Bogdanoff & Stern LLP (n/k/a KTBS Law LLP) as new bankruptcy co-counsel to represent them in the Bankruptcy Cases with Young Conaway Stargatt & Taylor LLP.
Part I
Item 1.
Business (Continued)
On April 16, 2018, the Debtor defendants in the Florida proceedings entered into a consent agreement with the SEC and consented to the entry of a judgment. Under the consent agreement and the judgment, the Debtors agreed, among other things, that (i) the Debtor defendants would be permanently enjoined from violations of certain sections of the Securities Act and the Exchange Act; (ii) upon motion of the SEC, the Florida district court would determine whether it was appropriate to order disgorgement and/or a civil penalty against the Debtor defendants, and if so, the amount of any such disgorgement and/or civil penalty; and (iii) in connection with any hearing regarding disgorgement and/or a civil penalty, inter alia, the Debtor defendants would be precluded from arguing that they did not violate the federal securities laws as alleged in the SEC action and the Debtor defendants would not challenge the validity of the consent agreement or judgment. On May 1, 2018, the Bankruptcy Court approved the consent agreement and the judgment. On May 21, 2018, the Florida district court entered the judgment against the Debtor defendants in the SEC action and entered an order administratively closing such action. The Debtors reached a settlement with the SEC to resolve the disgorgement and civil penalty claims asserted by the SEC against the Debtor defendants.
During the Bankruptcy Cases, the Debtors sold numerous parcels of owned real property, in each case with Bankruptcy Court approval. Additionally, the major constituencies in the Bankruptcy Cases reached agreements on several matters, including new management for the Debtors, the manner and timing of the liquidation of the Debtors’ assets, and the relative priorities to such distributions among creditors, certain of which agreements were embodied in the Plan.
Under the Plan, on the Plan Effective Date, former Noteholders, Unitholders, and general unsecured creditors holding allowed claims were granted Class A Interests in exchange for their claims. Pursuant to a compromise in the Plan, former Unitholders also received Class B Interests (Unitholders received Class A Interests on account of only 72.5% of their allowed Unit Claims and received Class B Interests on account of the remaining 27.5% of their allowed Unit Claims).
The Plan incorporated a “netting” mechanism for Note and Unit investors whereby such investors received Liquidation Trust Interests based on their “Net” Note Claim (defined as claims arising from or in connection with any Notes) or their “Net” Unit Claim (defined as claims arising from or in connection with any Units). The netting was achieved by reducing the Note or Unit claim by the aggregate amount of all pre-bankruptcy distributions received by the Noteholder or Unitholder (other than return of principal). For example, a Noteholder holding a Note with a face amount of $100,000 who received $10,000 of “interest” before the Debtors filed bankruptcy would be deemed to hold a Net Note Claim of $90,000. Such Noteholder would receive Class A Interests on account of a $90,000 Net Note Claim.
On December 24, 2019, the Trust’s Registration Statement on Form 10 became effective under the Exchange Act. The trading symbol for the Trust’s Class A Interests is WBQNL. Bid and ask prices for the Trust’s Class A Interests are quoted on the OTC Link® ATS, the SEC-registered alternative trading system. The Class A Interests are eligible for the Depository Trust Company’s Direct Registration (DRS) services. The Class B Interests are not registered with the SEC.
D.
Plan Provisions Regarding the Company
1.
Corporate governance provisions
Under the Plan and the Wind-Down Entity LLC Agreement, the Trust is required at all times to be the sole and exclusive owner of all membership interests of the Wind-Down Entity. The Trust is prohibited from selling, transferring, or otherwise disposing of its membership interests in the Wind-Down Entity without approval of the Bankruptcy Court, and the Wind-Down Entity is prohibited from issuing any equity interest to any other person.
Formerly under the Plan and the Wind-Down Entity LLC Agreement, the Wind-Down Entity was required to be managed by a three-member Board of Managers, one of whom was required to be the Chief Executive Officer. Accordingly, the Board of Managers initially consisted of Richard Nevins, M. Freddie Reiss, and Frederick Chin, with Mr. Chin as the Chief Executive Officer of the Wind-Down Entity. On November 30, 2022, the Wind-Down Entity LLC Agreement was amended to reduce the Wind-Down Entities’ Board of Managers to two members and to eliminate the requirement that the Chief Executive Officer serve as a member of the Board of Managers, effective upon Mr. Chin’s resignation on December 31, 2022. Marion W. Fong was appointed to serve as Chief Executive Officer of the Wind-Down Entity effective as of January 1, 2023. Ms. Fong is not a member of the Board of Managers. On March 27, 2023, the Wind-Down Entity LLC Agreement was further amended and the Board of Managers was reduced to one person, M. Freddie Reiss, following the sale of the last single-family home and the resignation of Richard Nevins on April 29, 2023.
Part I
Item 1.
Business (Continued)
The Wind-Down Entity is required to advise the Trust regarding its affairs on at least a monthly basis, reasonably make available such information as is necessary for any reporting by the Trust and advise the Trust of material actions. Excess cash of the Wind-Down Entity (cash that is in excess of budgeted reserve for ongoing operations and other anticipated obligations including potential construction defect claims and expenses as determined by the Board of Managers) is required to be remitted to the Trust on a quarterly basis, and the Wind-Down Entity is restricted in its ability to invest or gift any of its assets or make asset acquisitions.
The Bankruptcy Court has retained certain jurisdiction regarding the Trust, the Liquidation Trustee, the Supervisory Board, the Wind-Down Entity, the Board of Managers, and assets of the Trust and the Wind-Down Entity, including the determination of all disputes arising out of or related to administration of the Trust and the Wind-Down Entity.
The Wind-Down Entity is also conducting business under the name “Viewpoint Collection.”
2.
Treatment under the Plan of holders of claims against and equity interests in the Debtors
The Plan identified 12 types of Claims against and equity interests in the Debtors, eight of which were “classified” (i.e., placed into formalized classes under the Plan) and four of which are not. Claims required to be paid in full under the Plan are referred to as “Unimpaired Claims.” Four types of claims are not classified-(i) claims arising under Bankruptcy Code sections 503(b), 507(a)(2), 507(b), or 1114(e)(2) (“Administrative Claims”), (ii) claims by professionals employed in the Bankruptcy Cases pursuant to Bankruptcy Code sections 327, 328, 1103, or 1104 for compensation or reimbursement of costs and expenses relating to services provided during the period from the Petition Date through and including the Plan Effective Date (“Professional Fee Claims”), (iii) tax claims entitled to priority under Bankruptcy Code section 507(a)(8) (“Priority Tax Claims”), and (iv) debtor-in-possession financing claims (“DIP Claims”). The foregoing claims are all Unimpaired Claims and have been or will be paid in full. Although the amounts may be subject to negotiation based on the Debtors’ and creditors’ records, and to ultimate determination, if necessary, in the Bankruptcy Court, liabilities resulting from any such Administrative Claims, Professional Fee Claims, Priority Tax Claims, and DIP Claims that are allowed are analogous, in substance, to accounts payable. As of September 27, 2023, there were no allowed and unpaid DIP Claims. As of September 27, 2023, there were no unpaid Administrative Claims, approximately $.18 million of unpaid Priority Tax Claims and no remaining unpaid Professional Fee Claims.
The remaining eight types are claims and equity interests that have been classified. Classified claims and equity interests are treated in accordance with the priorities established under the Bankruptcy Code.
The classified claims and equity interests under the Plan are the following (each, a “Class” of claims or interests):
•
“Class 1 Claims” or “Other Secured Claims,” which are claims, other than DIP Claims, that are secured by a valid, perfected, and enforceable lien on property in which the Debtors have an interest, which lien is valid, perfected, and enforceable under applicable law and not subject to avoidance under the Bankruptcy Code or applicable non-bankruptcy law.
•
“Class 2 Claims” or “Priority Claims,” which are claims that are entitled to priority under Bankruptcy Code section 507(a), other than Administrative Claims and Priority Tax Claims.
•
“Class 3 Claims” or “Standard Note Claims,” which are any Note Claims other than Non-Debtor Loan Note Claims (as defined below).
•
“Class 4 Claims” or “General Unsecured Claims,” which are unsecured, non-priority claims that are not Note Claims, Subordinated Claims (as defined below), or Unit Claims.
Part I
Item 1.
Business (Continued)
•
“Class 5 Claims” or “Unit Claims,” which are Unit Claims (as defined in Item 1, Section C of this Annual Report).
•
“Class 6 Claims” or “Non-Debtor Loan Note Claims,” which are any Note Claims that are or were purportedly secured by an unreleased assignment or other security interest in any loans or related interests as to which the lender was a Debtor and the underlying borrower actually is or actually was a person that is not a Debtor.
•
“Class 7 Claims” or “Subordinated Claims,” which are collectively, (a) any claim, secured or unsecured, for any fine, penalty, or forfeiture, or for multiple, exemplary, or punitive damages, to the extent such fine, penalty, forfeiture, or damages are not compensation for actual pecuniary loss suffered by the holder of such claim and (b) any other claim that is subordinated to General Unsecured Claims, Note Claims, or Unit Claims pursuant to Bankruptcy Code section 510, a final order of the Bankruptcy Court, or by consent of the creditor holding such claim.
•
“Class 8” or “Equity Interests,” which are all previously issued and outstanding common stock, preferred stock, membership interests, or other ownership interests in any of the Debtors outstanding immediately prior to the Plan Effective Date.
Holders of Class 1 Claims are creditors of the Wind-Down Entity, and holders of Class 2 Claims are creditors of the Trust. Although the amounts may be subject to negotiation based on the Debtors’ and creditors’ records, and to ultimate determination, if necessary, in the Bankruptcy Court, liabilities resulting from any such claims that are allowed are analogous, in substance, to accounts payable. As of September 27, 2023, there were no allowed and unpaid Class 1 Claims or Class 2 Claims.
Under the Plan, three Classes of claims, when the claims are allowed under the Plan, entitle the holders thereof to become holders of Liquidation Trust Interests. The holders of these claims belonged, as of the Petition Date, to one or more of the following categories:
•
Standard Note Claims (Class 3)
•
General Unsecured Claims (Class 4)
•
Unit Claims (Class 5)
Standard Note Claims are Claims arising from any and all investments, interests or other rights with respect to any of the seven Debtors identified as a “Fund Debtor” under the Plan that were styled, marketed or sold as “notes,” “mortgages,” or “loans.” As of September 27, 2023, the aggregate outstanding amount of allowed Class 3 Standard Note Claims (net of prepetition distributions of interest) was approximately $702.68 million, including those Class 6 Non-Debtor Loan Note Claims that were reclassified as Class 3 Standard Note Claims in accordance with the Plan. See “Holders of Non-Debtor Loan Note Claims” below. The Trust’s estimate of the aggregate outstanding amount of disputed Class 3 Standard Note Claims as of September 27, 2023 is approximately $0.02 million (in each case, net of prepetition distributions of interest).
General Unsecured Claims include any unsecured, non-priority claim asserted against any of the Debtors that is not a Note Claim, Subordinated Claim or Unit Claim, and generally include the claims of trade vendors, landlords, general liability claimants, utilities, contractors, employees and numerous others. As of September 27, 2023, the aggregate outstanding amount of allowed Class 4 General Unsecured Claims was approximately $5.97 million, and the Trust estimates that the aggregate outstanding amount of disputed Class 4 General Unsecured Claims as of September 27, 2023 was approximately $0.23 million.
Unit Claims are Claims arising from any and all investments, interests or other rights with respect to any of the seven Debtors identified as a “Fund Debtor” under the Plan that were styled, marketed or sold as “units.” As of September 27, 2023, the aggregate outstanding amount of allowed Class 5 Unit Claims was approximately $178.77 million, and the Trust estimates that the aggregate outstanding amount of disputed Class 5 Unit Claims as of September 27, 2023 was approximately $0.09 million (in each case, net of prepetition distributions of interest).
Part I
Item 1.
Business (Continued)
Holders of allowed claims in Classes 3, 4 and 5 are deemed to hold an amount and class of Liquidation Trust Interests that is prescribed by the Plan based on the amount of their respective claims, as follows:
•
Each holder of an allowed claim in Class 3 (Standard Note Claims) is deemed to hold one (1) Class A Interest for each $75.00 of Net Note Claims held by the applicable Noteholder with respect to its Allowed Note Claims.
•
Each holder of an allowed claim in Class 4 (General Unsecured Claims) is deemed to hold one (1) Class A Interest for each $75.00 of allowed General Unsecured Claims held by the applicable creditor.
•
Each holder of an allowed claim in Class 5 (Unit Claims) is deemed to hold 0.725 of a Class A Interest and 0.275 of a Class B Interest for each $75.00 of Net Unit Claims held by the applicable Unitholder with respect to its allowed Unit Claims.
In addition, under the Plan, holders of Standard Note Claims and Unit Claims were permitted, at the time they cast their votes on the Plan, to elect to contribute their causes of action against any non-released persons to the Trust for prosecution (the “Contributed Claims”). The relative share of the Trust recoveries for any so electing Noteholder or Unitholder in respect of its respective Class 3 Claim or Class 5 Claim has been enhanced by having the amount that otherwise would be the applicable Net Note Claim or Net Unit Claim increased by a multiplier of 105%, referred to as the “Contributing Claimant’s Enhancement Multiplier.” The Plan releases the Debtors, the members of the New Board, the Unsecured Creditors’ Committee, the Noteholder Committee, and the Unitholder Committee, and any party related to such persons from liability, but generally excludes from such release any prepetition insider of any of the Debtors, any non-debtor affiliates of the Debtors or insider of any such non-debtor affiliates, any prepetition employee of any of the Debtors involved in the marketing or sale of Notes or Units, and any other person involved in such marketing, including certain persons identified on a schedule attached to the Plan.
Distributions of cash by the Trust on account of Class A Interests and Class B Interests are required to be made in accordance with a prescribed priority, referred to as the “Liquidation Trust Interests Waterfall.” (See “Part I, Item 1. Business, D. Plan Provisions Regarding the Company, 4. Liquidation Trust Interests under the Plan.”) Fractional Liquidation Trust Interests, if any, are rounded in accordance with the rounding convention established by the Plan.
Other Classes under the Plan include Subordinated Claims, Non-Debtor Loan Note Claims, and Equity Interests. Although holders of Subordinated Claims are not Interestholders of the Trust, they are deemed to have retained a residual right to receive any cash that remains in the Trust after the final administration of all the Trust assets and payment in full to holders of both Class A Interests and Class B Interests, including interest at the rate and to the extent set forth in the Plan. The Trust does not expect that there will be any such residual cash.
Part I
Item 1.
Business (Continued)
3.
Assets and liabilities of the Company
The following is the Company’s consolidated statements of net assets in liquidation as of the Plan Effective Date and June 30, 2023 ($ in millions):
Plan
Effective
Date
June 30, 2023
Net real estate assets held for sale, net
$
582.71
$
0.77
Cash and cash equivalents
36.02
25.70
Restricted cash
0.32
4.47
Other assets
2.29
2.65
Total assets
$
621.34
$
33.59
Accounts payable and accrued liabilities
5.78
0.04
Distributions payable
-
1.28
Accrued liquidation costs
232.07
25.50
Total liabilities
$
237.85
$
26.82
Net assets in liquidation:
Restricted for Qualifying Victims
-
3.49
All Interestholders
383.49
3.28
Total net assets in liquidation
$
383.49
$
6.77
The status of outstanding Unimpaired and Impaired Claims as of September 27, 2023 is summarized below, with amounts in millions:
Estimated
Allowed
Claims
Disputed Claims
at Asserted
Amount
Unimpaired Claims (Liabilities)
$
0.13
$
0.45
Impaired Claims (Beneficial Interests)
$
887.76
(a)
$
0.46
(a)
Includes an estimated $0.34 million of additional claims expected to be allowed from the approximate $0.46 million of disputed claims.
4.
Liquidation Trust Interests under the Plan
Each holder of an allowed claim in the Plan’s Class 3 (Standard Note Claims), Class 4 (General Unsecured Claims) and Class 5 (Unit Claims) was granted one or more beneficial interests in the Trust (a Liquidation Trust Interest) of a class (i.e. either Class A and/or Class B) and in an amount prescribed by the Plan and the Trust Agreement, as follows:
•
In the case of an allowed claim in the Plan’s Class 3 (Standard Note Claims), the holder was granted one (1) Class A Interest in the Trust for each $75.00 of Net Note Claims held by the applicable Noteholder with respect to its Allowed Note Claims. Allowed Net Note Claims are determined as the outstanding principal amount of Note Claims held by a particular Noteholder, minus the aggregate amount of all prepetition distributions (other than return of principal) received by such Noteholder.
Part I
Item 1.
Business (Continued)
•
In the case of an allowed claim in the Plan’s Class 4 (General Unsecured Claims), the holder was granted one (1) Class A Interest in the Trust for each $75.00 of allowed General Unsecured Claims held by the applicable creditor.
•
In the case of an allowed claim in the Plan’s Class 5 (Unit Claims), the holder was granted 0.725 of a Class A Interest in the Trust and 0.275 of a Class B Interest in the Trust for each $75.00 of Net Unit Claims held by the applicable Unitholder with respect to its allowed Unit Claims. Allowed Net Unit Claims were determined as the outstanding principal amount of Unit Claims held by a particular Unitholder, minus the aggregate amount of all prepetition distributions (other than return of principal) received by such Unitholder.
The Plan permitted Noteholders and Unitholders to contribute certain causes of action (the Contributed Claims) to the Trust. In the case of any Noteholder or Unitholder that elected, on such holder’s Plan ballot, to contribute such holder’s Contributed Claims to the Trust, the relative share of Liquidation Trust Interests granted to any so electing Noteholder or Unitholder has been enhanced by increasing the amount that otherwise would be the applicable Net Note Claim or Net Unit Claim by the Contributing Claimant’s Enhancement Multiplier of 105% before converting such Net Note Claim or Net Unit Claim to Liquidation Trust Interests.
With respect to disputed claims, upon resolution of any disputed claims and to the extent such claims become allowed claims, holders of such Claims in the Plan’s Class 3, Class 4 and Class 5 will be granted Liquidation Trust Interests.
As of September 27, 2023, approximately $887.42 million of Class 3, Class 4 and Class 5 Claims are allowed. The Trust estimates, as of September 27, 2023, that approximately $0.34 million of additional Class 3, Class 4 and Class 5 Claims will ultimately be allowed. As more such claims become allowed, additional Liquidation Trust Interests will be granted. The percentage recovery to be received by each Class A Interestholder will be based on (i) the amount of cash ultimately available for distribution to such holders; and (ii) the actual amount of Class 3, Class 4, and Class 5 Claims that ultimately become allowed.
The Plan provides for a Liquidation Trust Interests Waterfall that specifies the priority and manner of distribution of available cash, excluding distributions of the net proceeds from Forfeited Assets. On each distribution date, the Liquidation Trustee is required to distribute available cash as follows:
•
First, to each Interestholder of Class A Interests pro rata based on such Interestholder’s number of Class A Interests, until the aggregate amount of all such distributions on account of the Class A Interests equals the product of (i) the total number of all Class A Interests and (ii) $75.00;
•
Thereafter, to each Interestholder of Class B Interests pro rata based on such Interestholder’s number of Class B Interests, until the aggregate amount of all such distributions on account of the Class B Interests equals the product of (i) the total number of all Class B Interests and (ii) $75.00;
•
Thereafter, to each Interestholder of a Liquidation Trust Interest (whether a Class A Interest or a Class B Interest) pro rata based on such Interestholder’s number of Liquidation Trust Interests until the aggregate amount of all such distributions on account of the Liquidation Trust Interests equals an amount equivalent to interest, at a per annum fixed rate of 10%, compounded annually, accrued on the aggregate principal amount of all Net Note Claims, allowed General Unsecured Claims, and Net Unit Claims outstanding from time to time on or after December 4, 2017, treating each distribution of available cash made after the Plan Effective Date pursuant to the immediately preceding two subparagraphs as reductions of such principal amount; and
•
Thereafter, pro rata to the holders of allowed Subordinated Claims until such claims are paid in full, including interest, at a per annum fixed rate of 10% or such higher rate as may be specified in any consensual agreement or order relating to a given Holder, compounded annually, accrued on the principal amount of each allowed Subordinated Claim outstanding from time to time on or after December 4, 2017.
Part I
Item 1.
Business (Continued)
Pursuant to the Plan and the Trust Agreement, distributions to Interestholders are net of any costs and expenses incurred by the Trust, including in connection with administering the Trust and litigating or otherwise resolving the various Causes of Action and disputed claims. Amounts withheld from distribution may include cost of collecting, administering, distributing, and liquidating the Trust assets such as fees and expenses of the Liquidation Trustee, reserves for contingent liabilities, including potential construction defect claims of the Wind-Down
Entity and/or its subsidiaries, premiums for directors’ and officers’ insurance, and fees and expenses of attorneys and consultants. Distributions will be made only from assets of the Trust and only to the extent that the Trust has sufficient assets (in excess of amounts retained for contingent liabilities, including potential construction defect claims and future costs and expenses, among other things) to make such payments in accordance with the Plan and the Trust Agreement. No distribution is required to be made to any Interestholder unless such Interestholder is to receive in such distribution at least $10.00.
Distributions will be made at the sole discretion of the Liquidation Trustee in accordance with the provisions of the Plan and the Trust Agreement. Since the Plan Effective Date, the Liquidation Trustee has declared eleven distributions to the Class A Interestholders. The distributions include a cash distribution on account of the then-allowed claims and a deposit is made into a restricted cash account for amounts that are or may become payable (a) in respect of Class A Interests that may be issued in the future upon the allowance of unresolved bankruptcy claims, (b) in respect of Class A Interests issued on account of recently allowed claims, (c) for holders of Class A Interests who failed to cash checks mailed in respect of prior distributions, (d) for distributions that were withheld due to pending avoidance actions and (e) for holders of Class A Interests for which the Trust is awaiting further beneficiary information.
On August 3, 2023, at the recommendation of the Liquidation Trustee, the Trust suspended the making of additional Trust distributions pending the result of the investigation of a construction defect claim.
Sections 7.6 and 7.18 of the Plan provide that distributions that have not been cashed within 180 calendar days of their issuance shall be null and void and the holder of the associated Liquidation Trust Interests “shall be deemed to have forfeited its rights to any reserved and future distributions under the Plan,” with such amounts to become “Available Cash” of the Trust for all purposes. On February 1, 2022, the Trust sent letters to the holders of the Class A Interests who had failed to cash distribution checks in respect of prior distributions, which checks were issued more than 180 days prior to the date of the letter. The letter informed each recipient that, unless the Trust was contacted on or before February 28, 2022, such recipient’s reserved and future distribution would be deemed forfeited in accordance with the Plan. The Trust provided this final notice simply as a one-time courtesy and reserved its rights to strictly enforce the Plan’s forfeiture provisions, and any other provision of the Plan, against any person (including any recipient of the final notice) at any time in the future, without further notice.
Part I
Item 1.
Business (Continued)
The following tables summarize the distributions declared, distributions paid and the activity in the restricted cash account for the periods from February 15, 2019 (inception) through June 30, 2023 and from February 15, 2019 through September 27, 2023:
During the Period from
February 15, 2019 (inception) through
June 30, 2023 ($ in Millions)
During the Period from
February 15, 2019 (inception) through
September 27, 2023 ($ in Millions)
Date Declared
$ per
Class A
Interest
Total
Declared
Paid
Restricted
Cash
Account
Total
Declared
Paid
Restricted
Cash
Account
Distributions Declared
First
3/15/2019
$
3.75
$
44.70
$
42.32
$
2.38
$
44.70
$
42.32
2.38
Second
1/2/2020
4.50
53.44
51.20
2.24
53.44
51.20
2.24
Third
3/31/2020
2.12
25.00
24.19
0.81
25.00
24.19
0.81
Fourth
7/13/2020
2.56
29.97
29.24
0.73
29.97
29.24
0.73
Fifth
10/19/2020
2.56
29.96
29.21
0.75
29.96
29.21
0.75
Sixth
1/7/2021
4.28
50.01
48.67
1.34
50.01
48.67
1.34
Seventh (a)
5/13/2021
2.58
30.04
29.35
0.69
30.04
29.35
0.69
Eighth
10/8/2021
3.44
40.02
39.14
0.88
40.02
39.14
0.88
Ninth
2/4/2022
3.44
39.98
39.15
0.83
39.98
39.15
0.83
Tenth
6/15/2022
5.63
65.02
64.19
0.83
65.02
64.19
0.83
Eleventh
5/10/2023
2.18
25.02
24.90
0.12
25.02
24.90
0.12
Subtotal
$
37.04
$
433.16
$
421.56
$
11.60
$
433.16
$
421.56
$
11.60
Distributions Reversed
Disallowed (b)
(6.27
)
(6.31
)
Returned (c)
0.74
0.74
Forfeited (d)
(1.13
)
(1.13
)
Subtotal
(6.66
)
(6.70
)
Distributions Paid from Reserve Account (e)
(3.66
)
(3.66
)
Distributions Payable, Net:
as of 6/30/2023:
$
1.28
as of 9/27/2023:
$
1.24
(a)
The seventh distribution included the cash the Trust received from Fair Funds.
(b)
As a result of claims being disallowed or Class A Interests cancelled.
(c)
Distribution checks returned or not cashed.
(d)
Distributions forfeited as Interestholders did not cash checks that were over 180 days old.
(e)
Paid as claims are allowed or resolved.
As claims are resolved, additional Class A Interests may be issued or cancelled (see “Part 1, Item 1. Business, D. Plan Provisions Regarding the Company, 2. Treatment under the Plan of holders of claims against and equity interests in the Debtors and 3. Assets and liabilities of the Company”). Therefore, the total amount of a distribution declared may change. In addition, distributions may change if Interestholders that were previously deemed to have forfeited their rights to receive Class A Interest distributions subsequently respond and if overpaid distributions are returned.
E.
Operations and Management of the Company
1.
The Trust
Michael I. Goldberg, Esq. is the Liquidation Trustee. The Liquidation Trustee was unanimously selected by the Unsecured Creditors’ Committee, the Noteholder Committee, and the Unitholder Committee and approved by the Bankruptcy Court.
The Trust is also required to have a trustee that has its principal place of business in the State of Delaware (the “Delaware Trustee”). The Delaware Trustee is Wilmington Trust Company, National Association, who has been appointed for the purpose of fulfilling the requirements of the Delaware Statutory Trust Act.
The Trust does not have directors, executive officers or employees. Subject to supervision by the Supervisory Board, the Liquidation Trustee has the full power, right, authority and discretion, unless otherwise provided in the Plan, to carry out and implement all applicable provisions of the Plan.
Part I
Item 1.
Business (Continued)
In addition to other actions that the Liquidation Trustee has the authority to take, the Liquidation Trustee may do any and all of the following:
•
review, reconcile, compromise, settle, or object to claims and resolve such objections as set forth in the Plan, free of any restrictions of the Bankruptcy Code or applicable bankruptcy rules;
•
calculate and make distributions and calculate and establish reserves under and in accordance with the Plan;
•
retain, compensate, and employ professionals and other persons to represent the Liquidation Trustee with respect to and in connection with its rights and responsibilities;
•
establish, maintain, and administer documents and accounts of the Debtors as appropriate, which are to be segregated to the extent appropriate in accordance with the Plan;
•
maintain, conserve, collect, settle, and protect the Trust’s assets (subject to the limitations described in the Plan);
•
sell, liquidate, transfer, assign, distribute, abandon, or otherwise dispose of the assets of the Trust or any part of such assets or interest in such assets upon such terms as the Liquidation Trustee determines to be necessary, appropriate, or desirable;
•
negotiate, incur, and pay the expenses of the Trust;
•
prepare and file any and all informational returns, reports, statements, tax returns, and other documents or disclosures relating to the Debtors that are required under the Plan, by any governmental unit, or by applicable law;
•
compile and maintain the official claims register, including for purposes of making initial and subsequent distributions under the Plan;
•
take such actions as are necessary or appropriate to wind-down and dissolve the Debtors;
•
comply with the Plan, exercise the Liquidation Trustee’s rights, and perform the Liquidation Trustee’s obligations; and
•
exercise such other powers as deemed by the Liquidation Trustee to be necessary and proper to implement the Plan.
The powers and authority of the Liquidation Trustee are subject to limitations under the Trust Agreement. On behalf of the Trust or the Interestholders, the Liquidation Trustee is prohibited from doing any of the following:
•
entering into or engaging in any trade or business (other than the management and disposition of the assets of the Trust), and no part of the Trust’s assets or the proceeds, revenue or income therefrom may be used or disposed of by the Trust in furtherance of any trade or business;
•
except as expressly permitted in the Trust Agreement, reinvesting any assets of the Trust;
•
selling, transferring, or otherwise disposing of the Trust’s membership interests in the Wind-Down Entity without further approval of the Bankruptcy Court; or
•
incurring any indebtedness except as contemplated by the Plan or the Trust Agreement.
Part I
Item 1.
Business (Continued)
The Liquidation Trustee is permitted to invest cash of the Trust, including any earnings thereon or proceeds therefrom, any cash realized from the liquidation of the assets of the Trust, or any cash that is remitted to the Trust from the Wind-Down Entity or any other person. Investments by the Liquidation Trustee are not required to comply with Bankruptcy Code section 345(b). Accordingly, the Liquidation Trustee will not be required to obtain a secured bond from financial institutions at which Trust funds are deposited or invested. However, investments must be investments that are permitted to be made by a “liquidating trust” within the meaning of Treasury Regulation section 301.7701-4(d), as reflected in such regulation, or under applicable guidelines, rulings, or other controlling authorities. Accordingly, cash not available for distribution and cash pending distribution is expected to be held in demand and time deposits, such as short-term certificates of deposit, in banks or other savings institutions, or other temporary, liquid investments such as Treasury bills.
The Liquidation Trustee is subject to removal and replacement following notice to the SEC and upon a determination by the Bankruptcy Court that “cause” exists for such removal and replacement, using the standard set forth under Bankruptcy Code Section 1104.
Pursuant to the Plan and the Trust Agreement, the activities of the Liquidation Trustee are subject to the supervision of the Supervisory Board, a six-member supervisory board currently consisting of Lynn Myrick, John J. O’Neill, and Terry Goebel (all three of whom were nominated by the Unsecured Creditors’ Committee), Jay Beynon (nominated by the Noteholder Committee), Dr. Raymond C. Blackburn (nominated by the Unitholder Committee), and M. Freddie Reiss (elected to such position by the other members of the Supervisory Board). Mr. Reiss is the sole member of the Audit Committee of the Supervisory Board.
Under the Plan, the Supervisory Board has the rights and powers of a duly elected board of directors of a Delaware corporation. The Supervisory Board is charged with supervision of the Liquidation Trustee in accordance with the Plan and the Trust Agreement, determination of the Liquidation Trustee’s incentive compensation, if any, and approval of the appointment of any successor Liquidation Trustee. In the event that votes or consents by the Supervisory Board for and against any matter (other than any matter regarding the supervision, evaluation or compensation of the Liquidation Trustee) are equally divided, the Liquidation Trustee has the power to cast the deciding vote.
Additionally, approval by the Supervisory Board or, in the absence of such approval, an order of the Bankruptcy Court, is necessary concerning any of the following matters:
•
any sale or other disposition of an asset of the Trust, or any release, modification or waiver of existing rights as to an asset of the Trust, if the asset at issue exceeds $500,000 in estimated value;
•
any compromise or settlement of litigation or controverted matter proposed by the Liquidation Trustee involving claims in excess of $500,000; and
•
any retention by the Liquidation Trustee of professionals.
The approval of sale of real estate assets owned by the Wind-Down Group is the subject of an agreed-upon protocol between the Trust and the Wind-Down Entity.
Members of the Supervisory Board may resign following written notice to the Liquidation Trustee and the other members of the Supervisory Board. Such resignation will become effective on the later to occur of (i) the day specified in such written notice and (ii) the date that is thirty (30) days after the date such notice is delivered. A member of the Supervisory Board may be removed only by entry of a Bankruptcy Court order finding that cause exists to remove such member.
In the event that a member of the Supervisory Board is removed, dies, becomes incapacitated, resigns or otherwise becomes unavailable for any reason, such member’s replacement shall be appointed in accordance with the Plan, which establishes procedures for the appointment of such replacements. If a member of the Supervisory Board nominated by the Unsecured Creditors’ Committee is no longer available for any reason, then the remaining member(s) selected by the Unsecured Creditors’ Committee are to select the replacement member(s). If a member of the Supervisory Board nominated by either the Noteholder Committee or the Unitholder Committee is no longer available for any reason, then the available former members of the Noteholder Committee or Unitholder Committee, as applicable, are to be requested to, and may, select a replacement. If no former members of the Noteholder Committee or the Unitholder Committee, as applicable, are reasonably available and willing to make the selection, then the remaining members of the Supervisory Board are to select the replacement member(s).
Part I
Item 1.
Business (Continued)
Holders of Liquidation Trust Interests have no voting rights with respect to the selection or replacement of the Liquidation Trustee or the Delaware Trustee and have no other voting rights.
The Audit Committee of the Trust was appointed by the Supervisory Board to oversee (i) the integrity of the annual, quarterly and other financial statements of the Trust, (ii) the independent auditor’s qualification and independence, (iii) the performance of the Trust’s independent auditor, and (iv) the compliance by the Trust with legal and regulatory requirements. The Audit Committee also is authorized, subject to final review by all disinterested members of the Supervisory Board in each case, to review and approve all related-person transactions in which the Trust is a participant as provided for in the Trust’s Related Person Transaction Policy. The Audit Committee is comprised of M. Freddie Reiss, who also serves as Chairman of the committee.
2.
The Wind-Down Group
Formerly under the Plan and the Wind-Down Entity LLC Agreement, the Wind-Down Entity was required to be managed by a three-member Board of Managers, one of whom was required to be the Chief Executive Officer. Accordingly, the Board of Managers initially consisted of Frederick Chin (then the Chief Executive Officer of the Wind-Down Entity), Richard Nevins and M. Freddie Reiss (the latter two being former members of the Debtors’ New Board). On November 30, 2022, the Wind-Down Entity LLC Agreement was amended to reduce the Wind-Down Entities’ Board of Managers to two members and to eliminate the requirement that the Chief Executive Officer serve as a member of the Board of Managers, effective upon Mr. Chin’s resignation on December 31, 2022, and Marion W. Fong was appointed to serve as Chief Executive Officer of the Wind-Down Entity effective as of January 1, 2023. Ms. Fong is not a member of the Board of Managers. On March 27, 2023, the Wind-Down Entity LLC Agreement was further amended and the Board of Managers was reduced to one person, M. Freddie Reiss, following the sale of the last single-family home and the resignation of Richard Nevins on April 29, 2023.
The Board of Managers is charged with the administration of the Wind-Down Entity, including the power to carry out any and all acts necessary, convenient or incidental to or for the furtherance of the purposes of the Wind-Down Entity. Except as otherwise provided in the Plan and the Wind-Down LLC Agreement, no individual member of the Board, in his or her capacity as such, has any authority to bind the Wind-Down Entity.
Members of the Board of Managers serve until they resign, die, become incapacitated or are removed for Cause by the Trust. “Cause” is defined in the Wind-Down Entity LLC Agreement, with respect to any Manager, as (i) the embezzlement, misappropriation of any property or other asset of the Wind-Down Entity; (ii) the commission of, or the entering of a plea of nolo contendere or guilty with respect to, any felony whatsoever or any misdemeanor involving moral turpitude; or (iii) any willful and material breach of the terms of the Wind-Down Entity LLC Agreement or the terms of the Plan applicable to such Manager. Any member of the Board of Managers may resign by giving not less than thirty (30) calendar days’ prior notice of resignation to the other members. Vacancies on the Board of Managers are required to be filled by the Trust.
Subject to the Plan and the Wind-Down Entity LLC Agreement, the Board of Managers also is charged with the supervision and oversight of the Chief Executive Officer. The Chief Executive Officer of the Wind-Down Entity was Frederick Chin until his resignation on December 31, 2022. Effective January 1, 2023, Marion W. Fong became the Wind-Down Entity’s Chief Executive Officer, while retaining her existing role as Chief Financial Officer. In addition to the Chief Executive Officer, the Wind-Down Entity had 3 employees as of September 27, 2023.
Subject to the supervision of the Board of Managers as described above, the Chief Executive Officer has the authority, except as otherwise provided in the Plan, to carry out and implement all applicable provisions of the Plan for the ultimate benefit of the Trust, including the authority to do the following:
•
retain, compensate, and employ professionals and other persons to represent the Wind-Down Entity in connection with its rights and responsibilities;
•
establish, maintain, and administer accounts of the Debtors as appropriate;
Part I
Item 1.
Business (Continued)
•
maintain, develop, improve, administer, operate, conserve, supervise, collect, settle, and protect the assets of the Wind-Down Entity;
•
sell, liquidate, transfer, assign, distribute, abandon, or otherwise dispose of the assets of the Wind-Down Entity, including through the formation on or after the Plan Effective Date of any new or additional legal entities to be owned by the Wind-Down Entity to own and hold particular assets of the Wind-Down Entity separate and apart from any other assets of the Wind-Down Entity, upon such terms as the Chief Executive Officer determines to be necessary, appropriate, or desirable;
•
invest cash of the Debtors and their estates, including any cash realized from the liquidation of the assets of the Wind-Down Entity;
•
negotiate, incur, and pay the expenses of the Wind-Down Entity;
•
exercise and enforce all rights and remedies regarding any loans or related interests as to which the lender was a Debtor and the underlying borrower actually is or actually was a person or organization that is not a Debtor, including any such rights or remedies that any Debtor or any estate was entitled to exercise or enforce prior to the Plan Effective Date on behalf of a holder of a Non-Debtor Loan Note Claim, and including rights of collection, foreclosure, and all other rights and remedies arising under any promissory note, mortgage, deed of trust, or other document with such underlying borrower or under applicable law;
•
comply with the Plan, exercise the Chief Executive Officer’s rights, and perform the Chief Executive Officer’s obligations; and
•
exercise such other powers as deemed by the Chief Executive Officer to be necessary and proper to implement the provisions of the Plan.
Each of the Wind-Down Subsidiaries is managed by the Wind-Down Entity, its sole member. The Wind-Down Entity’s Chief Executive Officer serves as Chief Executive Officer of each of the Wind-Down Subsidiaries.
Distributions of cash or other assets of the Wind-Down Group are to be made as and when determined by the Board of Managers in its sole discretion, provided however that on the first business day that is 30 calendar days after each calendar quarter-end, the Wind-Down Entity is to remit to the Trust as of such quarter-end any cash in excess of its budgeted amount for ongoing operations, reserves for contingent liabilities, including potential construction defect claims, other anticipated expenses and other Plan obligations.
3.
Current year plan of operations
During the remainder of the fiscal year ending June 30, 2024, the Trust plans to continue to engage in the resolution of claims filed against the Debtors, the evaluation and prosecution of the Unresolved Causes of Action, the disposition of Forfeited Assets, and the payment of Priority Tax Claims against the Debtors. Subject to the receipt of remittances from the Wind-Down Entity, the payment of Trust expenses, Priority Tax Claims and the retention of various reserves, the Trust may also make distributions of cash to Interestholders in accordance with the Plan. However, during the fiscal year ended June 30, 2023, a construction defect claim was asserted against one of the Wind-Down Susidiaries by the buyer of one of the subsidiary’s single-family homes. The subsidiary has tendered the claim to its insurance carrier. At this time, the amount of the liability exposure, if any, has not been determined and it is not known whether the subsidiary has any exposure in excess of its insurance coverage. The subsidiary is investigating the claim, including the extent and causes of the alleged damage and the identification of other potentially responsible persons. On August 3, 2023, at the recommendation of the Liquidation Trustee, the Trust suspended the making of additional Trust distributions pending the results of the investigation of the claim.
During the remainder of the fiscal year ending June 30, 2024, the Wind-Down Group will continue to manage the liquidation of the remaining assets, including completing the pending sale of its one parcel of real property, managing the performing secured loan through its December 15, 2024 maturity date, processing remaining bond and property tax refunds, coordinating all necessary work for the release of an escrow holdback and other activities as needed. In addition, the Wind-Down Group will continue to work to satisfy construction defect claims (where such activities are considered necessary or appropriate). The Wind-Down Group expects to fund its capital requirement for its operating costs primarily with cash and cash equivalents on hand.
Part I
Item 1.
Business (Continued)
4.
Termination and dissolution of the Company
The Trust is required to be terminated, and the Liquidation Trustee discharged from duties, at such time as: (i) the Liquidation Trustee determines that the pursuit of additional Causes of Action held by the Trust is not likely to yield sufficient additional proceeds to justify further pursuit of such Causes of Action and (ii) all distributions required to be made by the Liquidation Trustee to the holders of allowed claims and to the Interestholders under the Plan and the Trust Agreement have been made. Notwithstanding the above, the Trust must be terminated no later than February 15, 2024 unless the Bankruptcy Court, upon motion made within the six-month period before such date, determines that a fixed period extension is necessary to facilitate or complete the recovery on, and liquidation of, the Trust’s assets, except that the Bankruptcy Court may not grant an extension that, together with any prior extensions, exceeds three years unless the Trust has obtained a favorable letter ruling from the Internal Revenue Service to the effect that the further extension would not adversely affect the status of the Trust as a liquidating trust for federal income tax purposes.
During the year ended June 30, 2023, the Company concluded that its liquidation activities would not be completed by February 15, 2024, the current outside termination date of the Trust, for a number of reasons. First, there have been significant delays in certain legal proceedings where the Company is the plaintiff as more fully described in "Item 3. Legal Proceedings". Second, a construction defect claim has been asserted against one of the Wind-Down Subsidiaries by the buyer of one of the subsidiary’s single-family homes. The subsidiary has tendered the claim to its insurance carrier. At this time, the amount of the liability exposure, if any, has not been determined and it is not known if the subsidiary has any exposure in excess of its insurance coverage. The subsidiary is investigating the claim, including the extent and causes of the alleged damage and the identification of other potentially responsible persons. Based on the foregoing, the Company currently projects a revised estimated completion date for the Company’s operations of approximately March 31, 2026.
The Company is required to file a motion with the Bankruptcy Court to extend the termination date of the Trust beyond February 15, 2024. The motion is required to be filed within six months before February 15, 2024. The Company expects that the motion will be filed as required and that the Bankruptcy Court will grant the motion as the extension is needed to pursue additional Trust actions that are expected to yield additional proceeds to the Trust and to address the construction defect claim.
The Trust may not be terminated at any time by the Interestholders. Upon any termination of the Trust, any remaining assets of the Trust that exceed the amounts required to be paid under the Plan may be transferred by the Liquidation Trustee to the American Bankruptcy Institute Endowment Fund.
Pursuant to its Limited Liability Company Agreement, the Wind-Down Entity shall dissolve upon the first to occur of the following: (i) the written consent of the Trust, (ii) the entry of a decree of judicial dissolution under Section 18-802 of the Delaware LLC Act and (iii) the sale or other disposition of all of the Wind-Down Assets.
F.
Access to Information
The Trust’s website is located at www.woodbridgeliquidationtrust.com. The information on the Trust’s website is not part of this Annual Report. Through its website, the Trust makes available, free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished to the SEC. These reports are available as soon as reasonably practicable after the Trust electronically files these reports with the SEC. The Trust also posts on its website its Code of Conduct and Conflict of Interest Policy, Code of Ethics, Insider Trading Policy and other corporate governance materials required by SEC regulation. These documents are also available in print to any Interestholder requesting a copy from the Liquidation Trustee.
Part I

---

ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
An investment in the Liquidation Trust Interests involves various risks. An investor should carefully consider the risks and uncertainties described below and the other information included or incorporated by reference in this Annual Report before deciding to invest in the Liquidation Trust Interests. Any of the risk factors set forth below could significantly and adversely affect the Company’s business, prospects, financial condition and results of operations. As a result, the trading price of the Liquidation Trust Interests could decline, and an investor could lose a part or all of his or her investment.
Risks Relating to Uncertainties Relating to Causes of Action
Future distributions by the Trust will primarily depend on the successful outcome of the Unresolved Causes of Action. The Company has disposed of substantially all of its real estate assets and does not expect to receive additional Fair Funds. The source of funds for future distributions by the Trust will depend primarily on its successful prosecution of the Unresolved Causes of Action.
The amount and timing of receipts, if any, from Causes of Action is inherently speculative and risky and cannot be predicted with certainty. The Trust does not expect to receive the proceeds of the Unresolved Causes of Action unless and until it successfully obtains judgments or concludes settlements with respect to such Unresolved Causes of Action and is successful in recovering on such judgments or settlements. The Trust may not be successful in litigating the Unresolved Causes of Action or, if it is successful, there could be a significant delay before any recovery is obtained and distributed (if ever). The outcome of litigation is inherently speculative and uncertain, and there can be no assurance that the Trust will obtain a favorable judgment or settlement with respect to any particular Unresolved Cause of Action. Due to the speculative and risky nature of litigation and settlement efforts, the Company is unable to make any meaningful determination of the potential outcome or value, in the aggregate, of the Unresolved Causes of Action. In addition, even if there is a favorable judgment or settlement, there can be no assurance that the Trust will be able to recover some or all of such judgment or settlement.
Delays in the prosecution of the Unresolved Causes of Action, and the need to investigate and resolve a construction defect claim, are expected to extend the Company’s anticipated liquidation period. Appeals and other events that affect the duration of litigation have generated delays in the timing of net recoveries from the Trust’s prosecution of its Unresolved Causes of Action and completion of the Company’s liquidation. Additionally, a construction defect claim has been asserted against a subsidiary of the Trust by the buyer of one of the subsidiary’s single-family homes, and the Company’s investigation of the claim, including the extent and causes of the alleged damage and the identification of other potentially responsible persons, will require additional time. Accordingly, during the year ended June 30, 2023 the Company concluded that its liquidation activities would not be completed by February 15, 2024, the current outside termination date of the Trust. The Company currently projects a revised estimated completion date for the Company’s operations of approximately March 31, 2026. The Company is required to file a motion with the Bankruptcy Court to extend the termination date of the Trust beyond February 15, 2024. The motion is required to be filed within six months before February 15, 2024. The Company expects that the motion will be filed as required and that the Bankruptcy Court will grant the motion as the extension is needed to pursue additional Trust actions that are expected to yield additional proceeds to the Trust and to address the construction defect claim. Further delays in the Trust’s litigation, the receipt of any additional construction defect claims, or other events and factors may require the Company to seek further extensions of the term of the Trust. Extensions of the Trust’s anticipated liquidation period will increase the overall operating and administrative costs of the Company and reduce the amounts available for distribution in respect of the Liquidation Trust Interests.
Even if there is a recovery based on the Unresolved Causes of Action, there can be no assurances that there will be sufficient funds to make any distributions to Interestholders. Even if the Trust obtains a judgment or settlement based on the Unresolved Causes of Action and successfully recovers funds on account of such judgment or settlement, there can be no assurance that the Interestholders will receive any proceeds from such judgment or settlement. Before Interestholders receive distributions, the Liquidation Trustee must pay Trust expenses and may set aside funds for future expenses, contingent liabilities, including potential construction defect claims.
Limited information regarding developments in the Trust’s prosecution of the Unresolved Causes of Action and potential outcomes will be available; therefore, it may be difficult for Interestholders to assess the amount of recovery. The Trust is required to file current and periodic reports with the SEC, as required under the Exchange Act. The SEC reports include certain information regarding pending Unresolved Causes of Action. However, the Trust’s ability to disclose details of the Unresolved Causes of Action is limited by the inherent nature and rules of judicial proceedings, including, among other things, proceedings and filings that are sealed by a court, matters involving attorney-client and work product privilege and proceedings that are conducted on a confidential basis by agreement of the parties, such as settlement negotiations. To the extent that information regarding the Unresolved Causes of Action cannot be provided, it will be difficult for investors in the Liquidation Trust Interests to make any meaningful determination of the potential outcome or value of the Unresolved Causes of Action.
Part I
Item 1A.
Risk Factors (Continued)
Risks Relating to Real Estate Assets
The Wind-Down Group may remain subject to potential liabilities for construction defects for an extended period of time following the sale of its properties. In connection with its sales of developed real properties and pursuant to applicable law, the Wind-Down Group may face potential claims for construction defects for up to 10 years following the completion of construction. There can be no assurance that contractor’s guaranties and warranties will be adequate to indemnify the Wind-Down Group against all such claims. In the ordinary course of business, the Wind-Down Group seeks to obtain liability insurance (as available) in order to address its potential liability for construction defects. If contractor’s guaranties and insurance policies were to prove insufficient, the Wind-Down Group may become exposed to further costs, including potentially expensive litigation and significant adverse judgments. Any significant liabilities resulting from such post-sale obligations may adversely affect the Wind-Down Group’s financial position, net assets in liquidation and cash flow which would, in turn adversely affect the Trust’s ability to make distributions to its Interestholders. Furthermore, the amount of cash available for distribution to the Trust upon completion of the Wind-Down Group’s activities may be affected by reserves that the Wind-Down Group may be required to set aside in order to make reasonable provision for future or unknown construction defect claims. There is also no guarantee that the estimated reserves will be sufficient to cover unknown future liabilities.
The Wind-Down Group’s working capital may not be sufficient to cover construction defect claims and complete liquidation activities and may be restricted in its ability to access capital. As of August 31, 2023, and June 30, 2023, the Wind-Down Group had existing unrestricted cash and cash equivalents of approximately $10.60 million and $10.84 million, respectively. The Wind-Down Group does not have access to any line of credit.
The Wind-Down Group’s real estate asset portfolio is limited. The Wind-Down Group’s real estate asset portfolio consisted of two real estate assets as of June 30, 2023,with a net carrying value of $0.77 million as of June 30, 2023. The Company does not expect to add any new real estate assets to its portfolio. Completion of the liquidation of the existing real estate portfolio, other than its one performing secured loan, is anticipated during the fiscal year ending June 30, 2024. Accordingly, investors are advised that the Wind-Down Group’s real estate portfolio represents a very limited source of future distributions to the Trust.
The Wind-Down Group may not be able to sell its real estate (or “real estate assets”) for its carrying value. The Wind-Down Group has estimated the sales price of its real estate assets. There are many factors which are outside of the Wind-Down Group’s control which may impact the actual sales price of its real estate assets. The actual sales price will be determined through negotiations between the Wind-Down Group and prospective buyers. The actual sales price of the real estate assets may differ materially from the estimates.
The Wind-Down Group may suffer environmental liabilities which could result in substantial costs. Under various environmental laws, the current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances, including asbestos-containing materials that are located on or under the property. These laws often impose liability whether the owner or operator knew of, or was responsible for, the presence of those substances. In connection with the Wind-Down Group’s ownership and operation of properties, it may be liable for these costs, which could be substantial. In addition, the Wind-Down Group may become subject to claims by third parties based on damages and costs resulting from environmental contamination at or emanating from the properties.
Part I
Item 1A.
Risk Factors (Continued)
Risks Relating to the Liquidation Trust Interests
The Liquidation Trust Interests are not suitable as a long-term investment. The Company intends to complete the liquidation in as short a time as is consistent with the maximization of the value of its assets. The Company currently projects an estimated completion date for the Company’s operations of approximately March 31, 2026.
The Liquidation Trust Interests are subject to forfeiture of their right to further distributions if a holder fails to promptly cash a distribution check or fails to promptly claim a distribution check that is returned to the Trust as undeliverable. The Plan provides that if the Trust mails a distribution check to an Interestholder and the Interestholder fails to cash the check within 180 calendar days, or if the Trust mails a distribution check to an Interestholder and such check is returned to the Trust as undeliverable and is not claimed by the Interestholder within 180 days, then the Interestholder not only loses its right to the amount of that distribution, but also is deemed to have forfeited its right to any reserved and future distributions under the Plan. It is the responsibility of the Interestholders to promptly cash all distribution checks received by them and to contact the Trust’s transfer agent to ensure that the Trust has complete and accurate information.
The Trust cannot predict with certainty the timing or amount of distributions to the Interestholders. It is not possible to predict with certainty the timing and amount of future distributions to Interestholders. The Trust will make distributions to the Interestholders only if and to the extent that it receives remittances from the Wind-Down Entity, proceeds from the Causes of Action or Forfeited Assets, and then only to the extent that such remittances or proceeds exceed any amounts withheld by the Liquidation Trustee for, among other things, payment of, and reserves for, Trust expenses and funding of the prosecution of Unresolved Causes of Action. Such cash receipts cannot be predicted with certainty because they are subject to conditions beyond the Trust’s control, or which are inherently uncertain. Remittances by the Wind-Down Entity will depend on the amount and timing of the Wind-Down Group’s sale of its remaining real estate asset, as well as the Wind-Down Group’s operating expenses and potential construction defect claims. Cash proceeds from Causes of Action will depend on the Trust obtaining, and recovering on, favorable judgments or settlements with respect to Causes of Action. On August 3, 2023, at the recommendation of the Liquidation Trustee, the Trust suspended the making of distributions pending the results of the investigation of a construction defect claim.
Part I
Item 1A.
Risk Factors (Continued)
The Trust cannot predict with certainty the percentage of distributions to which each holder of a Class A Interest will be entitled. Such percentage will depend on the total number of Liquidation Trust Interests that ultimately are granted. Additional Liquidation Trust Interests will be granted to holders of disputed claims as and when the Trust resolves such claims, at which time they become allowed claims under the Plan. To the extent that additional Liquidation Trust Interests are granted to the holders of allowed claims, the percentage of distributions to which each holder of a Class A Interest is entitled will decrease. To the extent that additional claims are not allowed, no additional Liquidation Trust Interests will be granted in respect thereof and the percentage of distributions to which each holder of a Class A Interest is entitled will increase. As of September 27, 2023, $887.42 million of Class 3, Class 4 and Class 5 Claims have become allowed claims. The Trust estimates, as of September 27, 2023, that approximately $0.34 million of additional Class 3, Class 4 and Class 5 Claims will ultimately be allowed. However, the actual amount of allowed claims may be materially different from the estimate.
The Class A Interests are thinly traded. The
Class A Interests are not listed on any national securities exchange, but instead are traded on the over-the-counter market (OTC Link® ATS) under the symbol WBQNL. Accordingly, the Class A Interests may not be suitable for investors preferring highly liquid securities and may present challenges in profit-taking and other trading risks.
The market price for Class A Interests may be volatile. Many factors could cause the market price of Class A Interests to rise and fall, including the following:
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Declaration and payment of distributions;
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Adverse court rulings or other developments affecting the prosecution of the Unresolved Causes of Action;
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Actual or anticipated fluctuations in the Trust’s or the Wind-Down Group’s quarterly or annual financial results;
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Various market factors or perceived market factors, including rumors, whether or not correct, involving the Trust, the Wind-Down Group, the properties, potential buyers, or the Wind-Down Group’s competitors;
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Sales, or anticipated sales, of large blocks of Liquidation Trust Interests, including short selling by investors;
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Additions or departures of key personnel;
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Regulatory or political developments;
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Litigation and governmental or regulatory investigations;
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Changes in real estate market conditions; and
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General economic, political, and financial market conditions or events.
To the extent that there is volatility in the price of Class A Interests, the Trust may also become the target of securities litigation. Securities litigation could result in substantial costs and divert the Trustee’s and the Supervisory Board’s attention and the Company’s resources as well as depress the value of Liquidation Trust Interests.
Certain holders of Class A Interests, deemed under the Bankruptcy Code to be “underwriters,” may not be able to sell or transfer their Class A Interests in reliance upon the Bankruptcy Code’s exemption from the registration requirements of federal and state securities laws. Such “statutory underwriters” may include members of the Supervisory Board and holders of ten percent (10%) or more of the Liquidation Trust Interests. Statutory underwriters may not be able to offer or sell their Class A Interests without registration under the Securities Act or applicable state securities (i.e., “blue sky”) laws unless such offer and sale is exempted from the registration requirements of such laws. The offer and sale of Class A Interests by statutory underwriters in reliance upon an exemption from registration under the Securities Act may require compliance with the requirements and conditions of Rule 144 of such law, including those regarding the holding period, the adequacy of current public information regarding the Trust, sale volume restrictions, broker transactions, and the filing of a notice.
Part I
Item 1A.
Risk Factors (Continued)
Potential conflicts of interest exist among the classes of Liquidation Trust Interests. The existence of separate classes of Liquidation Trust Interests could give rise to occasions when the interests of the Interestholders could diverge, conflict or appear to diverge or conflict. Operational and financial decisions by the Liquidation Trustee regarding litigation could favor one class (i.e., Class A or Class B) of Interestholders over another, adversely affecting the market value of a particular class of Liquidation Trust Interests or the distribution to that particular class of Liquidation Trust Interests.
The Class A Interests may become the subject of third-party tender offers. The Trust believes that one or more institutional investors have, or in the future may acquire, an interest in conducting a tender offer for the Class A Interests. Such tender offers may be commenced without the offeror having negotiated with the Trust to make price or other terms of the offer more attractive, and without the offeror having sought the Trust’s recommendation of the offer to its holders. As a result of thin trading of the Class A Interests on the over-the-counter market, the liquidity of such securities may be limited, and it may be difficult to establish a market price for such securities. Holders of Class A Interests presented with a tender offer may be at a disadvantage in evaluating such offer.
Risks Relating to Limited Purpose
The Trust has a limited purpose. The Trust cannot conduct any trade or business for profit. The Trust was formed pursuant to a chapter 11 bankruptcy plan. The Trust’s purpose is to prosecute Causes of Action, to litigate and resolve claims filed against the Debtors, to pay Allowed Administrative Claims and Priority Claims against the Debtors (including professional fees), to receive cash from certain sources and, in accordance with the Plan, to make distributions of cash to Interestholders subject to the retention of various reserves, including those related to potential construction defect claims and after the payment of Trust expenses and Allowed Administrative Claims and Priority Claims.
The Trust does not expect to generate or receive cash other than from limited sources. The Trust does not expect to receive significant cash other than from remittances to the Trust by the Wind-Down Entity (reflecting the net proceeds of the Wind-Down Group’s liquidation of its portfolio of real estate assets) and from litigation or settlement by the Trust of its Unresolved Causes of Action. Furthermore, the Wind-Down Entity’s remaining portfolio is limited.
The Trust’s cash may be invested only in investments permissible under applicable Treasury regulations. Cash not available for distribution and cash pending distribution is expected to be held in demand and time deposits, such as short-term deposits in banks or other savings institutions or other temporary, liquid investments such as Treasury bills. Such investments are likely to bear only low rates of interest. There can be no assurance that cash will earn interest or dividends at a rate in excess of inflation, or at all. The Liquidation Trustee will not be liable in the event of the insolvency or failure of any institution in which he or she has invested any funds of the Trust.
Risks Relating to Deposits with Financial Institutions
Our cash and cash equivalents may be exposed to the failure of banking institutions. While we seek to minimize our exposure to third-party losses of our cash and cash equivalents, we hold our balances in a number of financial institutions. Notwithstanding their size and reserves, such institutions remain subject to the risk of failure. The Company had a banking relationship with First Republic Bank, which was seized and sold to JP Morgan on May 1, 2023. The Company’s deposits were within the FDIC insurance limits. The recent failures of First Republic Bank, Silicon Valley Bank and Signature Bank have had and may continue to have an adverse impact on other financial institutions, the extent of which impact cannot be foreseen at this time. If, in the future, the financial institutions with which we maintain deposits or transact business enter into receivership or become insolvent, there can be no guarantee that the Department of the Treasury, the Federal Reserve or the FDIC will intercede to protect depositors and customers. If, at any time, our deposits with any financial institution exceed the FDIC insurance limit, the Company’s deposits may be subject to loss. The Company’s access to its cash and cash equivalents could also become limited, impairing the Company’s ability to fund its remaining liquidation activities. In addition, if any parties with which we conduct business are unable to access funds pursuant to lending relationships or their deposit accounts with such a financial institution, the ability of such parties to continue to perform their obligations to us could be adversely affected, which, in turn, could have a material adverse effect on our liquidation activities and changes in net assets in liquidation.
Part I
Item 1A.
Risk Factors (Continued)
Risks Relating to Management and Control
The Trust is controlled by the Liquidation Trustee and the Interestholders have no voting rights regarding decisions made on behalf of the Trust. All decisions concerning the Unresolved Causes of Action and distribution of assets of the Trust are to be made by the Liquidation Trustee, in accordance with the terms of the Plan and the Trust Agreement, with approval by the Supervisory Board for certain decisions as set forth in the Trust Agreement. The Interestholders have no right to elect or remove the Liquidation Trustee. The Liquidation Trustee may be removed by Bankruptcy Court order upon the motion of the Supervisory Board and a showing of good cause; provided, however, that the proposed removal and replacement of Michael Goldberg as Liquidation Trustee will require a determination by the Bankruptcy Court that “cause” exists for such removal and replacement using the standard under Bankruptcy Code section 1104 made after notice of such proposed removal and replacement has been provided to the SEC.
Interestholders have only limited rights against the Liquidation Trustee and the Liquidation Trustee has limited liability to the Trust. The Trust Agreement provides that the Liquidation Trustee and the Delaware Trustee (and their respective affiliates, directors, officers, employees and representatives) and any officer, employee or agent of the Trust or its affiliates have no liability to the Trust or the Interestholders except for acts or omissions of the Liquidation Trustee or the Delaware Trustee undertaken with the deliberate intent to injure the Interestholders or with reckless disregard for the best interests of the Interestholders. Any liability of the Liquidation Trustee will be limited to actual, proximate and quantifiable damages. The Trust Agreement further provides that the Liquidation Trustee shall not incur any liability for any act or omission under the Trust Agreement unless the Liquidating Trustee has acted with gross negligence, fraud, or willful misconduct. The Trust Agreement provides that the Interestholders have no voting rights (except in connection with certain amendments to the Trust Agreement).
The Trust has limited control over the Wind-Down Entity. The business and affairs of the Wind-Down Entity are managed by its Board of Managers. The Trust, as the sole member of the Wind-Down Entity, has only limited approval rights over decisions by the Board of Managers. Under the Wind-Down Entity LLC Agreement, the Trust may remove members of the Board of Managers only for Cause, as defined in the Wind-Down Entity LLC Agreement. In the event of a dispute between the Trust and the Wind-Down Entity as to any matter that cannot be resolved between the Trust and the Wind-Down Entity, the Wind-Down Entity LLC Agreement requires that the matter be resolved by the Bankruptcy Court.
The Company’s success depends on the continuing contributions of its key personnel. The Wind-Down Group has a skilled management team to oversee the resolution of construction defect claims relating to its single-family homes, the sale of its remaining real estate property and the accounting and financial reporting for the Trust. However, it does not have agreements with any key personnel that hinders such individuals’ ability to quit at will and, thus, any executive officer or key employee may terminate his or her relationship with the Wind-Down Group at any time upon relatively short notice.
Being a public company is expensive and administratively burdensome. The Trust is subject to the periodic reporting requirements of the Exchange Act. The Trust’s status as a reporting company under the Exchange Act causes the Trust to incur additional legal, accounting, financial reporting and other expenses.
Risks Relating to Taxes
If the Trust is not treated as a liquidating trust for federal tax purposes, there may be adverse tax consequences to the Trust and the Interestholders. Pursuant to the Plan and the Trust Agreement, the Trust was organized with the intention that it conform to the requirements of a liquidating trust under applicable IRS rules. However, not all aspects of the formation of the Trust are expressly addressed in such rules, and the requirements of such rules are not always specific. No legal opinions have been requested from counsel, and no rulings have been or will be requested from the IRS, as to the tax treatment of the Trust. Accordingly, there can be no assurance that the IRS will not determine that the Liquidation Trust does not qualify as a liquidating trust. If the Trust does not qualify as a liquidating trust, there may be adverse federal income tax consequences, including taxation of the income of the Trust at the entity level, which could reduce the amount of Trust cash available for distributions to Interestholders or result in tax assessments of Interestholders upon their receipt of distributions.
Part I
Item 1A.
Risk Factors (Continued)
As a liquidating trust, the Trust is subject to federal tax rules that limit its operations. To maintain its status as a liquidating trust, the Trust needs to comply with IRS regulations and revenue procedures applicable to the operation of liquidating trusts. The Trust is prohibited or restricted from, among other activities, engaging in the conduct of a trade or business, unreasonably prolonging its liquidation activities, or allowing business activities to obscure the liquidating purpose of the Trust. Furthermore, the Trust is subject to restrictions on its ability to retain net income or the net proceeds from the sale of assets from year to year and to make investments. Due to the lack of specificity and indeterminate nature of the applicable requirements, there can be no assurance that the Trust will be able to comply with the IRS rules. If the Trust fails to comply with such rules, the IRS may determine that the Trust’s status as a liquidating trust may be revoked. Revocation of such status may entail adverse federal income tax consequences to the Trust and the Interestholders.
The Trust may be restricted under applicable federal tax rules from accepting all Fair Fund recoveries and Forfeited Assets. Under applicable IRS rules, liquidating trusts are not permitted to receive or retain cash or cash equivalents in excess of a “reasonable” amount to meet claims and contingent liabilities, including potential construction defect claims and disputed claims or to maintain the value of the assets during liquidation. It is unclear whether the approximately $5 million cash contributions to the Trust under the Plan, together with any future Fair Fund recoveries or Forfeited Assets, will be determined to be an amount in excess of such limit.
An Interestholder’s tax liability could exceed distributions. If the Trust has income for a taxable year, the appropriate portion of that income may be includable in an Interestholder’s taxable income, whether or not any cash is actually distributed to the Interestholder by the Trust. The Plan and the Trust Agreement permit the Trust to reserve certain amounts to fund, among other things, operating and other expenses, and do not contain a mandatory tax distribution provision. Therefore, for any particular year, there may be no distribution or a distribution that is less than an Interestholder’s tax liability on its share of the income of the Trust. Interestholders are urged to consult with their tax advisors regarding the acquisition, ownership and disposition of Liquidation Trust Interests.
Purchasers of Liquidation Trust Interests may be required to make special calculations to determine tax gain or loss on the sale of Liquidation Trust Interests. The Trust does not maintain a separate basis account for any purchaser of a Liquidation Trust Interest in an open market transaction. However, to the extent the Trust is treated as a grantor trust, the purchaser may be treated as though such purchaser purchased the Liquidation Trust Interest deemed to have been owned by the selling Interestholder. The new purchaser may receive a new tax basis in the acquired Liquidation Trust Interests equal to such purchaser’s purchase price of the Liquidation Trust Interests. Upon the sale of assets by the Trust and its related entities, the basis of the Liquidation Trust Interest on the books and records of the Trust may be different than the new purchaser’s basis, requiring the new purchaser to make special calculations to report the correct gain or loss for federal income tax purposes. Interestholders are urged to consult with their tax advisors regarding the acquisition, ownership and disposition of Liquidation Trust Interests.
Expenses incurred by the Trust may not be deductible by Interestholders. Expenses incurred by the Trust generally are deemed to have been proportionately paid by each Interestholder. As such, these expenses may not be deductible or be subject to limitations on deductibility. Interestholders are urged to consult with their tax advisors regarding the acquisition, ownership and disposition of Liquidation Trust Interests.
Before purchasing Liquidation Trust Interests, investors are urged to engage in careful tax planning with a tax professional. The federal income tax treatment of the Liquidation Trust Interests is complex and may not be clear in all cases. For example, in the case of an investor who purchases Liquidation Trust Interests in more than one transaction at different times and for different prices, and subsequently sells a portion of such Liquidation Trust Interests, there appears to be no clear guidance as to whether such purchaser can use average-cost basis in all of its Liquidation Trust Interests or instead may claim a higher or lower tax basis depending on the specific price of each lot. Additionally, the federal income tax treatment of the Liquidation Trust Interests may vary depending on the investor’s particular facts and circumstances. Investors other than individual citizens or residents of the U.S., and certain other persons subject to special treatment under the Internal Revenue Code, should consider the impact of their status on the tax treatment of such an investment. Persons subject to such special treatment under the Internal Revenue Code may include foreign companies, family trusts, 401(k) or individual retirement accounts, non-citizens of the U.S., tax-exempt organizations, real estate investment trusts, small business investment companies, regulated investment companies, governmental entities, entities exercising governmental authority, banks and certain other financial institutions, broker-dealers, insurance companies, and persons that have a functional currency other than the U.S. dollar.
Part I
Item 1A.
Risk Factors (Continued)
Risks Relating to Accounting, Financial Reporting and Information Management
The Company’s consolidated financial statements are prepared on the Liquidation Basis of Accounting, which requires the estimation of the future value of assets and the amount of projected expenses. Estimates by management may be based, among other things, on projected selling periods, the estimated termination date of the Trust, and the levels of general and administrative expenses (such as payroll, legal and professional fees, office rent and other expenses). However, the actual realized value of the Company’s assets and the Company’s actual expenses are likely to differ from the estimated amounts reported in the Company’s consolidated financial statements, and such differences may be material and possibly adverse.
The Company’s consolidated financial statements do not include any future recoveries from Unresolved Causes of Action and no future Fair Fund recoveries are expected. The Company’s consolidated financial statements are prepared using the Liquidation Basis of Accounting, under which future cash flows are recorded only if the Company has executed an agreement, final court approval is received and collectability is reasonably assured. Because the Company is unable to reasonably estimate future recoveries, if any, from Unresolved Causes of Action, and no future Fair Fund recoveries are expected, such items have not been recognized in the Company’s consolidated financial statements. Therefore, the Company’s consolidated financial statements are not expected to provide prospective investors in the Liquidation Trust Interests with meaningful information regarding such future recoveries, the amount of which may be material to the Company’s net assets in liquidation.
The Wind-Down Entity’s real estate assets may not be liquidated at their recorded estimated net realizable value. The estimated net realizable value is an estimate of the amount that the Wind-Down Entity expects to realize from the sale of the real estate assets. The actual sales price and closing and other costs may differ from the amounts included in the consolidated financial statements. The estimated sales price and closing and other costs are based on management’s analysis of current market conditions. The actual amounts realized will be based on negotiations between management and third-party buyers. The actual amounts realized will likely be different than the amounts included in the consolidated financial statements and the differences could be material and possibly adverse.
The Wind-Down Entity’s and the Trust’s operating costs, including reserves for construction defect claims that are included in accrued liquidation costs may be different than the actual costs incurred. The projected costs may be different than the actual costs and the length of time required to complete the liquidation process may be longer than the time that was estimated. The actual amount of costs will likely be different than the amounts included in the consolidated financial statements and the difference could be material and possibly adverse.
If the Trust is unable to maintain effective internal control over financial reporting in the future, the accuracy and timeliness of its financial reporting may be adversely affected. If the Trust identifies one or more material weaknesses in the Trust’s internal control over financial reporting and such weakness remains uncorrected at fiscal year-end, the Trust may be required to disclose that such internal control is ineffective at fiscal year-end. Were this to occur, the Trust could lose investor confidence in the accuracy and completeness of its financial reports, which could have a material adverse effect on the Trust’s reputation and the value of the Liquidation Trust Interests.
Part I
Item 1A.
Risk Factors (Continued)
Information technology, data security breaches and other similar events could harm the Company. The Company relies on information technology and other computer resources to perform operational activities as well as to maintain its business records and financial data. The Company’s computer systems are subject to damage or interruption from power outages, computer attacks by hackers, viruses, catastrophes, hardware and software failures and breach of data security protocols by its personnel or third-party service providers. Although the Company has implemented administrative and technical controls and taken other actions to minimize the risk of cyber incidents and otherwise protect its information technology, computer intrusion efforts are becoming increasingly sophisticated and even the controls that the Company has installed might be breached. Further, most of these computer resources are provided to the Company or are maintained on behalf of the Company by third-party service providers pursuant to agreements that specify certain security and service level standards, but which ultimately are outside of the Company’s control. Additionally, security breaches of the Company’s information technology systems could result in the misappropriation or unauthorized disclosure of proprietary, personal and confidential information which could result in significant financial or reputational damages to the Company.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B.
Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2.
Properties
As of September 27, 2023, the Company’s real estate consists of one performing loan secured by a property located in the state of Ohio and one property located in the state of Hawaii. A transaction for the sale of the property located in Hawaii is currently pending.
Part I

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ITEM 3. LEGAL PROCEEDINGS
Item 3.
Legal Proceedings
Below are descriptions of pending litigation. As the Company is the plaintiff in these legal proceedings and does not have the ability to estimate the ultimate recovery amount until they are settled, and in accordance with the Company’s accounting policy, no recoveries have been recorded in the Company’s consolidated financial statements for these legal proceedings, other than for settlements for which the Trust has entered into a signed settlement agreement and collectability is reasonably assured.
Goldberg v. Halloran & Sage LLP, et al., Case No. 19STCV42900 (Cal. Super. Ct., L.A. Cnty., filed Dec. 2, 2019), is an action by the Trust against nine law firms (Halloran & Sage LLP; Balcomb & Green, P.C.; Rome McGuigan, P.C.; Haight Brown & Bonesteel LLP; Bailey Cavalieri LLC; Sidley Austin LLP; Davis Graham & Stubbs LLP; Robinson & Cole LLP; and Finn Dixon & Herling LLP) and ten individual attorneys (Richard Roberts, Lawrence R. Green, Jon H. Freis, Brian Courtney, Ted Handel, Thomas Geyer, Neal Sullivan, S. Lee Terry, Jr., Shant Chalian, and Reed Balmer) for conduct in connection with their representation of Robert Shapiro, the Debtors or their affiliates before the commencement of the Bankruptcy Cases, as well as against up to 100 “Doe” defendants. The conduct challenged in the complaint includes knowingly and/or negligently preparing loan documents and investment agreements with material misstatements and omissions, designing deceptive securities products, preparing incorrect legal opinion memoranda on which investors relied, and assisting in the creation of nominally third-party borrower entities that were in fact controlled by Robert Shapiro.
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The first set of counts in the complaint are against law firm Halloran & Sage LLP, attorney Richard Roberts, and the “Doe” defendants for aiding and abetting securities fraud (First Count), aiding and abetting fraud (Second Count), aiding and abetting breach of fiduciary duty (Third Count), negligent misrepresentation (Fourth Count), professional negligence (Fifth Count), and aiding and abetting conversion (Sixth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
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The second set of counts in the complaint are against law firm Balcomb & Green, P.C., attorney Lawrence R. Green, and the “Doe” defendants for aiding and abetting securities fraud (Seventh Count), aiding and abetting fraud (Eighth Count), aiding and abetting breach of fiduciary duty (Ninth Count), negligent misrepresentation (Tenth Count), professional negligence (Eleventh Count), and aiding and abetting conversion (Twelfth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
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The third set of counts in the complaint are against attorney Jon H. Freis and the “Doe” defendants for aiding and abetting securities fraud (Thirteenth Count), aiding and abetting fraud (Fourteenth Count), aiding and abetting breach of fiduciary duty (Fifteenth Count), negligent misrepresentation (Sixteenth Count), professional negligence (Seventeenth Count), and aiding and abetting conversion (Eighteenth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
•
The fourth set of counts in the complaint are against law firm Rome McGuigan, P.C., attorney Brian Courtney, and the “Doe” defendants for aiding and abetting securities fraud (Nineteenth Count), aiding and abetting fraud (Twentieth Count), aiding and abetting breach of fiduciary duty (Twenty-First Count), negligent misrepresentation (Twenty-Second Count), professional negligence (Twenty-Third Count), and aiding and abetting conversion (Twenty-Fourth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
•
The fifth set of counts in the complaint are against law firm Haight Brown & Bonesteel LLP, attorney Ted Handel, and the “Doe” defendants for aiding and abetting securities fraud (Twenty-Fifth Count), aiding and abetting fraud (Twenty-Sixth Count), aiding and abetting breach of fiduciary duty (Twenty-Seventh Count), negligent misrepresentation (Twenty-Eighth Count), professional negligence (Twenty-Ninth Count), and aiding and abetting conversion (Thirtieth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $20 million, as well as for punitive damages.
Part I
Item 3.
Legal Proceedings (Continued)
•
The sixth set of counts in the complaint are against law firm Bailey Cavalieri LLC, Thomas Geyer, and the “Doe” defendants for aiding and abetting securities fraud (Thirty-First Count), aiding and abetting fraud (Thirty-Second Count), aiding and abetting breach of fiduciary duty (Thirty-Third Count), negligent misrepresentation (Thirty-Fourth Count), professional negligence (Thirty-Fifth Count), and aiding and abetting conversion (Thirty-Sixth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
•
The seventh set of counts in the complaint are against law firm Sidley Austin LLP, attorney Neal Sullivan, and the “Doe” defendants for aiding and abetting securities fraud (Thirty-Seventh Count), aiding and abetting fraud (Thirty-Eighth Count), aiding and abetting breach of fiduciary duty (Thirty-Ninth Count), negligent misrepresentation (Fortieth Count), professional negligence (Forty-First Count), and aiding and abetting conversion (Forty-Second Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.
•
The eighth set of counts in the complaint are against law firm Davis Graham & Stubbs LLP, attorney S. Lee Terry, Jr., and the “Doe” defendants for aiding and abetting securities fraud (Forty-Third Count), aiding and abetting fraud (Forty-Fourth Count), aiding and abetting breach of fiduciary duty (Forty-Fifth Count), negligent misrepresentation (Forty-Sixth Count), professional negligence (Forty-Seventh Count), and aiding and abetting conversion (Forty-Eighth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $200 million, as well as for punitive damages.
•
The ninth set of counts in the complaint are against law firm Robinson & Cole LLP, attorney Shant Chalian, and the “Doe” defendants for aiding and abetting securities fraud (Forty-Ninth Count), aiding and abetting fraud (Fiftieth Count), aiding and abetting breach of fiduciary duty (Fifty-First Count), negligent misrepresentation (Fifty-Second Count), professional negligence (Fifty-Third Count), and aiding and abetting conversion (Fifty-Fourth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $5 million, as well as for punitive damages.
•
The tenth set of counts in the complaint are against law firm Finn Dixon & Herling LLP, attorney Reed Balmer, and the “Doe” defendants for aiding and abetting securities fraud (Fifty-Fifth Count), aiding and abetting fraud (Fifty-Sixth Count), aiding and abetting breach of fiduciary duty (Fifty-Seventh Count), negligent misrepresentation (Fifty-Eighth Count), professional negligence (Fifty-Ninth Count), and aiding and abetting conversion (Sixtieth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $5 million, as well as for punitive damages.
•
The eleventh set of counts in the complaint are against law firms Halloran & Sage LLP; Balcomb & Green, P.C.; Rome McGuigan, P.C.; Haight Brown & Bonesteel LLP; Bailey Cavalieri LLC; Sidley Austin LLP; Davis Graham & Stubbs LLP; Robinson & Cole LLP; and Finn Dixon & Herling LLP; attorney Jon H. Freis, and the “Doe” defendants for actual-intent fraudulent transfer (Sixty-First Count) and constructive fraudulent transfer (Sixty-Second Count). These defendants are alleged to be liable for damages in an amount believed to be in excess of $5 million, as well as for provisional remedies, avoidance of the transfers, and punitive damages.
The case was designated as a complex matter on December 18, 2019 and was assigned to the Honorable Amy Hogue. The following are updates since the initial filing:
•
On March 20, 2020, two sets of defendants - Sidley Austin LLP and Neal Sullivan; and Davis Graham & Stubbs LLP and S. Lee Terry, Jr. - filed special motions to strike the portions of the complaint directed at them under a California statute (Civil Procedure Code section 425.16) that permits defendants to bring early challenges to causes of action against them that allegedly arise from protected litigation activity if those causes of action lack minimal merit. The defendants that filed these special motions to strike asserted that the claims against them arise from communicative conduct in the course of quasi-judicial proceedings, such as regulatory inquiries, and that the Trust cannot establish a likelihood of prevailing on its claims against them. The Trust opposed these motions, and the matters were heard on July 28, 2020, and taken under submission on that date. On August 14, 2020, the Court entered orders: (i) granting the motion to strike filed by Sidley Austin LLP and Neal Sullivan, and (ii) granting in part and denying in part the motion to strike filed by Davis Graham & Stubbs LLP and S. Lee Terry, Jr. In September 2020, the Trust filed notices of appeal of the foregoing orders, and Davis Graham & Stubbs LLP and S. Lee Terry, Jr. subsequently filed a cross-appeal. On January 27, 2021, the Court entered an order granting, in part, a motion for attorneys’ fees filed by Sidley Austin LLP and Neal Sullivan, pursuant to which the movants were awarded $282,500.00 in fees and $5,557.87 in costs. On March 1, 2021, the Trustee filed a notice of appeal of the order granting fees and costs.
Part I
Item 3.
Legal Proceedings (Continued)
•
On April 13, 2020, four sets of defendants - Rome McGuigan, P.C. and Brian Courtney; Bailey Cavalieri LLC and Thomas Geyer; Robinson & Cole LLP and Shant Chalian; and Finn Dixon & Herling LLP and Reed Balmer - filed motions to quash the service of summonses. The defendants that filed these motions asserted that they are not subject to suit in California because they do not have sufficient contacts with California to justify a California court’s exercise of jurisdiction over them. The Trust opposed these motions, and the matters were heard in part on July 15, 2020 and in part on July 20, 2020, and (with exception of the motion filed by Finn Dixon & Herling LLP and Reed Balmer) were taken under submission on July 20, 2020. The motion filed by Finn Dixon & Herling LLP, and Reed Balmer was taken off calendar prior to July 20, 2020, and the parties thereafter reached a confidential settlement. On July 21, 2020, the Court entered orders granting the motions to quash filed by Rome McGuigan, P.C. and Brian Courtney; Bailey Cavalieri LLC and Thomas Geyer; and Robinson & Cole LLP and Shant Chalian. On September 10, 2020, the Trust filed a notice of appeal of the foregoing orders.
•
On June 16, 2020, the Trust reached a confidential settlement with Balcomb & Green, P.C. and Lawrence R. Green. On July 6, 2020, these defendants filed a motion seeking the Court’s determination that the settlement was made in good faith under a California statute (Civil Procedure Code section 877.6) that permits settling defendants to seek a good faith settlement finding in order to bar any other defendant from seeking contribution or indemnity. The motion was unopposed, and the Court entered an order granting it on August 12, 2020.
•
On September 11, 2020, the Trust reached a settlement with Finn Dixon & Herling LLP and Reed Balmer that resolved all litigation between them.
•
On January 21, 2021, the Trust reached a confidential settlement with Robinson & Cole LLP and Shant Chalian. As part of that settlement, the appeal of the jurisdictional ruling as to those parties has been dismissed.
•
The other appeals remain pending. On June 14, 2021, the Trustee filed a combined opening brief for all of the appeals other than his appeal of the order granting fees and costs to Sidley Austin LLP. Between September 22 and 29, 2021, the respondents filed their opening briefs. On March 17, 2022, the Trustee filed a combined reply brief for all of the appeals other than his appeal of the order granting fees and costs to Sidley Austin LLP. On June 30, 2022, Davis Graham & Stubbs LLP filed its reply brief in support of its cross-appeal of the order denying a portion of its special motion to strike. The matter is currently fully briefed and awaiting argument.
•
While the appeals were pending, the Trust reached a settlement with Davis Graham & Stubbs LLP and Lee Terry on July 29, 2023 for $25.5 million, which amount is expected to result in proceeds to the Trust of approximately $17.0 million, net of attorneys’ fees and other litigation expenses. Davis Graham & Stubbs LLP and Mr. Terry have filed a motion for a good-faith settlement determination. The motion was granted on August 31, 2023. The settlement resolved all litigation between the Trust and Davis Graham & Stubbs LLP and Mr. Terry.
•
The appeal of the award granting fees and costs to Sidley Austin LLP remains pending. The appeal is fully briefed and will be decided following the disposition of the appeal of the underlying order.
•
In March 2023, the Trust dismissed its claims against Jon H. Freis.
•
In April 2023, the Trust reached a settlement with Bailey Cavalieri LLC and Thomas Geyer that resolved all litigation between them.
•
In June 2023, the Trust reached a settlement with Halloran & Sage and Richard Roberts for the remaining amount of the law firm’s applicable liability insurance policies, which resulted in proceeds paid to the Trust on August 11, 2023 of approximately $13.2 million, net of attorneys’ fees and other litigation expenses. This settlement resolved all litigation between the Trust and Halloran & Sage and Richard Roberts.
Part I
Item 3.
Legal Proceedings (Continued)
Goldberg v. Rome McGuigan, P.C., et al., Case No. 2:20-cv-09958-JFW-SK (C.D. Cal.). On October 28, 2020, the Trust filed a federal lawsuit against four defendants that prevailed on the motions to quash service of summons in the California state court action (Rome McGuigan, P.C.; Brian Courtney; Bailey Cavalieri LLC; and Thomas Geyer), as well as a fifth defendant (Ivan Acevedo), and certain “Doe” defendants.” The complaint contains counts for (i) violations of section 10(b) of the Exchange Act and Rule 10b-5; (i) aiding and abetting fraud; (iii) aiding and abetting breach of fiduciary duty; (iv) negligent misrepresentation; (v) professional negligence; (vi) aiding and abetting conversion; (vii) actual fraudulent transfer; and (viii) constructive fraudulent transfer. The conduct challenged in the complaint includes certain of the same conduct challenged in the California state court action, and a footnote in the complaint explains: “Plaintiff filed an action in Los Angeles Superior Court against [four of these defendants] raising some of the claims asserted in this action. Those defendants filed a motion to quash service, alleging that the court did not have personal jurisdiction. The Court granted those motions, and Plaintiff appealed. Plaintiff brings this action to preserve his rights and ensure that his claims against [the defendants] are adjudicated on the merits. Should the state court appeal be successful, resulting in two cases being simultaneously litigated on the merits in two forums, [plaintiff] will consider dismissing this action and litigating the case in state court.” On January 4, 2021, the four defendants from the California state court action filed motions to dismiss this federal lawsuit, and on March 4, 2021, the court entered an order granting those motions in part by dismissing the first count (arising under the federal securities laws), without ruling on the remaining counts (arising under state law) in light of potential personal jurisdiction issues. On March 29, 2021, the same four defendants again moved to dismiss the remaining counts for lack of personal jurisdiction. On April 23, 2021 the federal court entered an order granting those motions, but has not yet entered a final judgment.
Avoidance actions. The Trust is currently prosecuting several legal actions to recover preferential payments, fraudulent transfers, and other funds subject to recovery by the bankruptcy estate. These actions were filed in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”), are pending before the Honorable J. Kate Stickles, and generally fall into the following categories:
•
Preferential transfers and/or fraudulent transfers (Noteholders and Unitholders). Certain of the actions include claims arising under chapter 5 of the Bankruptcy Code and seek to avoid or recover payments made by the Debtors: (1) during the 90 days prior to the December 4, 2017 bankruptcy filing, including payments to miscellaneous vendors and former Noteholders and Unitholders; and/or (2) during the course of the Ponzi scheme (from July 2012 through the December 4, 2017 bankruptcy filing) for interest paid to former Noteholders and Unitholders.
•
Fraudulent transfers (Shapiro personal expenses). Two remaining actions include claims arising under chapter 5 of the Bankruptcy Code and seek to avoid and recover payments made by the Debtors during the course of the Ponzi scheme (from July 2012 through the December 4, 2017 bankruptcy filing) for the personal expenses of Robert and Jeri Shapiro, including those identified in a forensic report prepared in connection with an SEC enforcement action in the United States District Court for the Southern District of Florida.
•
Fraudulent transfers and fraud (against former agents). Certain of the actions, which arise under chapter 5 of the Bankruptcy Code and applicable state law governing fraudulent transfers, seek to avoid and recover payments made by the Debtors during the course of the Ponzi scheme (from July 2012 through the December 4, 2017 bankruptcy filing) for commissions to former agents, as well as for fraud, aiding and abetting fraud, and the unlicensed sale of securities asserted by the Trust based on claims contributed to the Trust by defrauded investors. These actions were filed by the Trust in the Bankruptcy Court between November 15, 2019 and December 4, 2019. Actions of this type are also being pursued by the SEC, and it is the Trust’s understanding that any recoveries obtained by the SEC will be transmitted to the Trust pursuant to a Fair Fund established by the SEC.
•
Fraudulent transfers (Kenneth Halbert). The Trust has pursued fraudulent transfer claims against Kenneth Halbert to avoid and recover prepetition payments of principal and interest to Mr. Halbert. The Trust filed its initial complaint on December 1, 2019 and the operative first amended complaint on December 7, 2021. Fact discovery closed on April 24, 2023. Thereafter, on June 27, 2023, the Trust agreed to settle its pending fraudulent transfer claims against Kenneth Halbert. The terms of the settlement are contained in a settlement agreement between the Trust, and Mr. Halbert. Under the agreement, the Trust agreed to dismiss its claims against Mr. Halbert for the sum of $4 million, payable in cash to the Trust. The Trust received the settlement payment on August 15, 2023 and dismissed the action against Mr. Halbert on August 22, 2023.
Part I
Item 3.
Legal Proceedings (Continued)
The Trust has filed over 400 legal actions of this nature, many of which have been resolved, resulting in recoveries by or judgments in favor of the Trust. As of September 27, 2023, 34 of these legal actions remain pending.
Since inception and as of September 27, 2023, the Trust has entered into settlements in approximately 235 legal actions and approximately 245 potential avoidance claims for which litigation was not filed, resulting in aggregate settlements of approximately $22.45 million of cash payments made or due to the Trust and approximately $11.28 million in reductions of claims against the Trust.
Additionally, the Trust has obtained judgments of approximately $169.07 million, including default judgments of approximately $152.89 million and stipulated judgments of approximately $16.18 million. It is unknown at this time how much, if any, will ultimately be collected on these judgments, as stipulated and default judgments are commonly obtained where the defendant has insufficient assets, if any, to satisfy a judgment.
Other legal proceedings. In addition, other legal proceedings were prosecuted by the Trust and United States governmental authorities, which actions resulted in recoveries in favor of the Trust. Such actions include:
•
Actions regarding the Shapiro’s personal assets. On December 4, 2019, the Trust filed an action in the Bankruptcy Court, Adv. Pro. No. 10-51076 (BLS), Woodbridge Liquidation Trust v. Robert Shapiro, Jeri Shapiro, 3X a Charm, LLC, Carbondale Basalt Owners, LLC, Davana Sherman Oaks Owners, LLC, In Trend Staging, LLC, Midland Loop Enterprises, LLC, Schwartz Media Buying Company, LLC and Stover Real Estate Partners LLC. In this action, the Trust asserts claims under chapter 5 of the Bankruptcy Code and applicable state law for avoidance of preferential and fraudulent transfers together with claims for fraud, aiding and abetting fraud, the unlicensed sale of securities, breach of fiduciary duty and unjust enrichment. The Trust seeks to recover damages and assets held in the names of Robert Shapiro, Jeri Shapiro and their family members and entities owned or controlled by them, which assets the Trust contends are beneficially owned by the Debtors or for which the Debtors are entitled to recover based on the Shapiros’ defalcations, including over $20 million in avoidable transfers. On February 4, 2022, the Trust entered into a Settlement Agreement with Ms. Jeri Shapiro resolving the Trust’s adversary proceeding against Ms. Shapiro. In connection with the Settlement Agreement, Ms. Shapiro responded to interrogatories from the Trust and submitted a declaration under penalty of perjury detailing her lack of assets. Upon execution of the Settlement Agreement, Ms. Shapiro executed and delivered a Stipulated Judgment for approximately $20.6 million that will be held by the Trust in escrow for three years that can be entered without notice if the Trust learns Ms. Shapiro’s representations in her declaration were false or materially inaccurate. Additionally, Ms. Shapiro authorized the Trust to expunge the filed claims of certain co-defendants she was listed as an officer and turned over payments to the Trust that were received by certain co-defendants in the adversary proceeding. A stipulation of dismissal (as to Ms. Shapiro only) was entered on April 1, 2022.
•
Criminal proceeding and forfeiture. In connection with the United States’ criminal case against Robert Shapiro (Case No. No. 19-20178-CR-ALTONAGA (S.D. Fla. 2019)), Shapiro agreed to the forfeiture of certain assets. The Trust filed a petition in the Florida court to claim the Forfeited Assets as property of the Debtors’ estates, and therefore as property that had vested in the Trust pursuant to the Plan. The Trust has entered into an agreement with the United States Department of Justice to resolve its claim. The agreement was approved by the Bankruptcy Court on September 17, 2020 and was approved by the United States District Court on October 1, 2020. Among other things, the agreement provides for the release of specified Forfeited Assets by the United States to the Trust, and for the Trust to liquidate those assets and distribute the net sale proceeds to Qualifying Victims, which include the vast majority of Trust beneficiaries-specifically, all former holders of Class 3 and 5 claims under the Plan and their permitted assigns-but do not include former holders of Class 4 claims under the Plan. The Trust has taken possession of the Forfeited Assets and has sold the wine and gold assets as well as an automobile. A substantial majority of the jewelry, art, clothing, handbags and shoes have also been sold.
Part I
Item 3.
Legal Proceedings (Continued)
Wind-Down Group litigation. The Wind-Down Group owned a portfolio of real estate assets, which included secured loans and other properties. As part of its recovery efforts, the Wind-Down Group, through its subsidiaries, is involved in ordinary routine litigation incidental to such assets. Among other litigation, certain Woodbridge entities (including the Trust, the Wind-Down Entity, and WB 8607 Honoapiilani, LLC) filed an action against Certain Underwriters at Lloyd’s of London in Los Angeles Superior Court, alleging that the defendant insurer breached its obligations under an insurance policy purchased to protect a property owned by WB 8607 Honoapiilani (a subsidiary of the Wind-Down Entity) in Hawaii, which property was destroyed by fire in August 2017. The Superior Court granted the defendant’s motion for summary judgment, and on March 25, 2021 entered judgment in favor of the defendant. The judgment provided that plaintiffs take nothing by way of the complaint. Further, the judgment provided that defendant refund plaintiffs for the premium payments under the insurance policy at issue in the lawsuit ($110,829.43), less all amounts paid by the defendant in respect of claims under the policy ($97,770.38) and less defendant’s costs (defendant requested costs of $9,874.71). Plaintiffs appealed the judgment. The appeal was fully briefed and oral argument took place before the Court of Appeal on November 21, 2022. After extending its time to rule on the submitted matter, the Court of Appeal entered its ruling on April 19, 2023. In an unpublished opinion, the Court of Appeal affirmed the judgment of the Superior Court and awarded costs on appeal to the respondent Underwriters. Although the Wind Down Entity had a right to petition the California Supreme Court for review, such petitions are rarely granted, and counsel did not believe that there was a realistic chance that the petition would be granted, particularly since the Court of Appeal opinion is unpublished and would not be citable precedent in California. As such, the Court of Appeal opinion became final 30 days after entry, on May 19, 2023.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4.
Mine Safety Disclosures
Not applicable.
Part II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The Trust has two classes of common equity: Class A Interests and Class B Interests. Neither class is listed on any national securities exchange.
Class A Interests are traded on the over-the-counter market (OTC Link® ATS) under the trading symbol WBQNL. Over-the-counter quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. As of September 27, 2023, there were approximately 7,124 holders of record of the Class A Interests.
Since issuance, Class B Interests have not been transferable except by operation of law or by will or the laws of descent and distribution. Accordingly, there has not been any established public trading market for the Class B Liquidation Trust Interests or any available price quotations. As of September 27, 2023 there were approximately 1,182 holders of record of the Class B Interests.
Dividends and Distributions
Liquidation Trust Interests represent a right to receive a pro rata portion of distributions by the Trust pursuant to the terms of the Plan and the Trust Agreement. Since the Plan Effective Date, the Liquidation Trustee has authorized eleven cash distributions to the holders of Class A Interests. See “Item 1. Business - A. Overview” of this Annual Report.
The Liquidation Trustee will continue to assess the adequacy of funds held and determine the availability of funds for additional distributions to Interestholders, but does not currently know the timing or amount of any such distribution(s). Additional cash distributions will be subject to, among other things, the establishment of reasonable reserves for contingent liabilities, including potential construction defect claims and future costs and expenses. Pursuant to the Plan and the Trust Agreement, all distributions are net of any costs and expenses incurred by the Trust in connection with administering, litigating or otherwise resolving the various Causes of Action of the Trust and operating the Trust. Amounts withheld and not distributed may also include fees and expenses of the Liquidation Trustee, premiums for directors’ and officers’ insurance, and other insurance and fees and expenses of attorneys and consultants.
Distributions will be made only from assets of the Trust and only to the extent that the Trust has sufficient assets (in excess of reserves for contingent liabilities, including potential construction defect claims and future costs and expenses, among other things) to make such payments in accordance with the Plan and the Trust Agreement. No distribution is required to be made to any Interestholder unless such Interestholder is to receive in such distribution at least $10.00 or unless such distribution is the final distribution to such Interestholder pursuant to the Plan and the Trust Agreement. Distributions will be made at the sole discretion of the Liquidation Trustee in accordance with the provisions of the Plan and the Trust Agreement.
On August 3, 2023, at the recommendation of the Liquidation Trustee, the Trust suspended the making of additional Trust distributions pending the results of the investigation of a construction defect claim.
Since its inception, the Wind-Down Entity has made substantial progress toward completion of its liquidation activities and has liquidated all but two real estate assets with a net carrying value of approximately $0.77 million. Holders of Liquidation Trust Interests are advised that future distributions from the Trust, if any, will be limited and will be materially reliant on future recoveries from litigation, net of accrued liquidation costs, including amounts for potential construction defect claims, which are uncertain and the amount and timing of which, if any, are difficult to determine.
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (Continued)
As claims are resolved, additional Class A Interests may be issued or cancelled (see “Part 1, Item 1. Business, D. Plan Provisions Regarding the Company, 2. Treatment under the Plan of holders of claims against and equity interests in the Debtors and 3. Assets and liabilities of the Company”). Therefore, the total amount of a distribution declared may change between the date declared and the date paid. In addition, distributions may change if Interestholders that were previously deemed to have forfeited their rights to receive Class A Interest distributions subsequently respond and if overpaid distributions are returned.
Sales of Unregistered Securities
In accordance with the Plan, all Liquidation Trust Interests have been issued without registration under the Securities Act. The Liquidation Trust Interests have been issued only to holders of allowed claims in Class 3, Class 4, and Class 5 entirely in exchange for such claims. See “Item 1. Business - D. Plan Provisions Regarding the Company - 2. Treatment under the Plan of holders of claims against and equity interests in the Debtors” of this Annual Report. During the period from February 15, 2019 (inception) through June 30, 2023, the Trust has issued an aggregate of 11,543,697 Class A Interests and an aggregate of 677,790 Class B Interests. As of June 30, 2023, the Trust has 11,515,800 Class A Interests and 675,617 Class B Interests outstanding. All Liquidation Trust Interests were issued on the Plan Effective Date or from time to time thereafter as soon as practicable as and when claims in Class 3, Class 4 or Class 5 have become allowed.
During the three months ended June 30, 2023, the Trust issued the following Liquidation Trust Interests:
Date of Sale
Number of
Class A
Interests Sold
Number of
Class B
Interests Sold
Nature of the
Transaction
Consideration
Received
May 29, 2023
1,610.00
-
Allowance of claims
Allowance of claims
Total
1,610.00
-
The issuance of Liquidation Trust Interests without registration under the Securities Act has occurred in reliance upon the exemption from such registration afforded by Section 1145(a)(1) of the Bankruptcy Code. Section 1145(a)(1) exempts the offer and sale of securities under a plan of reorganization from registration under the Securities Act and state securities laws and regulation if (i) the securities are offered and sold under a plan of reorganization and are securities of the debtor, of an affiliate of the debtor participating in a joint plan with the debtor, or of a successor to the debtor under the plan; (ii) the recipients of the securities hold a pre-petition or administrative claim against the debtor or an interest in the debtor; and (iii) the securities are issued entirely in exchange for the recipient’s claim against or interest in the debtor, or principally in such exchange and partly for cash or property. The Trust believes that the Liquidation Trust Interests are securities of a “successor” to the Debtors within the meaning of Section 1145(a)(1), and such securities were issued under the Plan entirely in exchange for allowed claims in Class 3, Class 4, and Class 5.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6.
[Reserved]
Part II

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of changes in net assets and net assets in liquidation should be read in conjunction with “Item 8. Financial Statements and Supplementary Data” of Part II of this Annual Report, and other financial information appearing elsewhere in this Annual Report. This discussion contains “forward-looking statements” within the meaning of the Securities Act and the Exchange Act. All such forward-looking statements are based upon the Trust’s current expectations and involve risks and uncertainties which may cause actual results to differ materially from those expressed or implied by the forward-looking statements. See “Cautionary Note About Forward-Looking Statements” included at the beginning of this Annual Report for a description of these risks and uncertainties. The Trust, the Remaining Debtors, the Wind-Down Entity and the Wind-Down Subsidiaries, as used herein, are defined in Note 1 to the consolidated financial statements and are collectively referred to herein as the “Company”.
Overview
Pursuant to the Plan, the Trust was formed on February 15, 2019 to hold, either directly or indirectly through the Wind-Down Entity and the Wind-Down Subsidiaries, the assets and equity interests formerly owned by the Debtors. Each of the real properties formerly owned by the Debtors was transferred, on the effective date of the Plan to one of the Wind-Down Subsidiaries. The purpose of the Wind-Down Group is to develop (as applicable), market, and sell those properties to generate cash. Assets formerly owned by the Debtors other than real estate assets and certain cash were transferred to the Trust on the Plan Effective Date. The purpose of the Trust is to receive remittances of cash from the Wind-Down Entity, to resolve disputed claims, to prosecute the Causes of Action, to pay Allowed Administrative Claims and Priority Claims and subject to the payment of Trust expenses and the retention of various reserves, to make distributions of cash to Interestholders in accordance with the Plan.
The Trust operates pursuant to the Plan and the Trust Agreement. The Trust was formed as a Delaware statutory trust and is administered by the Liquidation Trustee under the supervision of its Supervisory Board. The Wind-Down Entity, a wholly-owned subsidiary of the Trust, operates pursuant to the Plan and the Wind-Down Entity LLC Agreement. The Wind-Down Entity was formed as a Delaware limited liability company and is administered by its Board of Managers. The current sole member of the Board of Managers is also a member of the Supervisory Board of the Trust.
The Bankruptcy Court has retained certain jurisdiction regarding the Trust, the Liquidation Trustee, the Supervisory Board, the Wind-Down Entity, the Board of Managers, and assets of the Trust and the Wind-Down Entity, including the determination of all disputes arising out of or related to administration of the Trust and the Wind-Down Entity and its subsidiaries.
As of September 27, 2023 and June 30, 2023, the number of Liquidation Trust Interests outstanding in each class is as follows:
Number Outstanding as of
September 27, 2023
June 30, 2023
Class A Liquidation Trust Interests
11,514,578
11,515,800
Class B Liquidation Trust Interests
675,617
675,617
For each of the classes of Liquidation Trust Interests, the number of Liquidation Trust Interests outstanding will increase to the extent that the disputed claims become allowed claims. In addition, the number of Liquidation Trust Interests outstanding will decrease to the extent that disputed claims are settled by cancelling previously issued Liquidation Trust Interests.
Part II
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Since the Plan Effective Date through June 30, 2023, the Wind-Down Subsidiaries have disposed of approximately 148 properties for aggregate net sales proceeds of approximately $576.00 million. As of June 30, 2023, the Company owned two real estate assets with a net carrying value of approximately $0.77 million. Given the significantly smaller inventory of remaining real estate assets when compared to the inventory as of the Plan Effective Date, the amount of net proceeds from the sale of real estate assets in the future will be negligible as compared to the amount realized from the Plan Effective Date through June 30, 2023. The Company currently expects to complete its liquidation activities during the fiscal year ending June 30, 2026.
Discussion of the Company’s Operations
For the Year ended June 30, 2023
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the year ended June 30, 2023 ($ in thousands):
Restricted for
Qualifying Victims
All
Interestholders
Total
Net assets in liquidation as of beginning of year
$
3,485
$
30,910
$
34,395
Change in assets and liabilities:
Restricted for Qualifying Victims -
change in carrying value of assets and liabilities, net
-
All Interestholders-
Change in carrying value of assets and liabilities, net
-
(5,197
)
(5,197
)
Distributions (declared) reversed, net
-
(22,431
)
(22,431
)
Net change in assets and liabilities
-
(27,628
)
(27,628
)
Net assets in liquidation, as of end of year
$
3,491
$
3,282
6,773
Net assets in liquidation - Restricted for Qualifying Victims increased by approximately $6,000 during the year ended June 30, 2023.
Net assets in liquidation - All Interestholders decreased by approximately $27.63 million during the year ended June 30, 2023. This decrease was due to a decrease in the net carrying value of assets and liabilities of approximately $5.20 million, and a decrease from net distributions (declared) reversed of approximately $22.43 million (distributions declared of $25.03 million, less distributions reversed of $2.60 million for claims being disallowed or Class A Interests being cancelled).
The components of the changes in the carrying value of assets and liabilities, net are as follows ($ in thousands):
Restricted for
Qualifying Victims
All
Interestholders
Total
Remeasurement of assets and liabilities, net (1)
$
$
(5,066
)
$
(5,060
)
Carrying value in excess of sales proceeds
-
(1,555
)
$
(1,555
)
Settlement recoveries, net (2)
-
$
Other (3)
-
1,218
$
1,218
Change in carrying value of assets and liabilities, net
$
$
(5,197
)
$
(5,191
)
(1)
Includes accrued interest of approximately $62,000 and $1.57 million for Restricted for Qualifying Victims and for All Interestholders, respectively.
Part II
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
(2)
Net of 5% payable to the Liquidation Trustee of approximately $33,000 and an increase in the allowance for uncollectible settlement installment receivables of approximately $57,000 during the year ended June 30, 2023.
(3)
The components of Other are as follows ($ in thousands):
Sales of furniture, net
$
Cash interest earned
Miscellaneous
Total
$
1,218
During the year ended June 30, 2023, the Company:
•
Declared one distribution of $2.18 per Class A Interest, which totaled approximately $25.02 million. Distributions declared were also reduced by approximately $22,000 relating to claims that were denied after the tenth distribution was paid. Distributions declared were reduced by approximately $20,000 that was received from Interestholders that had been overpaid on prior distributions. Distributions declared were increased by approximately $60,000 relating to the first through tenth distributions for a claim that was allowed and for which the Company had not accrued a distribution.
•
Reversed distributions of approximately $2.63 million from claims being disallowed or Class A Interests being cancelled. Distributions that had been previously reversed were recorded of approximately $0.03 million for Interestholders that were previously deemed to have forfeited their rights to receive Class A Interest distributions but had subsequently responded .
•
Sold Forfeited Assets, including an automobile, jewelry, handbags, clothing and shoes for net proceeds of approximately $0.81 million.
•
Sold one single-family home, one other property and settled one secured loan for net proceeds of approximately $26.95 million.
•
Recorded approximately $0.30 million from the settlement of other Causes of Action, net of 5% payable to the Liquidation Trustee.
•
Accrued interest earnings for the period from July 1, 2023 through March 31, 2026 of approximately $1.63 million of which approximately $0.06 million relates to Forfeited Assets and the remaining amount of approximately $1.57 million relates to All Interestholders.
•
As a result of the expected additional time required for the Company to complete its liquidation activities from February 15, 2024 to March 31, 2026, the Company accrued additional accrued liquidation costs of approximately $7.7 million. The additional costs are primarily legal and other professional fees and payroll and payroll-related costs. A portion of the accrued liquidation costs relate to estimated reserves for contingent liabilities, including potential construction defect claims and the administration of such claims after its liquidation activities are completed.
•
Paid construction costs of approximately $1.99 million relating to single-family homes under development.
•
Paid holding costs of approximately $0.68 million.
•
Paid general and administrative costs of approximately $13.25 million, including approximately $0.53 million of board member fees and expenses, approximately $6.92 million of payroll and other general and administrative costs and approximately $5.80 million of professional fees.
Part II
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
For the year ended June 30, 2022
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the year ended June 30, 2022 ($ in thousands):
Restricted for
Qualifying Victims
All
Interestholders
Total
Net assets in liquidation as of beginning of year
$
3,167
$
126,373
$
129,540
Change in assets and liabilities:
Restricted for Qualifying Victims -
change in carrying value of assets and liabilities, net
-
All Interestholders-
Change in carrying value of assets and liabilities, net
-
47,602
47,602
Distributions (declared) reversed, net
-
(143,065
)
(143,065
)
Net change in assets and liabilities
-
(95,463
)
(95,463
)
Net assets in liquidation, as of end of year
$
3,485
$
30,910
$
34,395
Net assets in liquidation - Restricted for Qualifying Victims increased by approximately $0.32 million during the year ended June 30, 2022.
Net assets in liquidation - All Interestholders decreased approximately $95.46 million during the year ended June 30, 2022. This decrease was due to an increase in the net carrying value of assets and liabilities of approximately $47.60 million, net and a decrease from net distributions (declared) reversed of approximately $143.06 million (distributions declared of $145.04 million, less distributions reversed of $1.98 million for claims being disallowed or Class A Interests being cancelled).
The components of the change in the carrying value of assets and liabilities, net are as follows ($ in thousands):
Restricted for
Qualifying Victims
All
Interestholders
Total
Causes of Actions, net(1):
Comerica Bank
$
-
$
23,575
$
23,575
Other settlement recoveries recognized, net
-
2,004
2,004
Sales proceeds in excess of carrying value
20,130
20,183
Remeasurement of assets and liabilities, net
1,016
1,281
Other (2)
-
Change in carrying value of assets and liabilities, net
$
$
47,602
$
47,920
(1)
Net of 5% payable to the Liquidation Trustee of approximately $1.24 million for Comerica Bank and $105,000 for other settlement agreements during the year ended June 30, 2022.
(2)
The components of Other are as follows ($ in thousands):
Forfeited deposit from prospective buyer
$
Bond refunds
Sales of furniture, net
Property tax refunds
Cash interest earned
Miscellaneous
Total
$
Part II
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
During the year ended June 30, 2022, the Company:
•
Declared three distributions of $3.44, $3.44 and $5.63 per Class A Interest, which totaled approximately $40.02 million, approximately $39.98 million and approximately $65.04 million, respectively and $145.04 million in the aggregate.
•
Reversed distributions of approximately $0.82 primarily from claims being disallowed or Class A Interests being cancelled and reversed distributions of approximately $1.16 million for Interestholders that were deemed to have forfeited their rights to receive Class A Interest distributions.
•
Sold Forfeited Assets including wine, gold, handbags, clothing and shoes for net proceeds of approximately $0.61 million.
•
Completed construction of two single-family homes (642 St. Cloud and 638 Siena).
•
Sold six single-family homes and settled two secured loans for net proceeds of approximately $131.72 million. One of the single-family homes was under construction.
•
Recorded approximately $23.57 million from the settlement of the two pending actions against Comerica Bank, net of 5% payable to the Liquidation Trustee.
•
Recorded approximately $2.00 million from the settlement of other Causes of Action, net of 5% payable to the Liquidation Trustee.
•
Paid construction costs of approximately $13.49 million relating to single-family homes under development.
•
Paid holding costs of approximately $2.67 million.
•
Paid general and administrative costs of approximately $16.17 million, including approximately $0.71 million of board member fees and expenses, approximately $5.77 million of payroll and other general and administrative costs and approximately $9.69 million of professional fees.
Liquidity and Capital Resources
Liquidity
The Company’s only sources for meeting its capital requirements are its cash and cash equivalents, proceeds from the sale of its real estate assets, collection of escrow receivables, recoveries on Causes of Action and proceeds from the sale of Forfeited Assets.1 The Company’s primary uses of funds are and will continue to be for distributions and operating costs, including reserves for construction defect claims. While the Company expects to be able to adequately fund its operations over the next twelve months from its primary sources of capital, during the year ended June 30, 2023, a construction defect claim was asserted against a subsidiary of the Company by the buyer of one of the subsidiary’s single-family homes. At this time, the amount of the liability exposure, if any, has not been determined and it is not known whether the subsidiary has any exposure in excess of its insurance coverage.
Capital Resources
In addition to consolidated cash and cash equivalents as of June 30, 2023 of approximately $30.18 million (of which approximately $4.47 million is restricted), the capital resources available to the Company are as follows:
1 The Trust is required to distribute the net sale proceeds from liquidating the Forfeited Assets to the Qualifying Victims. Qualifying Victims are the former holders of Class 3 and Class 5 claims and their permitted assigns. Former holders of Class 4 claims are not Qualifying Victims. Because of the requirement to distribute the net sale proceeds of the Forfeited Assets to the Qualifying Victims only, the Forfeited Assets as of June 30, 2023 are presented in the consolidated statement of net assets as restricted net assets in liquidation. As of June 30, 2023, 11,435,913 of the 11,515,800 Class A Interests were held by Qualifying Victims. Of the 13,875 Class A Interests relating to unresolved claims as of June 30, 2023, 1,880 were for Qualifying Victims.
Part II
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
•
Sales of Real Estate: As of June 30, 2023, the Company owned a total of two real estate assets (including a promissory note that it plans to hold to maturity) with an estimated net carrying value of approximately $0.77 million. Based on the remaining assets of the Company, future net proceeds will be negligible as compared to the proceeds the Company has realized in prior periods. A transaction for the sale of the property located in Hawaii is currently pending.
•
Causes of Action Recoveries: During the year ended June 30, 2023, the Company recognized and received approximately $0.30 million from the settlement of Causes of Action. During the period from July 1, 2023 through September 27, 2023, the Company recognized and received approximately $17.41 million, net of litigation costs and attorney fees, from the settlement of Causes of Action. During the period from July 1, 2023 through September 27, 2023, the Company recorded approximately $1.20 million payable to the Liquidation Trustee, related to the settlement of Causes of Action. There can be no assurance that the amounts the Company recovers from settling Causes of Action in the future will be consistent with the amount recovered in prior periods.
•
Interest Earnings: At June 30, 2023, the Company accrued approximately $1.64 million of interest earnings through March 31, 2026. Of this amount, the Company projects to receive approximately $.93 million of interest earnings through June 30, 2024.
•
Forfeited Assets: Forfeited Assets consist of cash and other assets (jewelry, art, clothing, handbags and shoes). During the year ended June 30, 2023, the Trust sold some of its Forfeited Assets and received net proceeds of approximately $0.81 million. As noted earlier, net sale proceeds from liquidating the Forfeited Assets are to be distributed only to Qualifying Victims.
Uses of Liquidity
The primary uses of the Company’s liquidity are to pay distributions payable, operating costs, and costs related to construction defect claim(s) (if required). As of June 30, 2023, the Company’s total liabilities were approximately $26.82 million. The total liabilities recorded as of June 30, 2023 may not be indicative of the costs paid in future periods, which may vary materially from the current estimate.
Given current cash and cash equivalent balances, projected sales of real estate assets, estimated Causes of Action recoveries, distributions payable, and expected cash needs, the Company does not expect a deficiency in liquidity in the next twelve months. Due to the uncertain nature of future net sales proceeds, recoveries and costs to be incurred, it is not possible to be certain that the current liquidity will be adequate to cover all future financial needs of the Company. Creating contingent obligation agreements and/or seeking methods to reduce professional costs, including legal fees, and administrative costs are strategies that could be undertaken to address liquidity issues should they arise. These strategies could impact the Company’s ability to maximize recoveries from the settlement of unresolved Causes of Action.
Distributions
Distributions will be made at the sole discretion of the Liquidation Trustee in accordance with the provisions of the Plan and the Trust Agreement. On August 3, 2023, at the recommendation of the Liquidation Trustee, the Trust suspended the making of additional Trust distributions pending the result of the Company’s investigation of a construction defect claim.
As of September 27, 2023, the Liquidation Trustee has declared eleven distributions to the Class A Interestholders. The distributions include a cash distribution on account of the then-allowed claims and a deposit is made into a restricted cash account for amounts that are or may become payable (a) in respect of Class A Interests that may be issued in the future upon the allowance of unresolved bankruptcy claims, (b) in respect of Class A Interests on account of recently allowed claims, (c) for holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions, (d) for distributions that were withheld due to pending avoidance actions and (e) for holders of Class A Interests for which the Trust is waiting for further beneficiary information.
Part II
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
As claims are resolved, additional Class A Interests may be issued or cancelled (see “Part 1, Item 1. Business, D. Plan Provisions Regarding the Company, 2. Treatment under the Plan of holders of claims against and equity interests in the Debtors and 3. Assets and liabilities of the Company”). Therefore, the total amount of a distribution declared may change. In addition, distributions may change if Interestholders that were previously deemed to have forfeited their rights to receive Class A Interest distributions subsequently respond, and if overpaid distributions are returned. The Liquidation Trustee will continue to assess the adequacy of funds held and expects to make additional cash distribution(s) on account of Class A Interests but does not currently know the timing or amount of any such distribution(s).
Sections 7.6 and 7.18 of the Plan provide that distributions that have not been cashed within 180 calendar days of their issuance shall be null and void and the holder of the associated Liquidation Trust Interests “shall be deemed to have forfeited its rights to any reserved and future Distributions under the Plan,” with such amounts to become “Available Cash” of the Trust for all purposes. On February 1, 2022, the Trust sent letters to the holders of the Class A Interests who had failed to cash distribution checks in respect of prior distributions, which checks were issued more than 180 days prior to the date of the letter. The letter informed each recipient that, unless the Trust was contacted on or before February 28, 2022, such recipient’s reserved and future distributions would be deemed forfeited in accordance with the Plan The Trust provided this final notice simply as a one-time courtesy and reserves its rights to strictly enforce the Plan’s forfeiture provisions, and any other provision of the Plan, against any person (including any recipient of the final notice) at any time in the future, without further notice.
The following tables summarize the distributions declared, distributions paid and the activity in the restricted cash account for the periods from February 15, 2019 (inception) through June 30, 2023 and from February 15, 2019 (inception) through September 27, 2023:
During the Period from
February 15, 2019 (inception) through
June 30, 2023 ($ in Millions)
During the Period from
February 15, 2019 (inception) through
September 27, 2023 ($ in Millions)
Date
Declared
$ per
Class A Interest
Total
Declared
Paid
Restricted
Cash
Account
Total
Declared
Paid
Restricted
Cash
Account
Distributions Declared
First
3/15/2019
$
3.75
$
44.70
$
42.32
$
2.38
$
44.70
$
42.32
2.38
Second
1/2/2020
4.50
53.44
51.20
2.24
53.44
51.20
2.24
Third
3/31/2020
2.12
25.00
24.19
0.81
25.00
24.19
0.81
Fourth
7/13/2020
2.56
29.97
29.24
0.73
29.97
29.24
0.73
Fifth
10/19/2020
2.56
29.96
29.21
0.75
29.96
29.21
0.75
Sixth
1/7/2021
4.28
50.01
48.67
1.34
50.01
48.67
1.34
Seventh (a)
5/13/2021
2.58
30.04
29.35
0.69
30.04
29.35
0.69
Eighth
10/8/2021
3.44
40.02
39.14
0.88
40.02
39.14
0.88
Ninth
2/4/2022
3.44
39.98
39.15
0.83
39.98
39.15
0.83
Tenth
6/15/2022
5.63
65.02
64.19
0.83
65.02
64.19
0.83
Eleventh
5/10/2023
2.18
25.02
24.90
0.12
25.02
24.90
0.12
Subtotal
$
37.04
$
433.16
$
421.56
$
11.60
$
433.16
$
421.56
$
11.60
Distributions Returned / (Reversed)
Disallowed/cancelled (b)
(6.27
)
(6.31
)
Returned (c)
0.74
0.74
Forfeited (d)
(1.13
)
(1.13
)
Subtotal
(6.66
)
(6.70
)
Distributions Paid from Reserve Account (e)
(3.66
)
(3.66
)
Distributions Payable, Net
as of 6/30/2023:
$
1.28
as of 9/27/2023:
$
1.24
(a)
The seventh distribution included the cash the Trust received from recoveries of Fair Funds.
(b)
As a result of claims being disallowed or Class A Interests cancelled.
(c)
Distribution checks returned or not cashed.
(d)
Distributions forfeited as Interestholders did not cash checks that were over 180 days old.
(e)
Paid as claims are allowed or resolved.
Part II
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Since its inception, the Wind-Down Entity has made substantial progress toward completion of its liquidation activities and has liquidated all but two real estate assets with a net carrying value of approximately $0.77 million. Holders of Liquidation Trust Interests are advised that future distributions from the Trust, if any, will be limited and will be materially reliant on future recoveries from litigation, net of accrued liquidation costs, including amounts for potential construction defect claims, which are uncertain and the amount and timing of which, if any, are difficult to determine.
Contractual Obligations
The Company has an office lease that expires on January 31, 2024. The Company expects that it will continue to lease office space until the liquidation process is completed. The Wind-Down Entity has part-time employment agreements with its two executive officers through December 31, 2023. The agreements renew automatically until terminated, subject to the right of either party to terminate the agreement at any time and for any reason on thirty days’ advance written notice.
Critical Accounting Policies and Practices
The Company’s consolidated financial statements are prepared in accordance with U.S. GAAP. The accounting policies and practices that the Company believes are the most critical are discussed below. These accounting policies and practices require management to make decisions on subjective and/or complex matters that may inherently be uncertain. Estimates are required to prepare the consolidated financial statements in conformity with U.S. GAAP. Significant estimates, judgments and assumptions are required in a number of areas, including, but not limited to, the sales price of real estate assets, selling costs, development costs, holding costs, general and administrative costs to be incurred until the completion of the liquidation activities of the Company and estimated reserves for contingent liabilities, including potential construction defect claims and the administration of such claims after the Company’s liquidation activities are completed. In many instances, changes in the accounting estimates are likely to occur from period to period. Actual results may differ from the estimates. The Company believes the current assumptions and other considerations used in preparing the consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in the Company’s consolidated financial statements, the resulting changes could have a material adverse effect on the Company’s net assets in liquidation.
Liquidation Basis of Accounting
Under the Liquidation Basis of Accounting, all assets are recorded at their estimated net realizable value or liquidation value, which represents the estimated amount of net cash that may be received upon the disposition of the assets (on an undiscounted basis). Liabilities are measured in accordance with U.S. GAAP that otherwise applies to those liabilities. The Company has not recorded any amount from the future settlement of unresolved Causes of Action in the accompanying consolidated financial statements until an agreement is executed, final court approval is received and collectability is reasonably assured. The amounts recovered may be material to the Company’s net assets in liquidation.
Valuation of Real Estate
The measurement of real estate assets held for sale is based on current contracts (if any), if contingencies have been removed, estimates and other indications of sales value, net of estimated selling costs. To determine the value of real estate assets held for sale, the Company considered the three traditional approaches to value (cost, income and sales comparison) commonly used by the real estate appraisal community. The applicability and relevancy of each valuation approach as applied may differ by asset. In most cases, the sales comparison approach was accorded the greatest weight. This approach compares a property to other properties with similar characteristics that have recently sold. To validate management’s estimate, the Company also considers opinions from qualified real estate professionals and local real estate brokers and, in some cases, has obtained third party appraisals.
Part II
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Other Assets
The Company recognizes recoveries from the settlement of unresolved Causes of Action when an agreement is executed and collectability is reasonably assured. An allowance for uncollectible settlement installment receivables is recorded when there is doubt about the collectability of the receivable. The Company records escrow receivables at the amount that is expected to be received when the escrow receivable is released. The Forfeited Assets received from the United States Department of Justice (the “DOJ”), other than cash, have been recorded at their estimated net realizable value. The Company accrues expected interest earnings when it can forecast the interest rate to be paid on its cash on deposit.
In addition, the Company recognizes other amounts to be received based on contractual terms or when the amounts to be received are certain.
Accrued Liquidation Costs
The estimated costs associated with implementing and completing the Company’s plan of liquidation are recorded as accrued liquidation costs. The Company has also recorded the estimated remaining development costs to be paid and an accrual for contingent liabilities, including potential construction defect claims as well as the estimated holding, maintenance and repair costs to be incurred and the estimated general and administrative costs to be incurred until the completion of the liquidation of the Company.
Changes in Carrying Value
On a quarterly basis, the Company reviews the estimated net realizable values, liquidation costs and the estimated date of the completion of the liquidation of the Company and records any significant changes. The Company will also evaluate an asset when it is under contract for sale and the buyer’s contingencies have been removed. During the period that this occurs, the carrying value of the asset and the estimated closing and other costs will be adjusted, if necessary. If the Company has a change in its plan for the disposition of an asset, the carrying value will be adjusted to reflect this change in the period that the change is approved. The change in value may also include a change to the accrued liquidation costs related to the asset.
All changes in the estimated liquidation value of the Company’s assets, real estate held for sale, or other assets and liabilities, are reflected as a change to the Company’s net assets in liquidation.
Part II

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Not applicable, as the Company is a “smaller reporting company” within the meaning of Rule 12b-2 of the Exchange Act.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8.
Financial Statements and Supplementary Data
The information required by this Item is incorporated by reference to the consolidated financial statements set forth in Item 15 of Part IV of this Annual Report, “Exhibits and Financial Statement Schedules”.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None

---

ITEM 9A. CONTROLS AND PROCEDURES
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, management and the Liquidation Trustee evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, management and the Liquidation Trustee concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including the Liquidation Trustee, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended.
In connection with the preparation of our Form 10-K, our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2023. In making that assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).
Based on its assessment, our management believes that, as of June 30, 2023, our internal control over financial reporting was effective based on those criteria. There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

---

ITEM 9B. OTHER INFORMATION
Item 9B.
Other Information
None.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10.
Directors, Executive Officers, and Corporate Governance
The Liquidation Trustee
The Trust does not have directors or executive officers. All of the management and executive authority over the Trust resides in the Liquidation Trustee, subject to the supervision of the Supervisory Board.
Michael I. Goldberg, Esq., the Liquidation Trustee, age 59, has served as the Liquidation Trustee since inception of the Trust on February 15, 2019. Prior to that time, Mr. Goldberg served as a member of the Debtors’ independent board of managers and had been the SEC’s designee to that Board. Mr. Goldberg was unanimously selected to be the Liquidation Trustee by the Unsecured Creditors’ Committee, the Noteholder Committee, and the Unitholder Committee in the Debtors’ Bankruptcy Cases. Mr. Goldberg has been a partner in the law firm of Akerman LLP since 1997, where he is chair of the Fraud & Recovery Practice Group, a comprehensive fraud management team focusing on Ponzi schemes, receiverships, and EB-5 fraud. Mr. Goldberg has managed some of the largest Ponzi scheme liquidation recoveries in United States history and routinely testifies as a qualified expert witness on Ponzi schemes in federal and state court cases. Mr. Goldberg currently is the Receiver for Jay Peak and Q Resort, Inc., the owners and operators of a ski resort in northern Vermont, and for the Champlain Towers South condominium association in Surfside, Florida. For over 25 years, Mr. Goldberg has practiced law in the area of fraud and recovery and bankruptcy and reorganizations, regularly serving as a court-appointed fiduciary in unwinding Ponzi schemes. Mr. Goldberg holds Bachelor of Arts and Juris Doctor degrees from Boston University and a Master of Business Administration from New York University. He is admitted to practice law in state and federal courts in Florida and New York.
The Liquidation Trustee serves for the duration of the Trust, subject to earlier death, resignation or removal. The Liquidation Trustee may resign at any time by giving the Interestholders and the Supervisory Board at least sixty (60) days written notice of his or her intention to do so. A Liquidation Trustee may be removed and replaced by an order of the Bankruptcy Court upon the motion of the Supervisory Board and a showing of good cause, except that any proposed removal and replacement of Michael Goldberg as Liquidation Trustee will require a determination by the Bankruptcy Court that “cause” exists for such removal and replacement using the standard under Bankruptcy Code section 1104 made after notice of such proposed removal and replacement has been provided to the SEC. Under Bankruptcy Code section 1104, “cause” includes fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the Trust.
The Supervisory Board of the Trust
The Liquidation Trustee is subject to the supervision, to the extent provided in the Plan, of the Supervisory Board. The Supervisory Board consists of six members, five of whom have served as members of the Supervisory Board since inception and one of whom was elected on August 21, 2019. Except as otherwise indicated below, during the past five years none of the following named individuals has served or held a position with any company that is a parent, subsidiary or other affiliate of the Trust.
Jay Beynon, age 76, has been a member of the Supervisory Board since inception of the Trust and was appointed to such office in accordance with the Plan and Trust Agreement. Beginning in February 2018 and continuing until February 15, 2019, Mr. Beynon served as a member of the Ad Hoc Noteholder Group in the Bankruptcy Cases. Mr. Beynon is a real estate investor and, prior to his retirement in 2011, was a businessman with over 27 years’ experience, including as founder and chief executive officer of The Beynon Company, a graphic design agency, and the founder of Hot Rod Speed Works, the designer and fabricator of custom automobiles.
Raymond C. Blackburn, M.D., age 74, has been a member of the Supervisory Board since inception of the Trust and was appointed to such office in accordance with the Plan and Trust Agreement. Beginning in January 2018 and continuing until February 15, 2019, Dr. Blackburn served as a member of the Ad Hoc Unitholder Committee in the Bankruptcy Cases. Dr. Blackburn is a licensed physician in Texas and holds a Bachelor of Arts in Chemistry from Oakwood University and a Doctor of Medicine from Loma Linda University School of Medicine. Dr. Blackburn specialized in and practiced dermatology in Dallas, Texas for nearly 38 years. Retired since August 2016, Dr. Blackburn maintains an active medical license in Texas. He is a retired member of the Dallas County Medical Society, the Texas State Medical Society and the American Academy of Dermatology.
Part III
Item 10.
Directors, Executive Officers, and Corporate Governance (Continued)
Terry R. Goebel, age 70, has been a member of the Supervisory Board since inception of the Trust and was appointed to such office in accordance with the Plan and Trust Agreement. Mr. Goebel currently serves as Chair of the Supervisory Board. Beginning in December 2017 and continuing until February 15, 2019, Mr. Goebel served as a member of the Unsecured Creditors’ Committee in the Bankruptcy Cases, having been appointed to such position by the U.S. Trustee’s Office. Mr. Goebel is the President and a principal owner of G3 Group LA, a California-licensed general contractor specializing in the development of high-end, luxury residences. Mr. Goebel’s responsibilities at G3 Group LA include oversight of field operations.
Lynn Myrick, age 79, has been a member of the Supervisory Board since inception of the Trust and was appointed to such office in accordance with the Plan and Trust Agreement. Ms. Myrick was appointed to the Unsecured Creditors’ Committee in the Bankruptcy Cases on April 3, 2018 by the U.S. Trustee’s Office, succeeding to her husband Ron Myrick’s position after his death, and continued to serve on that committee until February 15, 2019. Retired since 2013, Ms. Myrick worked as an elementary school teacher and has experience in charitable fund-raising for the Boston Ballet and the Southwest Florida Symphony Society. Ms. Myrick holds an Associate of the Arts in Interior Design and a Bachelor of Science from the University of Louisville.
John J. O’Neill, age 80, has been a member of the Supervisory Board since inception of the Trust and was appointed to such office in accordance with the Plan and Trust Agreement. Beginning in December 2017 and continuing until February 15, 2019, Mr. O’Neill served as a member of the Unsecured Creditors’ Committee in the Bankruptcy Cases, having been appointed to such position by the U.S. Trustee’s Office. Retired since 2014, Mr. O’Neill is a former account executive at Merrill Lynch and the former president of an independently owned beverage distributor. Mr. O’Neill holds a Bachelor of Arts in Business Administration from Dickinson State University.
M. Freddie Reiss, age 76, has been a member of the Supervisory Board since August 21, 2019, at which time he was appointed to such office by the Supervisory Board. Mr. Reiss currently serves as the sole member of the Audit Committee of the Supervisory Board. Additionally, Mr. Reiss has been a member of the Board of Managers since its inception and was appointed to such office under the Plan. Prior to that time, Mr. Reiss served as a member of the Debtors’ Board of Managers during the Bankruptcy Cases. Mr. Reiss is the former Senior Managing Director of the Corporate Finance/Restructuring Practice at FTI Consulting, an independent global business advisory firm, a position from which he retired in 2013. Mr. Reiss has been an independent director of Peer Street Inc. (April 2023 to current), Amyris Inc. (August 2023 to current), Eva Automation Inc. (March 2020 to current), Blackrock TCP Tennenbaum Capital Corp. (August 2016 to current) and Blackrock Direct Lending Corp. (December 2020 to current). Mr. Reiss’s prior positions during the previous five years, each of which has since concluded, include the following: (i) independent director of Arclight and Pacific Theatres (August 2020 to July 2021); (ii) independent director of JH Capital Group (August 2018 to April 2019); and (iii) independent director of Fallas Paredes, a brand name and private label clothing retailer (October 2018 to January 2019). Mr. Reiss has over thirty years’ experience in strategic planning, cash management, liquidation analysis, covenant negotiations, forensic accounting and valuation. He specializes in advising on bankruptcies, reorganizations, business restructurings and providing expert witness testimony in respect of underperforming companies. Mr. Reiss is a certified insolvency and restructuring advisor, a certified public accountant in New York and California and a certified turnaround professional. He has been inducted into the American College of Bankruptcy and the Turnaround Management Association’s Hall of Fame. Mr. Reiss is a member of the American Institute of Certified Public Accountants and has completed the Director Education and Certification Program and the John E. Anderson School of Management of the University of California at Los Angeles. He holds a B.B.A. from City College of New York’s Bernard Baruch School of Business and a Master of Business Administration from City University of New York’s Baruch College.
Part III
Item 10.
Directors, Executive Officers, and Corporate Governance (Continued)
Management of the Wind-Down Group
Marion W. Fong, age 59, has been the Chief Executive Officer of the Wind-Down Entity since January 1, 2023 and the Chief Financial Officer of the Wind-Down Entity since February 2019. Ms. Fong serves in the same capacity for the Wind-Down Subsidiaries. Ms. Fong is the founder and principal of Mariposa Real Estate Advisors, LLC (January 2001 to present), which provides real estate financial consulting services to public and private real estate companies, institutional investors, developers, operators and lenders. Ms. Fong has over 35 years’ experience in the real estate industry, including knowledge of many aspects of real estate development, acquisitions, dispositions, transaction structuring, workouts and restructuring and capital access. Ms. Fong was a partner in the Real Estate Advisory Service Group of Ernst & Young LLP and was a Senior Manager at Kenneth Leventhal & Company. Ms. Fong was admitted to the Counselors of Real Estate in 2000 and earned her Bachelor of Arts in Economics from Occidental College.
The Chief Executive Officer of the Wind-Down Entity is subject to the supervision of a Board of Managers. As of September 27, 2023, M. Freddie Reiss (whose biography is above) is the sole member of the Board of Managers.
David Mark Kemper II, age 45, has been the Chief Operating Officer of the Wind-Down Entity since February 2019 and was the Chief Investment Officer of the Wind-Down Entity from February 2019 through December 31, 2022. Mr. Kemper serves in the same capacity for the Wind-Down Subsidiaries. Prior to such appointment, Mr. Kemper served as financial advisor at Province, Inc., a nationally recognized financial advisory firm focusing on growth opportunities, restructurings and fiduciary-related services (March 2017 to February 2019), where he represented unsecured creditors in corporate bankruptcies and provided management and restructuring services to various companies. During the past five years, Mr. Kemper also has served as managing director of LandCap Advisors, a company engaged in providing real estate consulting services, where Mr. Kemper provided clients with real estate management and restructuring, lease advisory, valuation and feasibility, transaction advisory, portfolio, and project management services. Mr. Kemper has over 20 years’ experience in financial advisory, real estate and accounting services. Mr. Kemper holds a B.A. in Accounting from St. Mary’s University.
Part III

---

ITEM 11. EXECUTIVE COMPENSATION
Item 11.
Executive Compensation
Summary Compensation Table
Name and Principal Position at
Fiscal
All Other
June 30, 2023 (1)
Year
Base
Bonus
Compensation (2)
Total
Michael I. Goldberg, Esq.
$
186,333
$
33,344
(3)
$
-
$
219,677
Liquidation Trustee
$
162,196
$
1,346,093
(3)
$
-
$
1,508,289
Marion W. Fong
$
544,030
$
638,550
(4)
$
216,402
$
1,398,982
Wind-Down Entity, CEO & CFO (5)
$
569,631
$
136,125
(4)
$
-
$
705,756
David Mark Kemper II
$
409,801
$
496,650
(4)
$
168,313
$
1,074,764
Wind-Down Entity, COO
$
443,046
$
105,875
(4)
$
-
$
548,921
Frederick Chin
$
417,500
$
2,137,500
(4)
$
23,625
$
2,578,625
Wind-Down Entity, CEO (5)
$
938,654
$
450,000
(4)
$
120,000
$
1,508,654
(1)
Includes all individuals who may be considered the executive officers of the Trust or the Wind-Down Entity.
(2)
In addition to salary and bonus, the named executive officers (other than Mr. Goldberg) may receive other annual compensation in the form of health, dental, vision and life insurance coverages, paid vacation, paid time off, and other personal benefits. For fiscal years ended June 30, 2023 and 2022, the total value of health, dental, vision, life insurance coverages and other personal benefits did not exceed $10,000 in the aggregate for any named executive officer. The amount indicated is for paid vacation and paid time off which were due and payable upon the termination of the full-time employment agreements.
(3)
Mr. Goldberg is eligible for incentive compensation equal to 5% of total gross settlement amounts by the Trust from the pursuit of Causes of Action as further discussed below. Bonus amounts are attributed to the fiscal year in which they are settled. During fiscal years ended June 30, 2023 and 2022, $83,160 and $1,424,944, respectively, were paid.
(4)
Bonuses are attributed to the fiscal year in which they are earned. Mr. Chin, Ms. Fong and Mr. Kemper each were eligible for bonuses through December 31, 2022. The part-time employment agreements that become effective on January 1, 2023 do not provide for bonuses.
(5)
Mr. Chin resigned as Chief Executive Officer effective December 31, 2022 and was replaced by Ms. Fong effective January 1, 2023.
Liquidation Trustee of the Trust
As compensation in respect of service as Liquidation Trustee, Mr. Goldberg is entitled to (i) base compensation at an hourly rate of $598.95 per hour for calendar years 2023 and 2022 (these rates are net of a negotiated 10% discount of Mr. Goldberg’s customary rates) and (ii) incentive compensation equal to 5% of total gross amounts recovered by the Trust from the pursuit of Causes of Action. Mr. Goldberg is not entitled to equity compensation, perquisites or personal benefits.
Mr. Goldberg’s base compensation was not determined by the Supervisory Board, but instead was established by, and the amount is fixed under, the Trust Agreement. Such base compensation cannot be modified except by amendment of the Trust Agreement. Amendment of the Trust Agreement effecting a modification of the compensation of the Supervisory Board would require either (a) an order of the Bankruptcy Court or (b) a written amendment signed by the Liquidation Trustee, which amendment has received the prior written approval of a majority of the members of the Supervisory Board. It is the understanding of the Supervisory Board that the base compensation is intended to compensate Mr. Goldberg for his time spent performing services as Liquidation Trustee. The Supervisory Board believes that base compensation at an hourly rate is standard and customary for bankruptcy and insolvency trustees, and that $665.50 does not exceed Mr. Goldberg’s customary hourly rate for legal services performed by him as a partner of Akerman LLP.
Part III
Item 11.
Executive Compensation (Continued)
Mr. Goldberg’s incentive compensation has been determined by the Supervisory Board, in the exercise of its discretion as authorized by the Trust Agreement, as five percent (5%) of the total gross proceeds recovered by the Trust from the pursuit of Causes of Action by the Trust. Such incentive compensation is intended to compensate Mr. Goldberg for services performed above and beyond the time commitment required of the Liquidation Trustee. The Supervisory Board believes that incentive compensation based on the value of recoveries on Causes of Action is standard and customary for bankruptcy and insolvency trustees and is designed to maximize the value of recoveries on Causes of Action and appropriately align the economic interests of the Liquidation Trustee with those of the Trust.
Payment of compensation to the Liquidation Trustee or his professionals in connection with any individual request for compensation is subject to the following procedures, specified in the Trust Agreement:
•
the Liquidation Trustee must submit to the Supervisory Board an itemized statement or statements reflecting all fees and itemized costs to be reimbursed;
•
after seven (7) days after the delivery of the statements, the amount reflected in the statements may be paid by the Trust unless, prior to the expiration of such seven-day period, the Supervisory Board has objected in writing to any compensation reflected in the Statement; and
•
in the case of any Supervisory Board objection to payment, the undisputed amounts may be paid, and the disputed amounts may only be paid by agreement of the Supervisory Board, or pursuant to order of the Bankruptcy Court, which retains jurisdiction over all disputes regarding the Liquidation Trustee’s and his or her professionals’ compensation.
Current Chief Executive Officer of the Wind-Down Entity
Fong Part-Time Employment Agreement (Effective January 1, 2023)
Since January 1, 2023, the Wind-Down Entity and its current Chief Executive Officer and Chief Financial Officer, Marion W. Fong, have been parties to an agreement providing for Ms. Fong’s part-time employment as Chief Executive Officer and Chief Financial Officer, which was entered into on November 30, 2022 (the “Fong Part-Time Agreement”). Pursuant to the Fong Part-Time Agreement, the Wind-Down Entity agreed to employ Ms. Fong on a part-time, non-exclusive basis as the Wind-Down Entity’s Chief Executive Officer and Chief Financial Officer effective January 1, 2023. Ms. Fong’s prior full-time employment as Chief Financial Officer of the Wind-Down Entity continued to be governed by her previously existing employment agreement with the Wind-Down Entity through December 31, 2022, at which time her employment under such agreement terminated.
The Fong Part-Time Agreement establishes an initial term of part-time employment commencing on January 1, 2023 and expiring on December 31, 2023, unless terminated earlier. The initial term thereafter is subject to automatic renewal until terminated. The Fong Part-Time Agreement sets forth Ms. Fong’s duties as Chief Executive Officer and Chief Financial Officer and her compensation and rights to reimbursement of costs and expenses and indemnification. The Fong Part-Time Agreement is terminable by the death of Ms. Fong or by either the Wind-Down Entity or Ms. Fong at any time and for any reason on at least 30 days’ advance written notice.
Under the Fong Part-Time Employment Agreement, Ms. Fong is entitled to a monthly salary of $35,000. Additionally, during the term of the Fong Part-Time Employment Agreement, Ms. Fong and her eligible spouse and dependents are entitled to participation in the Wind-Down Entity’s health, dental, vision and life insurance coverages, but Ms. Fong will not accrue any paid vacation. Ms. Fong is not eligible for any discretionary bonus during the part-time employment term.
Part III
Item 11.
Executive Compensation (Continued)
The Wind-Down Entity is obligated, under the Fong Part-Time Employment Agreement, the Wind-Down Entity LLC Agreement and indemnification agreements with Ms. Fong, to indemnify and hold harmless Ms. Fong from and against certain liabilities, losses, damages and expenses incurred by either of them by reason of acts or omissions as an officer of the Wind-Down Entity.
Former Chief Executive Officer of the Wind-Down Entity
Through August 31, 2022, the Wind-Down Entity and its then Chief Executive Officer Frederick Chin were parties to an agreement providing for Mr. Chin’s full-time, at-will employment as Chief Executive Officer, which agreement expired on August 31, 2022 (as amended, the “Chin Full-Time Employment Agreement”). From September 1, 2022 through December 31, 2022, the Wind-Down Entity and Mr. Chin were parties to an agreement providing for Mr. Chin’s continued employment as Chief Executive Officer on a part-time basis (the “Chin Part-Time Employment Agreement”). The material terms of Mr. Chin’s compensation under these agreements are summarized below.
Chin Full-Time Employment Agreement (Through August 31, 2022)
Through August 31, 2022, the Wind-Down Entity and Frederick Chin were parties to the Chin Full-Time Employment Agreement providing for Mr. Chin’s full-time employment as Chief Executive Officer. Under the Chin Full-Time Employment Agreement, Mr. Chin was entitled to an annual base salary of $975,000 at the time such agreement expired, as well as bonuses based on the cumulative amount of distributions of cash made by the Wind-Down Entity to the Trust during certain specified periods as provided in the Chin Full-Time Employment Agreement. For each period, a threshold amount of distributions was required to have been made for any bonus to be earned.
Chin Part-Time Employment Agreement (September 1 to December 31, 2022)
On September 1, 2022, immediately following the expiration of the Chin Full-Time Employment Agreement on August 31, 2022, the Wind-Down Entity and Mr. Chin entered into the Chin Part-Time Employment Agreement providing for Mr. Chin’s continued at-will employment as Chief Executive Officer on a part-time basis. Other than with respect to compensation and certain other items, the Chin Part-Time Employment Agreement was substantially similar in form to Mr. Chin’s expired full-time agreement.
The Chin Part-Time Employment Agreement established an initial term of employment ending on December 31, 2022. Under the Chin Part-Time Employment Agreement, Mr. Chin was entitled to a monthly salary of $50,000 during the initial term and $30,000 during any extension term. In the Chin Part-Time Employment Agreement, the Wind-Down Entity acknowledged that Mr. Chin was entitled to payment of accrued but unused vacation time on August 31, 2022 and to the receipt, no later than September 30, 2022, of the bonus payments prescribed by the prior, expired Chin Full-Time Employment Agreement. Mr. Chin’s employment under the Chin Part-Time Employment Agreement ended on December 31, 2022.
Part III
Item 11.
Executive Compensation (Continued)
Other Executive Officers of Wind-Down Entity
From February 2019 through December 31, 2022, Ms. Fong served as Chief Financial Officer of the Wind-Down Entity under a full-time, at-will employment agreement, which agreement terminated on December 31, 2022. The material terms of Ms. Fong’s compensation under such agreement are summarized below under “Fong Full-Time Employment Agreement (Through December 31, 2022).” From February 2019 through December 31, 2022, David Mark Kemper II served as Chief Operating Officer and Chief Investment Officer of the Wind-Down Entity under a full-time, at-will employment agreement, which agreement terminated on December 31, 2022. The material terms of Mr. Kemper’s compensation under such agreement are summarized below under “Kemper Full-Time Employment Agreement (Through December 31, 2022).” Since January 1, 2023, Mr. Kemper has served as Chief Operating Officer under the Kemper Part-Time Agreement. The material terms of Mr. Kemper’s compensation under such agreement are summarized below under “Kemper Part-Time Employment Agreement (Effective January 1, 2023).”
Fong Full-Time Employment Agreement (Through December 31, 2022)
During the calendar year 2022, Ms. Fong’s annual base salary was $598,950 under the Fong Full-Time Employment Agreement. Under the Fong Full-Time Employment Agreement, Ms. Fong was eligible for up to three discretionary bonuses as described below, a one-time wind-down bonus, and a one-time retention bonus.
Ms. Fong earned bonuses of $136,125 for calendar year 2021 and $638,550 for calendar year 2022. The 2021 bonus was paid in January 2022 (fiscal year 2022) and the 2022 bonus was paid in January 2022 (fiscal year 2023).
Kemper Full-Time Employment Agreements (Through December 31, 2022)
During the calendar year 2022, Mr. Kemper’s annual base salary was $465,850 under the Kemper Full-Time Employment Agreement. Under the Kemper Full-Time Employment Agreement Mr. Kemper was eligible for up to three discretionary bonuses as described below, a one-time wind-down bonus, and a one-time retention bonus.
Mr. Kemper earned bonuses of $105,875 for calendar year 2021 and $496,650 for calendar year 2022. The 2021 bonus was paid in January 2022 (fiscal year 2022) and the 2022 bonus was paid in January 2022 (fiscal year 2023).
Kemper Part-Time Employment Agreement (Effective January 1, 2023)
The Wind-Down Entity is a party to an at-will employment agreement with its Chief Operating Officer David Mark Kemper II, entered into on November 30, 2022 (the “Kemper Part-Time Agreement”).
Pursuant to the Kemper Part-Time Agreement, the Wind-Down Entity has agreed to employ Mr. Kemper on a part-time, non-exclusive basis as the Wind-Down Entity’s Chief Operating Officer effective January 1, 2023. Mr. Kemper’s full-time employment as Chief Operating Officer and Chief Investment Officer continued to be governed by his previously existing employment agreement with the Wind-Down Entity through December 31, 2022, at which time his employment under such agreement terminated.
The Kemper Part-Time Agreement establishes an initial term of part-time employment commencing on January 1, 2023 and expiring on December 31, 2023, unless terminated earlier. The initial term thereafter is subject to automatic renewal until terminated. The Kemper Part-Time Agreement sets forth Mr. Kemper’s duties as Chief Operating Officer and his compensation and rights to reimbursement of costs and expenses and indemnification. The Kemper Part-Time Agreement is terminable by the death of Mr. Kemper or by either the Wind-Down Entity or Mr. Kemper at any time and for any reason on at least 30 days’ advance written notice.
Under the Kemper Part-Time Employment Agreement, Mr. Kemper is entitled to a monthly salary of $25,000. Additionally, during the term of the Kemper Part-Time Employment Agreement, Mr. Kemper and his eligible spouse and dependents are entitled to participation in the Wind-Down Entity’s health, dental, vision and life insurance coverages, but Mr. Kemper will not accrue any paid vacation. Mr. Kemper is not eligible for any discretionary bonus during the part-time employment term.
Part III
Item 11.
Executive Compensation (Continued)
The Wind-Down Entity is obligated, under the Kemper Part-Time Employment Agreement, the Wind-Down Entity LLC Agreement and indemnification agreements with Mr. Kemper, to indemnify and hold harmless Mr. Kemper from and against certain liabilities, losses, damages and expenses incurred by either of them by reason of acts or omissions as an officer of the Wind-Down Entity.
Compensation Committee Interlocks and Insider Participation
Neither the Trust nor the Wind-Down Entity has a compensation committee or other board committee performing equivalent functions. On August 18, 2022 and August 25, 2022, the Supervisory Board and the Board of Managers, respectively, without participation by Mr. Chin in its deliberations, approved that Chin Part-Time Employment Agreement with Mr. Chin, which followed Mr. Chin’s previous full-time employment agreement. The Chin Part-Time Employment Agreement was determined to be appropriate in light of the continuing need for Mr. Chin’s services on a part-time basis following the August 31, 2022 expiration of the Chin Full-time Employment Agreement. The principal objectives of the Chin Part-Time Employment Agreement include (i) incentivizing Mr. Chin’s continued retention through the anticipated closing date of the sale of the Company’s remaining residential real property asset, (ii) aligning Mr. Chin’s compensation with the increasingly reduced level of the Company’s liquidation activities by means of a salary adjustment, (iii) acknowledging of the vesting of Mr. Chin’s incentive awards under the Chin Full-Time Employment Agreement, and (iv) continuing of Mr. Chin’s existing employee benefits through December 31, 2022. The award of equity-based compensation was not considered, as the Company’s legal structure does not permit such compensation. The Company did not consider the results of any shareholder advisory vote on the compensation of Mr. Chin, as no such vote was required.
On November 30, 2022, the Board of Managers, without participation by Ms. Fong and Mr. Kemper approved the Fong Part-Time Employment Agreement and the Kemper Part-Time Employment Agreement. These agreements were entered into in order to consolidate management functions and reduce management costs in light of the substantially reduced real estate portfolio. The award of equity-based compensation was not considered, as the Company’s legal structure does not permit such compensation. The Company did not consider the results of any shareholder advisory vote on the compensation of Ms. Fong or Mr. Kemper, as no such vote was required.
During the fiscal year ended June 30, 2023, there were no deliberations by the Supervisory Board regarding the compensation of Mr. Goldberg.
Part III
Item 11.
Executive Compensation (Continued)
Compensation of Supervisory Board and Board of Managers
Each member of the Supervisory Board that does not serve on the Audit Committee receives (or received), as compensation in respect of service on the Supervisory Board, (i) $10,000 per month through January 31, 2020, (ii) $7,500 per month from February 1, 2020 through January 31, 2021, (iii) $5,000 per month from February 1, 2021 through January 31, 2022, and (iv) $2,500 per month for each calendar month thereafter until termination of the Trust in accordance with the Plan (prorated as appropriate if a member commences his or her service other than on the first day of a month or terminates his or her service other than on the last day of a month). The sole member of the Supervisory Board that serves on the Audit Committee receives, as compensation in respect of service, $7,500 per month. All Supervisory Board members also are entitled to reimbursement by the Trust of all actual, reasonable and documented out-of-pocket expenses incurred in connection with their service on the Supervisory Board.
The compensation of the Supervisory Board was not determined by the Supervisory Board, but instead was established by, and is fixed under, the Trust Agreement and cannot be modified except by amendment of the Trust Agreement. An amendment of the Trust Agreement effecting a modification in the compensation of the Supervisory Board would require either (a) an order of the Bankruptcy Court or (b) a written amendment signed by the Liquidation Trustee, which amendment has received the prior written approval of a majority of the members of the Supervisory Board.
Each member of the Board of Managers (other than the CEO) received, as compensation in respect of service on the Board of Managers, (i) $20,000 per month through January 31, 2020 and (ii) $15,000 per month for each calendar month of service thereafter. The Wind-Down Entity is required to reimburse each Manager in respect of all actual, reasonable and documented out-of-pocket expenses incurred by such Manager in accordance with Wind-Down Entity policies. Effective December 31, 2022, the number of members of the Board of Managers was reduced from three to two, upon the resignation of Mr. Chin.
Effective April 1, 2023, the two remaining members of the Board of Managers agreed to voluntarily reduce their monthly compensation from $15,000 per month per manager for each calendar month of service to $10,000 per month per manager for each calendar month of service.
The Board of Managers was further reduced from two to one effective upon the resignation of Mr. Nevins on April 29, 2023. Following Mr. Nevins’ resignation, Mr. Reiss became the sole member of the Board of Managers. Effective May 1, 2023, Mr. Reiss ceased to be entitled to receive compensation for being a member of the Board of Managers. Mr. Reiss continues to be entitled to reimbursement for actual, reasonable, and documented out-of-pocket costs and expenses related to his service as a manager.
Indemnification of the Liquidation Trustee
Under Delaware law, the Trust has the power to indemnify and hold harmless any person from and against any and all claims and demands whatsoever, subject to such standards and restrictions, if any, as are set forth in its governing instrument. The Trust is governed by the Trust Agreement, which states that the Liquidation Trustee, the Supervisory Board and each of their respective accountants, agents, assigns, attorneys, bankers, consultants, directors, employees, executors, financial advisors, investment bankers, real estate brokers, transfer agents, managers, members, officers, partners, predecessors, principals, professional persons, representatives, and successors (each, a “Trustee Indemnified Party”) will be indemnified for, and defended and held harmless against, any loss, liability, damage, judgment, fine, penalty, claim, demand, settlement, cost, or expense, including the reasonable fees and expenses of their respective professionals (collectively “Damages”) incurred without gross negligence, willful misconduct, or fraud on the part of the applicable Trustee Indemnified Party (which gross negligence, willful misconduct, or fraud, if any, must be determined by a final, non-appealable order of a court of competent jurisdiction) for any action taken, suffered, or omitted to be taken by the Trustee Indemnified Parties in connection with the acceptance, administration, exercise, and performance of their duties under the Plan or the Trust Agreement, as applicable. An act or omission taken with the approval of the Bankruptcy Court, and not inconsistent therewith, will be conclusively deemed not to constitute gross negligence or willful misconduct.
In addition, the Trust Agreement provides that, to the fullest extent permitted by law, each Trustee Indemnified Party shall be indemnified for, and defended and held harmless against, any and all Damages arising out of or due to their actions or omissions, or consequences of such actions or omissions, with respect to the Trust or the implementation or administration of the Plan if the applicable Trustee Indemnified Party acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interest of the Trust or its Interestholders.
Part III
Item 11.
Executive Compensation (Continued)
The Trust Agreement also authorizes, but does not require, the Liquidation Trustee to obtain all reasonable insurance coverage for itself, its agents, representatives, employees or independent contractors, including coverage with respect to the liabilities, duties and obligations of the Liquidation Trustee and its agents, representatives, employees or independent contractors under the Trust Agreement and the Plan. The cost of any such insurance coverage will be an expense of the Trust.
Indemnification of the Board of Managers, the CEO and Executive Officers of the Wind-Down Entity
The Wind-Down Entity and the Trust are required to indemnify the members of the Board of Managers, the Chief Executive Officer, and the other officers of the Wind-Down Group, and each of their respective accountants, agents, assigns, attorneys, bankers, consultants, directors, employees, executors, financial advisors, investment bankers, brokers, managers, members, officers, partners, predecessors, principals, professional persons, representatives, and successors (each, a “WDE Indemnified Party”) for, and shall defend and hold them harmless against, Damages incurred without gross negligence or willful misconduct on the part of the applicable WDE Indemnified Party (which gross negligence or willful misconduct, if any, must be determined by a final, non-appealable order of a court of competent jurisdiction) for any action taken, suffered, or omitted to be taken by the WDE Indemnified Parties in connection with the acceptance, administration, exercise, and performance of their duties under the Plan or the Wind-Down Entity LLC Agreement, as applicable. An act or omission taken with the approval of the Bankruptcy Court, and not inconsistent therewith, will be conclusively deemed not to constitute gross negligence or willful misconduct.
In addition, the Wind-Down Entity and the Trust are required, to the fullest extent permitted by law, indemnify, defend, and hold harmless the WDE Indemnified Parties, from and against and with respect to any and all Damages arising out of or due to their actions or omissions, or consequences of such actions or omissions, with respect to the Wind-Down Entity or the implementation or administration of the Plan if the applicable WDE Indemnified Party acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interest of the Wind-Down Entity.
The Wind-Down Entity is a party to indemnification agreements with its former Chief Executive Officer Frederick Chin, its current Chief Executive Officer and Chief Financial Officer Marion W. Fong, and its Chief Operating Officer and former Chief Investment Officer David Mark Kemper II. Under these agreements, the Wind-Down Entity has agreed to indemnify each of these individuals, to the fullest extent permitted by applicable law and the Wind-Down Entity’s certificate of formation and limited liability company agreement, and the Plan, if such individual becomes a party to or a witness or other participant in any proceeding (other than a derivative action) by reason of the fact that such individual is or was an officer, manager or employee of the Wind-Down Entity, or by reason of anything done or not done by him in any such capacity, against all expenses and liabilities incurred without gross negligence or willful misconduct by such individual.
Under these indemnification agreements, the Wind-Down Entity has also agreed to indemnify Mr. Chin, Ms. Fong and Mr. Kemper, with respect to any derivative action to which such individual becomes a party or a witness or in which such individual becomes a participant, against expenses actually and reasonably incurred in connection with the defense or settlement of such action, provided that such individual acted in good faith and in a manner such individual reasonably believed to be in or not opposed to the best interests of the Company. These indemnification agreements provide for proportional contribution to the Wind-Down Entity based on relative benefit and relative fault where indemnification is held by a court to be unavailable to the individual and for the advancement by the Wind-Down Entity of the individual’s expenses under certain circumstances.
Part III

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information regarding the equity securities of the Trust beneficially owned by each member of the Supervisory Board, the Liquidation Trustee and each executive officer named in the Summary Compensation Table (see “Item 11. Executive Compensation” of this Annual Report), and all members of the Supervisory Board, the Liquidation Trustee and all executive officers of the Wind-Down Entity as a group on September 27, 2023:
Name of and Address of Beneficial Owner(1)
Class of
Liquidation
Trust Interest
Amount and
Nature of
Beneficial
Interest
Percent of
class(2)
Jay Beynon
Class A
6,666.67
(3)
Less than 1%
Class B
Raymond C. Blackburn, M.D.
Class A
35,788.06
(4)
Less than 1%
Class B
13,574.78
(5)
2.01
%
Terry R. Goebel
Class A
Class B
Lynn Myrick
Class A
23,819.17
(6)
Less than 1%
Class B
1,590.81
(7)
Less than 1%
John J. O’Neill
Class A
8,786.60
(8)
Less than 1%
Class B
M. Freddie Reiss
Class A
Class B
Michael I. Goldberg
Class A
Class B
Marion W. Fong
Class A
Class B
David Mark Kemper II
Class A
Class B
All Supervisory Board members and the executive officers, as a group
Class A
75,060.50
Less than 1%
Class B
15,165.59
2.24
%
(1)
A business address for each of the named beneficial owners is c/o Woodbridge Liquidation Trust, 201 N. Brand Blvd., Suite M, Glendale, California 91203.
(2)
Based on 11,514,578 Class A Interests and 675,617 Class B Interests outstanding as of September 27, 2023.
(3)
As trustee of a family trust.
(4)
Of which 25,485.81 are held individually and the remainder is beneficially owned in an individual retirement account.
(5)
Of which 9,667.03 are held individually and the remainder is beneficially owned in an individual retirement account.
(6)
Of which 13,449.54 are held by a limited liability company of which Ms. Myrick is a member, 10,369.63 are held by a family trust of which Ms. Myrick is a beneficiary.
(7)
Held by a limited liability company, of which Ms. Myrick is a member.
(8)
Beneficially owned together with spouse.
The Trust does not have any compensation plans (including individual compensation arrangements) under which equity securities of the Trust are authorized for issuance.
Part III

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The Supervisory Board has chosen the director independence standards of the New York Stock Exchange (the “NYSE”) to determine the independence of the members of the Supervisory Board. The Trust is not, however, a company listed with the NYSE and does not intend to apply for listing with the NYSE. Furthermore, the Trust believes that, if it were a NYSE-listed company, the Supervisory Board would be exempt from the director independence requirements of the NYSE by reason of one or more available exemptions from such requirements, including exemptions for companies in bankruptcy proceedings, passive business organizations in the form of trusts, and the issuers of special purpose securities.
Applying the NYSE independence standard, the Supervisory Board has determined that all of its members other than Terry Goebel are independent. In making this determination, the Supervisory Board concluded that neither the fees paid by the Trust in respect of service on the Supervisory Board nor the ownership of Liquidation Trust Interests by any member of the Supervisory Board precluded a finding of independence.
The Supervisory Board was unable to determine the absence of a material relationship between the Wind-Down Group and Supervisory Board member Terry Goebel, who is president and a principal owner of G3 Group LA, a construction firm specializing in the development of high-end, luxury residences. G3 Group LA is owned by Terry Goebel and his son Kelly Goebel. The Wind-Down Group was under contract with G3 Group LA for the development of one residential real property in the Los Angeles area (the “G3 Contract”). The aggregate dollar value of the transactions under the completed G3 Contract as of June 30, 2023 was $35.5 million, all of which was paid as of June 30, 2023. The original contract value was $30.0 million. On September 24, 2020, the Wind-Down Group entered into a change order increasing the estimated dollar value of the G3 Contract by approximately $3.6 million. On October 15, 2021, the Wind-Down Group entered into a change order increasing the estimated dollar value of the G3 Contract by approximately $2.1 million. The change orders were determined to be necessary, and the amount thereof was determined to be appropriate, in light of increases in the construction costs of the project incurred and expected to be incurred. On April 13, 2023, the Wind-Down Group entered into a change order reducing the estimated dollar value of the G3 Contract by approximately $0.2 million. The change order was necessary based on project completion and close out of outstanding billings.
Michael I. Goldberg, the Liquidation Trustee, is a partner of Akerman LLP, a law firm based in Miami, Florida. In November 2019, the Trust entered into an arrangement with Akerman LLP with the prior approval of the Supervisory Board, including the Audit Committee. Under the arrangement, Akerman LLP from time to time will provide, at the option of the Trust on an as-needed basis, e-discovery and related litigation support services in connection with the Trust’s prosecution of the Causes of Action. “E-discovery” (also known as electronic discovery) refers to discovery in legal proceedings, including litigation, where the information sought, such as e-mails, documents, records and files, is in electronic format. E-discovery services assist litigants to manage potentially large amounts of data in compliance with the technical requirements of court rules designed to preserve metadata and prevent spoliation.
Under the arrangement, services available to the Trust include data processing, hosting, professional services, and forensic collection and analysis. The services are provided on a “stand-alone” basis (i.e., they are made available to the Trust regardless of whether Akerman LLP is representing the Trust in connection with the subject litigation or any litigation). Currently, Akerman LLP does not represent the Trust in connection with any Causes of Action or act as counsel to the Trust in any matter.
The Trust is charged for the services at scheduled rates per task which, depending on the specific task, include flat rates, rates based on the volume of data processed, rates based on the number of data users, the hourly rates of Akerman LLP personnel, or other rates. The scheduled rates are believed to be the same as those charged by Akerman LLP to clients utilizing its legal services generally. The Supervisory Board, including the Audit Committee, approved the arrangement after determining that Akerman LLP’s rates would be more favorable to the Trust than those proposed to be charged by at least one other major alternative provider of legal support services. Due to uncertainty regarding the number, length and complexity of cases and the volume of discoverable documents, the Trust currently is unable to estimate the aggregate approximate dollar value of either Akerman LLP’s fees under this arrangement or Mr. Goldberg’s interest in this arrangement. During the years ended June 30, 2023 and 2022, approximately $428,000 and $420,000, respectively, had been paid related to these services.
Part III
Item 13.
Certain Relationships and Related Transactions, and Supervisory Board Member Independence (Continued)
On March 10, 2023, as a result of the failure of two large financial institutions, as a protective measure, the Company deposited the restricted cash relating to Forfeited Assets and distribution reserves into two separate Akerman LLP trust accounts for the benefit of the Company (the “Trust Accounts”). The balance deposited in these accounts was approximately $3,170,000 and $1,222,000, respectively. On April 5, 2023, the Company transferred approximately $25,000 relating to the distribution reserves and on May 11, 2023, the Company transferred the remaining balances in the Trust Accounts to one of the banking institutions with which it has a depositor relationship.
The Trust has a written Related Person Transaction Policy. It requires that any “Related Person Transaction” to which the Trust is a participant must be reviewed and approved in advance by the Supervisory Board and any “Related Person Transaction” to which the Wind-Down Group is a participant must be reviewed and approved in advance by the Board of Managers (the applicable board, in each instance, whether the Supervisory Board or the Board of Managers, the “Applicable Board”). Under the policy, a “Related Person Transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) that occurred since the beginning of the Trust’s most recent fiscal year in which the Trust (including any of its subsidiaries) was, is or will be a participant and the amount involved exceeds $120,000 and in which any Related Person had, has or will have a direct or indirect material interest. For purposes of this policy, a “Related Person” means:
•
any person who is, or at any time since the beginning of the Trust’s last fiscal year was, the Liquidation Trustee, a member of the Supervisory Board, a member of the Board of Managers, an executive officer of the Wind-Down Entity or a nominee to become a member of the Board of Managers or a more than 5% beneficial owner of the Trust;
•
any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the Liquidation Trustee, a member of the Board of Managers, an executive officer of the Wind-Down Entity, or a nominee to become a member of the Board of Managers, or a more than 5% beneficial owner of the Trust, and any person (other than domestic employees or tenants) sharing the household of any such person; and
•
any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest.
The following transactions are not considered Related Person Transactions for purposes of this policy: (a) base compensation for services rendered as the Liquidation Trustee, paid in accordance with the Liquidation Trust Agreement; (b) compensation for services rendered as a member of the Supervisory Board, paid in accordance with the Liquidation Trust Agreement; (c) in accordance with the Liquidation Trust Agreement, reimbursement of expenses incurred by the Liquidation Trustee or any member of the Supervisory Board incurred in the ordinary course of carrying out their respective responsibilities in such capacities; (d) any transaction where the rates or charges involved in the transaction are determined by competitive bids; or (e) any transaction that involves the rendering of services at rates or charges fixed in conformity with law or governmental authority.
Furthermore, neither the G3 Contract nor the payment or performance by the Wind-Down Group of its obligations thereunder in accordance with the current terms thereof is considered a Related Person Transaction for purposes of the policy. The G3 Contract was entered into between the Debtors and G3 before the organization of the Trust and did not require any review, approval or ratification under the Related Person Transaction Policy. However, the change orders entered into on September 24, 2020, October 15, 2021 and April 13, 2023 were reviewed under the Related Person Transaction Policy.
Under the policy, the Applicable Board is to consider all of the relevant facts and circumstances available, including (if applicable), but not limited to:
•
The benefits to the Trust and the Wind-Down Entity;
•
The impact on the independence of a member of the Supervisory Board or the Board of Managers in the event the Related Person is a member of the Supervisory Board, a member of the Board of Managers, an immediate family member of any such member, or an entity in which any such member is a director, officer, manager, principal, member, partner, shareholder or executive officer;
Part III
Item 13.
Certain Relationships and Related Transactions, and Supervisory Board Member Independence (Continued)
•
The availability of other sources for comparable products or services;
•
The terms of the transaction; and
•
The terms available to unrelated third parties and employees generally.
The policy prohibits any member of the Applicable Board from participating in any review, consideration or approval of any Related Person Transaction with respect to which such member or any of his or her immediate family members is the Related Person. The Applicable Board may approve only those Related Person Transactions that are in, or are not inconsistent with, the best interests of the Trust and its stakeholders, as the Applicable Board determines in good faith. In addition, no immediate family member of the Liquidation Trustee or any member of the Supervisory Board, member of the Board or Managers, or executive officer of the Wind-Down Group may be hired as an employee of the Trust or the Wind-Down Group unless the employment arrangement is approved in advance by the Applicable Board. In the event a person becomes a director or executive officer of the Trust or the Wind-Down Group and an immediate family member of such person is already an employee of the Trust or the Wind-Down Group, no material change in the terms of employment, including compensation, may be made without the prior approval of the Applicable Board (except, if the immediate family member is himself or herself an executive officer of the Trust or the Wind-Down Group, any proposed change in the terms of employment must be reviewed and approved in the same manner as other executive officer compensatory arrangements).
The Audit Committee of the Supervisory Board has the authority, subject to a final review by all disinterested members of the Supervisory Board, to review and approve all Related Person Transactions in which the Trust is a participant.
Part III

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14.
Principal Accounting Fees and Services
Principal Independent Registered Public Accounting Firm Fees
Set forth below are aggregate fees for professional accounting services for the years ended June 30, 2023 and 2022:
Years Ended June 30,
Audit fees
$
207,900
$
280,800
Audit-related fees
-
-
Tax fees
-
-
All other fees
-
-
Total
$
207,900
$
280,800
For purposes of the preceding table, the professional fees are classified as follows:
•
Audit Fees: These fees for professional services performed for the audit of our annual consolidated financial statements, the required review of quarterly consolidated financial statements, registration statements and other procedures performed by independent auditors in order for them to be able to form an opinion on our consolidated financial statements.
•
Audit-Related Fees: These are fees for assurance and related services that traditionally are performed by independent auditors that are reasonably related to the performance of the audit or review of the consolidated financial statements, such as due diligence related to acquisitions and dispositions, attestation services that are not required by statute or regulation, internal control reviews, and consultation concerning financial accounting and reporting standards.
•
Tax Fees: These are fees for all professional services performed by professional staff in our independent auditor’s tax division, except those services related to the audit of our consolidated financial statements. These include fees for tax compliance, tax planning, and tax advice, including federal, state, and local issues. Services may also include assistance with tax audits and appeals before the IRS and similar state and local agencies, as well as federal, state and local tax issues related to due diligence.
•
All Other Fees: These are fees for any services not included in the above-described categories, including assistance with internal audit plans and risk assessments.
Pre-Approval Policies
In order to ensure that the provision of services by our independent registered public accounting firm does not impair the auditors’ independence, the Audit Committee pre-approves all auditing services performed for the Company by our independent auditors, as well as all permitted non-audit services. In determining whether or not to pre-approve services, the Audit Committee considers whether the service is a permissible service under the rules and regulations promulgated by the SEC.
All services rendered by Baker Tilly for the years ended June 30, 2023 and 2022 were pre-approved by the Audit Committee in accordance with the policies and procedures described above.
Part IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15.
Exhibits and Financial Statement Schedules
(1)
Consolidated Financial Statements
The consolidated financial statements of the Company are included in a separate section of this Annual Report commencing on the page numbers specified below:
Woodbridge Liquidation Trust and Subsidiaries
Page
Index to Consolidated Financial Statements
Audited Consolidated Financial Statements As of and For the Years Ended June 30, 2023 and 2022:
Report of Independent Registered Public Accounting Firm (PCAOB ID 23)
Consolidated Statements of Net Assets in Liquidation as of June 30, 2023 and 2022
Consolidated Statements of Changes in Net Assets in Liquidation for the Years Ended June 30, 2023 and 2022
Notes to Consolidated Financial Statements
(2)
Financial Statement Schedules
Financial statement schedules have been omitted because they are either not required or not applicable, or because the information required to be presented is included in the consolidated financial statements or the notes thereto included in this Annual Report.
(3)
Exhibits
Exhibit Number and Description
2.1
First Amended Joint Chapter 11 Plan of Liquidation of Woodbridge Group of Companies, LLC and its Affiliated Debtors dated August 22, 2018, incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on October 25, 2019.
3.1
Certificate of Trust of Woodbridge Liquidation Trust dated February 14 and effective February 15, 2019, incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on October 25, 2019.
3.2
Liquidation Trust Agreement of Woodbridge Liquidation Trust dated February 15, 2019, as amended by Amendment No. 1 dated August 21, 2019 and Amendment No. 2 dated September 13, 2019, incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on October 25, 2019.
3.3
Amendment No. 3 to Liquidation Trust Agreement dated as of November 1, 2019, incorporated herein by reference to Amendment No. 1 to Registration Statement on Form 10 filed by the Trust on December 13, 2019.
3.4
Amendment No. 4 to Liquidation Trust Agreement dated as of February 5, 2020, incorporated herein by reference to the Current Report on Form 8-K filed by the Trust on February 6, 2020.
3.5
Amended and Restated Bylaws of Woodbridge Liquidation Trust effective August 21, 2019, incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on October 25, 2019.
10.1
Limited Liability Company Agreement of Woodbridge Wind-Down Entity LLC dated February 15, 2019, incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on October 25, 2019.
10.2
First Amendment to Limited Liability Agreement of Woodbridge Wind-Down Entity LLC dated November 30, 2022, incorporated herein by reference to the Current Report on Form 8-K filed by the Trust on December 1, 2022.
Part IV
Item 15.
Exhibits and Financial Statement Schedules (Continued)
10.3
Second Amendment to Limited Liability Agreement of Woodbridge Wind-Down Entity LLC dated as of March 27, 2023, incorporated herein by reference to the Current Report on Form 8-K filed by the Trust on March 29, 2023.
10.4
Third Amendment to Limited Liability Agreement of Woodbridge Wind-Down Entity LLC dated as of April 28, 2023, incorporated herein by reference to the Current Report on Form 8-K filed by the Trust on May 1, 2023.
10.5
Employment Agreement dated November 12, 2019 between Woodbridge Wind-Down Entity LLC and Marion W. Fong, incorporated herein by reference to Amendment No. 1 to Registration Statement on Form 10 filed by the Trust on December 13, 2019.
10.6
First Amendment to Employment Agreement dated September 24, 2020 between Woodbridge Wind-Down Entity LLC and Marion W. Fong, incorporated herein by reference to the Form 10-K filed by the Trust on September 28, 2020.
10.7
Indemnification Agreement dated November 12, 2019 between Woodbridge Wind-Down Entity LLC and Marion W. Fong, incorporated herein by reference to Amendment No. 1 to Registration Statement on Form 10 filed by the Trust on December 13, 2019.
10. 8
Part-Time Employment Agreement dated November 30, 2022 between Woodbridge Wind-Down Entity and Marion W. Fong, incorporated herein by reference to the Current Report on Form 8-K filed by the Trust on December 1, 2022.
10.9
Employment Agreement dated November 12, 2019 between Woodbridge Wind-Down Entity LLC and David Mark Kemper, incorporated herein by reference to Amendment No. 1 to Registration Statement on Form 10 filed by the Trust on December 13, 2019.
10.10
First Amendment to Employment Agreement dated September 24, 2020 between Woodbridge Wind-Down Entity LLC and David Mark Kemper, incorporated herein by reference to the Form 10-K filed by the Trust on September 28, 2020.
10.11
Part-Time Employment Agreement dated November 30, 2022 between Woodbridge Wind-Down Entity and David Mark Kemper, incorporated herein by reference to the Current Report on Form 8-K filed by the Trust on December 1, 2022.
10.12
Indemnification Agreement dated November 12, 2019 between Woodbridge Wind-Down Entity LLC and David Mark Kemper, incorporated herein by reference to Amendment No. 1 to Registration Statement on Form 10 filed by the Trust on December 13, 2019.
10.13
Stipulation and Settlement Agreement between the United States and Woodbridge Liquidation Trust, as approved by order of the United States Bankruptcy Court for the District of Delaware entered September 17, 2020, incorporated herein by reference to the Form 10-K filed by the Trust on September 28, 2020.
10.14
Settlement Agreement dated August 6, 2021 by and among Mark Baker, Jay Beynon as Trustee for the Jay Beynon Family Trust DTD 10/23/1998, Alan and Marlene Gordon, Joseph C. Hull, Lloyd and Nancy Landman, and Lilly A. Shirley on behalf of themselves and the proposed Settlement Class, Michael I. Goldberg, as Trustee for Woodbridge Liquidation Trust, and Comerica Bank, incorporated herein by reference to the Form 10-K filed by the Trust on September 27, 2021.
31.1*
Certification of Liquidation Trustee pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of Liquidation Trustee pursuant to 18 U.S.C. 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Part IV
Item 15.
Exhibits and Financial Statement Schedules (Continued)
99.1
Findings of Fact, Conclusions of Law, and Order Confirming the First Amended Joint Chapter 11 Plan of Liquidation of Woodbridge Group of Companies, LLC and its Affiliated Debtors, entered October 26, 2018, incorporated herein by reference to the Registration Statement on Form 10 filed by the Trust on October 25, 2019.
The following financial statements from the Woodbridge Liquidation Trust Annual Report on Form 10-K for the year ended June 30, 2023, formatted in eXtensible Business Reporting Language (XBRL): (i) consolidated statements of net assets in liquidation as of June 30, 2023 and 2022, (ii) consolidated statements of changes in net assets in liquidation for the years ended June 30, 2023 and 2022, (iii) the notes to the consolidated financial statements. XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101)
Woodbridge Liquidation Trust and Subsidiaries
Page
Index to Consolidated Financial Statements
Audited Consolidated Financial Statements As of and For the Years Ended June 30, 2023 and 2022:
Report of Independent Registered Public Accounting Firm (PCAOB ID 23)
Consolidated Statements of Net Assets in Liquidation as of June 30, 2023 and 2022
Consolidated Statements of Changes in Net Assets in Liquidation for the Years Ended June 30, 2023 and 2022
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Supervisory Board and Liquidation Trustee of Woodbridge Liquidation Trust and Subsidiaries
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of net assets in liquidation of Woodbridge Liquidation Trust and Subsidiaries (the Company) as of June 30, 2023 and 2022, the related consolidated statements of changes in net assets in liquidation for the years ended June 30, 2023 and 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the net assets in liquidation of the Company as of June 30, 2023 and 2022, and the changes in net assets in liquidation for the years ended June 30, 2023 and 2022, in conformity with accounting principles generally accepted in the United States of America applied on the basis described below.
As described in Note 2, these consolidated financial statements have been prepared on the liquidation basis of accounting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Baker Tilly US, LLP
We have served as the Company’s auditors since 2019.
Irvine, California
September 27, 2023
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Woodbridge Liquidation Trust and Subsidiaries
Consolidated Statements of Net Assets in Liquidation
As of June 30, 2023 and 2022
($ in Thousands)
6/30/2023
6/30/2022
Assets
Real estate assets held for sale, net (Note 3)
$
$ 29,062
Cash and cash equivalents
25,704
96,810
Restricted cash (Note 4)
4,473
6,121
Other assets (Note 5)
2,645
5,825
Total assets
$
33,592
$
137,818
Liabilities
Accounts payable and accrued liabilities
$
$
Distributions payable
1,283
68,767
Accrued liquidation costs (Note 6)
25,499
34,537
Total liabilities
$
26,819
$
103,423
Commitments and Contingencies (Note 14)
Net Assets in Liquidation
Restricted for Qualifying Victims (Note 7)
$
3,491
$
3,485
All Interestholders
3,282
30,910
Total net assets in liquidation
$
6,773
$
34,395
See accompanying notes to consolidated financial statements.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.
Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Consolidated Statements of Changes in Net Assets in Liquidation
For the Years Ended June 30, 2023 and 2022
($ in Thousands)
Year Ended June 30, 2023
Year Ended June 30, 2022
Restricted
Restricted
For Qualifying
All
For Qualifying
All
Victims
Interestholders
Total
Victims
Interestholders
Total
Net Assets in Liquidation as of beginning of period
$
3,485
$
30,910
$
34,395
$
3,167
$
126,373
$
129,540
Change in assets and liabilities (Note 8):
Restricted for Qualifying Victims -
Change in carrying value of assets and liabilities, net
-
-
All Interestholders:
Change in carrying value of assets and liabilities, net
-
(5,197
)
(5,197
)
-
47,602
47,602
Distributions (declared) reversed, net
-
(22,431
)
(22,431
)
-
(143,065
)
(143,065
)
Net change in assets and liabilities
-
(27,628
)
(27,628
)
-
(95,463
)
(95,463
)
Net Assets in Liquidation as of end of period
$
3,491
$
3,282
$
6,773
$
3,485
$
30,910
$
34,395
See accompanying notes to consolidated financial statements.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.
Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2023 and 2022
1)
Formation, Organization and Description of Business
Formation
Woodbridge Liquidation Trust (the “Trust”) was established (i) for the purpose of collecting, administering, distributing and liquidating the Trust assets for the benefit of the Trust beneficiaries in accordance with the Liquidation Trust Agreement of the Trust and the First Amended Joint Chapter 11 Plan of Liquidation of Woodbridge Group of Companies, LLC and its Affiliated Debtors dated August 22, 2018 (as amended, modified, supplemented or restated from time to time, the “Plan”); (ii) to resolve disputed claims asserted against the Debtors; (iii) to litigate and/or settle causes of action (“Causes of Action”); and (iv) to pay certain allowed claims and statutory fees, as required by the Plan. Woodbridge Group of Companies, LLC and its affiliated debtors are individually referred to herein as a Debtor and collectively as the Debtors. The Trust was formed on February 15, 2019 (the “Plan Effective Date”) as a statutory trust under Delaware law.
On the Plan Effective Date, in accordance with the Plan, (a) the following assets automatically vested in the Trust: (i) an aggregate $5,000,000 in cash from the Debtors for the purpose of funding the Trust’s initial expenses of operation; (ii) certain claims and Causes of Action; (iii) all of the outstanding equity interests of the Wind-Down Entity (as defined below); and (iv) certain other non-real estate related assets, (b) the equity interests of Woodbridge Group of Companies, LLC and Woodbridge Mortgage Investment Fund 1, LLC (together, the “Remaining Debtors”) were cancelled and new equity interests representing all of the newly issued and outstanding equity interests in the Remaining Debtors were issued to the Trust, (c) all of the other Debtors other than the Remaining Debtors were dissolved and (d) the real estate-related assets of the Debtors were automatically vested in the Trust’s wholly-owned subsidiary, Woodbridge Wind-Down Entity LLC (the “Wind-Down Entity”) or one of the Wind-Down Entity’s 43 wholly-owned single-member limited liability companies (the “Wind-Down Subsidiaries”) formed to own the respective real estate assets. The Trust, the Remaining Debtors, the Wind-Down Entity and the Wind-Down Subsidiaries are collectively referred to herein as the “Company.”
As further discussed in Note 10, the Trust has two classes of liquidation trust interests: Class A Liquidation Trust Interests (the “Class A Interests”) and Class B Liquidation Trust Interests (the “Class B Interests”). The holders of Class A Interests and Class B Interests are collectively referred to as “All Interestholders.”
On December 24, 2019, the Trust’s Registration Statement on Form 10 became effective under the Securities Exchange Act of 1934 (the “Exchange Act”). The trading symbol for the Trust’s Class A Interests is WBQNL. Bid and asked prices for the Trust’s Class A Interests are quoted on the OTC Link® ATS, the SEC-registered alternative trading system. The Class A Interests are eligible for the Depository Trust Company’s Direct Registration System
Organization
The Trust does not have directors or executive officers. All of the management and executive authority of the Trust resides with the Liquidation Trustee, subject to the supervision of a six-member supervisory board. The Wind-Down Entity is separately managed by its board of managers.
The Liquidation Trust Interests are non-voting. The holders of the Class A Interests and the Class B Interests have the same rights, except with respect to certification, transferability and payment of distributions. See Note 11 regarding the priority and manner of distribution of available cash.
The Wind-Down Entity, from time to time, makes distributions to the Trust, as available. The Trust in turn makes distributions, from time to time, to the Trust beneficiaries, as available.
The Trust will be terminated upon the first to occur of (i) the making of all distributions required to be made and a determination by the Liquidation Trustee that the pursuit of additional causes of action held by the Trust is not justified or (ii) February 15, 2024. However, the Bankruptcy Court may approve an extension of the term if deemed necessary to facilitate or complete the recovery on, and liquidation of, the Trust assets.
During the year ended June 30, 2023, the Company concluded that its liquidation activities would not be completed by February 15, 2024, the current outside termination date of the Trust, for a number of reasons. First, there have been significant delays in certain legal proceedings where the Company is the plaintiff. Second, a construction defect claim has been asserted against one of the Wind-Down Subsidiaries by the buyer of one of the subsidiary’s single-family homes. The subsidiary has tendered the claim to its insurance carrier. At this time, the amount of the liability exposure, if any, has not been determined and it is not known if the subsidiary has any exposure in excess of its insurance coverage. The subsidiary is investigating the claim, including the extent and causes of the alleged damage and the identification of other potentially responsible persons. Based on the foregoing, the Company currently projects a revised estimated completion date for the Company’s operations of approximately March 31, 2026.
The Company is required to file a motion with the Bankruptcy Court to extend the termination date of the Trust beyond February 15, 2024. The motion is required to be filed within six months before February 15, 2024. The Company expects that the motion will be filed as required and that the Bankruptcy Court will grant the motion as the extension is needed to pursue additional Trust actions that are expected to yield additional proceeds to the Trust and to address the construction defect claim.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2023 and 2022 (Continued)
Pursuant
to the Wind-Down Entity’s Limited Liability Company Agreement, the Wind-Down Entity shall dissolve upon the first to occur of the following: (i) the written consent of the Trust, (ii) the entry of a decree of judicial dissolution under Section 18-802 of the Delaware LLC Act and (iii) the sale or other disposition of all of the Wind-Down Assets.
Description of Business
The Trust is prosecuting various Causes of Action acquired by the Trust pursuant to the Plan and is resolving claims asserted against the Debtors. As of June 30, 2023, the Company is the plaintiff in several pending lawsuits. During the years ended June 30, 2023 and 2022, the Company recorded settlement recoveries of approximately $296,000 and $26,922,000, respectively, from the settlement of Causes of Action of which approximately $0 and $24,815,000, respectively, was from Comerica Bank (see Note 13 for additional information). The Company also recorded liabilities of 5% of the settlement recoveries as amounts payable to the Liquidation Trustee. The Company has accrued an estimate of the amount of legal costs to be incurred to pursue this litigation, excluding contingent fees. As more fully discussed in Note 2, the Company’s consolidated financial statements do not include any estimate of future net recoveries from litigation and settlement, since the Company cannot reasonably estimate them.
The Wind-Down Entities’ operations are almost complete. As of June 30, 2023, the Wind-Down Subsidiaries owned one performing secured loan and one parcel of real property (see Note 3 for additional information).
The Company is required to liquidate its assets and distribute available cash to the Trust beneficiaries. The liquidation activities are carried out by the Trust, the Wind-Down Entity and the Wind-Down Subsidiaries. As of June 30, 2023, the Company estimates that the liquidation activities will be completed by March 31, 2026 (see Note 6 for additional information). The Company currently operates as one reportable segment with activities comprised primarily of real estate assets held for sale.
As more fully discussed in Note 2, the Company uses the Liquidation Basis of Accounting. Net assets in liquidation represent the remaining estimated aggregate value available to Trust beneficiaries upon liquidation, with no discount for the timing of proceeds (undiscounted). Net liquidation proceeds, other recoveries and actual liquidation costs may differ materially from the estimated amounts due to the uncertainty in the timing of completing the liquidation activities.
The Trust’s expectations about the amount of any additional distributions and when they will be paid are subject to risks and uncertainties and are based on certain estimates and assumptions, one or more of which may prove to be incorrect. As a result, the actual amount of any additional distributions may differ materially, perhaps in adverse ways, from the Trust estimates. Furthermore, it is not possible to predict the timing of any additional distributions and any such distributions may not be made within the timing referenced in the consolidated financial statements. See Note 15 for information relating to the suspension of distributions.
No assurance can be given that total distributions will equal or exceed the estimate of net assets in liquidation presented in the consolidated statements of net assets in liquidation.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2023 and 2022 (Continued)
2)
Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying consolidated financial statements of the Company have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These consolidated financial statements have been presented in accordance with Accounting Standards Codification (“ASC”) Subtopic 205-30, “Liquidation Basis of Accounting,” as amended by Accounting Standards Update (“ASU”) No. 2013-07, “Presentation of Financial Statements (Topic 205), Liquidation Basis of Accounting.”
All material intercompany accounts and transactions have been eliminated.
Use of Estimates
U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and for the period then ended. Actual results could differ from these estimates. Estimates and assumptions are reviewed periodically, and the carrying amounts of assets and liabilities are revised in the period that available information supports a change in the carrying amount.
Liquidation Basis of Accounting
Under liquidation basis of accounting, all assets are recorded at their estimated net realizable value or liquidation value, which represents the estimated amount of net cash that will be received upon the disposition of the assets (on an undiscounted basis). The measurement of real estate assets held for sale is based on current contracts (if any), if contingencies have been removed, estimates and other indications of sales value, net of estimated selling costs. To determine the value of real estate assets held for sale, the Company considered the three traditional approaches to value (cost, income and sales comparison) commonly used by the real estate appraisal community. The applicability and relevancy of each valuation approach as applied may differ by asset. In most cases, the sales comparison approach was accorded the greatest weight. This approach compares a property to other properties with similar characteristics that have recently sold. To validate management’s estimate, the Company also considered opinions from qualified real estate professionals and local real estate brokers and, in some cases, obtained third party appraisals. The estimated selling costs for the remaining real estate parcel are 5.0% of the property sales price, including sales commissions, transfer taxes and other costs.
Liabilities, including estimated costs associated with implementing and completing the Plan, are measured in accordance with U.S. GAAP that otherwise applies to those liabilities. The Company has recorded estimated development costs such as costs to be incurred to prepare the assets for sale, estimated reserves for contingent liabilities including potential construction defect claims, estimated holding costs to be incurred until the projected sale date and the estimated general and administrative costs to be incurred until the completion of the liquidation of the Company. When estimating development costs, the Company considered third party construction contracts and estimates of costs to complete based on construction status, progress and projected completion timing. Estimated development costs also include the costs of design and furnishings necessary to prepare and stage the homes for marketing as well as an accrual for potential construction defect claims. Holding cost estimates consider property taxes, insurance, utilities, maintenance and other costs to be incurred until the sale of the property is closed. Projected general and administrative cost estimates take into account operating costs through the completion of the liquidation of the Company currently estimated to be March 31, 2026 and an accrual for the administration of construction defect claims.
These estimated amounts are presented in the accompanying consolidated statements of net assets in liquidation. All changes in the estimated liquidation value of the Company’s real estate held for sale, or other assets and liabilities are reflected as a change to the Company’s net assets in liquidation.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2023 and 2022 (Continued)
The Company does not record any amount from the future settlement of unresolved Causes of Action in the accompanying consolidated financial statements until an agreement is executed, final court approval is received and collectability is reasonably assured. The amount recovered may be material to the Company’s net assets in liquidation.
On a quarterly basis, the Company reviews the estimated net realizable values, liquidation costs and the estimated date of the completion of the liquidation of the Company and records any significant changes. The Company will also revalue an asset when it is under contract for sale and the buyer’s contingencies have been removed. During the period when this occurs, the carrying value of the asset and the estimated closing and other costs will be adjusted, if necessary. If the Company has a change in its plan for the disposition of an asset, the carrying value will be adjusted to reflect this change in the period that the change is approved. The change in value may include the accrued liquidation costs related to the asset.
Other Assets
The Company recognizes recoveries from the settlement of unresolved Causes of Action when an agreement is executed, final court approval is received and collectability is reasonably assured. An allowance for uncollectible settlement installment receivables is recorded when there is doubt about the collectability of the receivable. The Company records escrow receivables at the amount that is expected to be received when the escrow receivable is released. The Forfeited Assets (Note 7) received from the United States Department of Justice (the “DOJ”), other than cash, have been recorded at their estimated net realizable value. The Company accrues expected interest earnings when it can reasonably estimate the amount to be received.
In addition, the Company recognizes other amounts to be received based on contractual terms or when the amounts to be received are certain.
Accrued Liquidation Costs
The Company accrues for estimated liquidation costs to the extent they are reasonably determinable. These costs consist of (a) estimated development costs of the single-family homes, including construction and other project related costs, architectural and engineering, project management, city fees, bond payments (net of refunds), furnishings, marketing, estimated reserves for contingent liabilities including potential construction defect claims and other costs; (b) estimated holding costs, including property taxes, insurance, maintenance, utilities and other; and (c) estimated general and administrative costs including payroll, legal and other professional fees, trustee and board fees, rent and other office related expenses, and other general and administrative costs to operate the Company and the administration of construction defect claims.
Cash Equivalents
The Company considers short-term investments that have a maturity date of ninety days or less at the time of investment to be a cash equivalent.
Restricted Cash
Restricted cash includes cash that can only be used for certain specified purposes as described in Note 4.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and restricted cash, which are held as deposits in several financial institutions. The deposit balances in any one financial institution may exceed the Federal Deposit Insurance Corporation (the “FDIC”) insurance limits. The Company mitigates this risk by using sweep accounts to reduce deposit balances at any one financial institution consistent with FDIC insurance limits.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2023 and 2022 (Continued)
Income Taxes
The Trust is intended to be treated as a grantor trust for income tax purposes and, accordingly, is not subject to federal or state income tax on any income earned or gain recognized by the Trust. The Trust’s beneficiaries will be treated as the owner of a pro rata portion of each asset, including cash and each liability received by and held by the Trust. Each beneficiary will be required to report on his or her federal and state income tax return his or her pro rata share of taxable income, including gains and losses recognized by the Trust. Accordingly, there is no provision for federal or state income taxes recorded in the accompanying consolidated financial statements.
The Company regularly analyzes its various federal and state filing positions and only recognizes the income tax effect in the consolidated financial statements when certain criteria regarding uncertain income tax positions have been met. The Company believes that its income tax positions would more likely than not be sustained upon examination by all relevant taxing authorities. Therefore, no provision for uncertain income tax positions has been recorded in the consolidated financial statements.
Net Assets in Liquidation - Restricted for Qualifying Victims
The Company separately presents the portion of net assets in liquidation that are restricted for Qualifying Victims (Note 7) from the net assets in liquidation that are available to All Interestholders.
3)
Real Estate Assets Held for Sale, Net
The Company’s real estate assets held for sale as of June 30, 2023 and 2022, are as follows ($ in thousands):
June 30, 2023
June 30, 2022
Number
of Assets
Gross Value
Closing and
Other Costs
Net Value
Number
of Assets
Gross Value
Closing and
Other Costs
Net Value
Single-family homes
$
-
$
-
$
-
$
28,000
$
(1,680
)
$
26,320
Other real estate assets:
Secured loans
-
(40
)
Other properties
(25
)
2,000
(190
)
1,810
Subtotal
(25
)
2,972
(230
)
2,742
Total
$
$
(25
)
$
$
30,972
$
(1,910
)
$
29,062
As of June 30, 2023, the performing loan is secured by a property located in the state of Ohio and the parcel of real property is located in the state of Hawaii. A transaction for the sale of the property located in Hawaii is currently pending.
During the year ended June 30, 2023, the Company sold one single-family home, sold one other property, and settled one secured loan for approximately $26,958,000 in the aggregate. During the year ended June 30, 2022, the Company sold six single-family homes and settled two secured loans for approximately $131,716,000.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2023 and 2022 (Continued)
4)
Restricted Cash
The Company’s restricted cash as of June 30, 2023 and 2022, is as follows ($ in thousands):
June 30, 2023
June 30, 2022
Forfeited Assets (Note 7)
$ 3,190
$
2,395
Distributions restricted by the Company related to unresolved claims, distributions for recently allowed claims, uncashed distribution checks, distributions withheld due to pending avoidance actions and distributions that the Trust is waiting for further beneficiary information
1,283
3,726
Total restricted cash
$
4,473
$
6,121
5)
Other Assets
The Company’s other assets as of June 30, 2023 and 2022, are as follows ($ in thousands):
June 30, 2023
June 30, 2022
Forfeited Assets (Note 7)(a)
$
$
1,258
Settlement installment receivables, net (b)
Accrued interest(a)
1,574
-
Escrow receivables (c)
3,420
Other
Total other assets
$
2,645
$
5,825
(a) During the quarter ended June 30, 2023, the Company accrued approximately $1,636,000 of interest earnings. This is the amount that the Company estimates that it will earn on its cash on deposit at June 30, 2023 during the period from July 1, 2023 through March 31, 2026, the current estimated completion date for the Company’s operations. Of the accrued interest at June 30, 2023, approximately $62,000 relates Forfeited Assets and the remainder of approximately $1,574,000
relates to All Interestholders
(b)
The allowance for uncollectible settlement installment receivables was approximately $63,000 and $7,000
as of June 30, 2023 and 2022, respectively.
(c)
Escrow receivables as of June 30, 2023 relates to one single-family home that was sold during the year ended June 30, 2023. Escrow receivables as of June 30, 2022 relate to two single-family homes that were sold during the year ended June 30, 2022 and one single-family home that was sold prior to June 30, 2021. Amounts are to be released upon completion of punch list items and/or obtaining a certificate of occupancy. In some cases, escrow receivable amounts may be used to pay for the cost of completing punch list items.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2023 and 2022 (Continued)
6)
Accrued Liquidation Costs
The following is a summary of accrued liquidation costs as of June 30, 2023 and 2022 ($ in thousands):
June 30, 2023
June 30, 2022
Development costs:
Construction warranty
$
4,553
$
4,184
Construction costs
4,331
Indirect costs
Bond refunds
(87
)
(506
)
Total development costs
4,747
8,179
Holding costs:
Property taxes
Maintenance, utilities and other
Insurance
-
Total holding costs
1,587
General and administrative costs:
Legal and other professional fees
13,308
12,377
Directors and officers insurance
3,442
2,508
Payroll and payroll-related
2,757
7,989
Board fees and expenses
State, local and other taxes
Other
Total general and administrative costs
20,742
24,771
Total accrued liquidation costs
$
25,499
$
34,537
During the year ended June 30, 2023, the Company concluded that its liquidation activities would not be completed by February 15, 2024, the current outside termination date of the Trust. In addition to significant delays in certain legal proceedings brought by the Company, a construction defect claim has been asserted against a subsidiary of the Company by the buyer of one of the subsidiary’s single-family homes (see Note 14 for additional information). The Company currently projects a revised estimated completion date for the Company’s operations of approximately March 31, 2026.
The change of the estimated completion date of the Company’s liquidation activities resulted in an additional accrual of accrued liquidation costs of approximately $7.7 million. The additional costs are primarily legal and other professional fees and payroll and payroll-related costs. A portion of the accrued liquidation costs relate to estimated reserves for contingent liabilities including potential construction defect claims and the administration of such claims after the Company’s liquidation activities are completed.
The Company is required to file a motion with the Bankruptcy Court to extend the termination date of the Trust beyond February 15, 2024. The motion is required to be filed within six months before February 15, 2024. The Company expects that the motion will be filed as required and that the Bankruptcy Court will grant the motion as the extension is needed to pursue additional Trust actions that are expected to yield additional proceeds to the Trust and to address the construction defect claim.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2023 and 2022 (Continued)
7)
Forfeited Assets - Restricted for Qualifying Victims
The Trust entered into a resolution agreement with the DOJ which provided that the Trust would receive the assets forfeited (“Forfeited Assets”) by Robert and Jeri Shapiro. The agreement provided for the release of specified Forfeited Assets by the DOJ to the Trust and for the Trust to liquidate those assets and distribute the net sale proceeds to Qualifying Victims. Qualifying Victims include the vast majority of Trust beneficiaries (specifically, all former holders of allowed Class 3 and 5 claims and their permitted assigns), but do not include former holders of Class 4 claims. Distributions to Qualifying Victims are to be allocated pro-rata based on their net allowed claims without considering the (i) 5% enhancement for contributing their causes of action and (ii) 72.5% Class 5 coefficient.
In March 2021, the Trust received certain Forfeited Assets from the DOJ, including cash, wine, jewelry, handbags, clothing, shoes, art, gold, an automobile and other assets. The Company recorded the total estimated net realizable value of the Forfeited Assets of approximately $3,459,000.
During the year ended June 30, 2023, the Company sold the automobile, jewelry, handbags, clothing, shoes and art. During the year ended June 30, 2022, the Company sold wine, gold, handbags, clothing and shoes. The Forfeited Assets included in the Company’s June 30, 2023 and 2022 consolidated financial statements are as follows ($ in thousands) (unaudited):
June 30, 2023
June 30, 2022
Restricted cash (Note 4)
$
3,190
$
2,395
Other assets (Note 5)
1,258
Accounts payable and accrued liabilities
(6 )
-
Accrued liquidation costs - primarily legal and professional fees
(128
)
(168
)
Net assets in liquidation - restricted for Qualifying Victims
$
3,491
$
3,485
On February 7, 2023, the Trust was informed that the DOJ had received additional Forfeited Assets from a co-defendant of Robert Shapiro and that the DOJ proposes to transfer these Forfeited Assets to the Trust. The Trust has not yet entered into an agreement with the DOJ for the transfer of any additional Forfeited Assets. It is expected that the proceeds from any additional Forfeited Assets would be distributed to Qualifying Victims. At this time, the Trust is unable to estimate the amount or timing of the transfer of any such Forfeited Assets.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2023 and 2022 (Continued)
8)
Net Change in Assets and Liabilities
Restricted for Qualifying Victims
The following is a summary of the change in the carrying value of assets and liabilities, net during the year ended June 30, 2023 ($ in thousands):
Cash
Remeasure-
Activities
ment
Total
Real estate assets held for sale, net
$
-
$
-
$
-
Cash and cash equivalents
-
-
-
Restricted cash
-
Other assets
(831
)
(823
)
Total assets
$
(36
)
$
$
(28
)
Accounts payable and accrued liabilities
$
-
$
$
Accrued liquidation costs
(40
)
-
(40
)
Total liabilities
$
(40
)
$
$
(34
)
Change in carrying value of assets and liabilities, net
$
$
$
The following is a summary of the change in the carrying value of assets and liabilities, net during the year ended June 30, 2022 ($ in thousands):
Cash
Remeasure-
Activities
ment
Total
Real estate assets held for sale, net
$
-
$
-
$
-
Cash and cash equivalents
-
-
-
Restricted cash
-
Other assets
(609
)
(291
)
Total assets
$
(50
)
$
$
Accounts payable and accrued liabilities
$
-
$
-
$
-
Accrued liquidation costs
(50
)
-
(50
)
Total liabilities
$
(50
)
$
-
$
(50
)
Change in carrying value of assets and liabilities, net
$
-
$
$
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2023 and 2022 (Continued)
All Interestholders
The following provides details of the change in carrying value of assets and liabilities, net during the year ended June 30, 2023 ($ in thousands):
Cash
Remeasure-
Activities
ment
Total
Real estate assets held for sale, net
$
(26,999
)
$
(1,293
)
$
(28,292
)
Cash and cash equivalents
16,352
-
16,352
Restricted cash
-
Other assets
(4,000
)
1,643
(2,357
)
Total assets
$
(14,633
)
$
$
(14,283
)
Accounts payable and accrued liabilities
$
(645
)
$
$
(88
)
Accrued liquidation costs
(15,246
)
6,248
(8,998
)
Total liabilities
$
(15,891
)
$
6,805
$
(9,086
)
Change in carrying value of assets and liabilities, net
$
1,258
$
(6,455
)
$
(5,197
)
The following provides details of the distributions declared, net during the year ended June 30, 2023 ($ in thousands):
Distributions declared
$
(25,033
)
Distributions reversed
2,602
Distributions (declared) reversed, net
$
(22,431
)
Distributions payable decreased during the year ended June 30, 2023 by approximately $67,484,000.
The following provides details of the change in carrying value of assets and liabilities, net during the year ended June 30, 2022 ($ in thousands):
Cash
Remeasure-
Activities
ment
Total
Real estate assets held for sale, net
$
(131,761
)
$
19,968
$
(111,793
)
Cash and cash equivalents
129,465
-
129,465
Restricted cash
(1,750
)
-
(1,750
)
Other assets
(26,535
)
27,178
Total assets
$
(30,581
)
$
47,146
$
16,565
Accounts payable and accrued liabilities
$
(1,425
)
$
1,384
$
(41
)
Accrued liquidation costs
(30,856
)
(140
)
(30,996
)
Total liabilities
$
(32,281
)
$
1,244
$
(31,037
)
Change in carrying value of assets and liabilities, net
$
1,700
$
45,902
$
47,602
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2023 and 2022 (Continued)
The following provides details of the distributions declared, net during the year ended June 30, 2022 ($ in thousands):
Distributions declared
$
(145,040
)
Distributions reversed
1,975
Distributions (declared) reversed, net
$
(143,065
)
Distributions payable increased during the year ended June 30, 2022 by approximately $64,080,000.
9)
Credit Agreements
Revolving Line of Credit
The Company does not currently have any outstanding credit agreements. On May 16, 2022, the Company terminated its prior credit agreement. Also, the Company never had outstanding borrowings on its credit agreement.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2023 and 2022 (Continued)
10)
Beneficial Interests
The following table summarizes the Liquidation Trust Interests (rounded) for the years ended June 30, 2023 and 2022:
For the Year Ended June 30,
For the Year Ended June 30,
Liquidation Trust Interests
Class A
Class B
Class A
Class B
Outstanding at beginning of year
11,513,535
675,617
11,512,855
675,784
Allowed claims
2,881
-
4,976
-
5% enhancement for certain allowed claims
-
-
-
Settlement of claims by cancelling Liquidation Trust Interests
(760
)
-
(4,296
)
(167
)
Outstanding at end of year
11,515,800
675,617
11,513,535
675,617
Of the 11,515,800 Class A Interests outstanding as of June 30, 2023, 11,435,913 are held by Qualifying Victims (Note 7).
At the Plan Effective Date, certain claims were disputed. As the claims are resolved, additional Class A Interests and (if applicable) Class B Interests are issued on account of allowed claims and no Class A Interests or (if applicable) Class B Interests are issued on account of disallowed claims. The following table summarizes the Trust’s unresolved claims against the Debtors as they relate to Liquidation Trust Interests (rounded) for the years ended June 30, 2023 and 2022:
For the Year Ended June 30,
For the Year Ended June 30,
Liquidation Trust Interests
Class A
Class B
Class A
Class B
Reserved for unresolved claims at beginning of year
90,793
124,609
5,011
Allowed claims
(1,348
)
-
(4,976
)
-
5% enhancement for certain allowed claims
-
-
-
-
Disallowed claims
(75,570
)
-
(28,840
)
(4,678
)
Reserved for unresolved claims at end of year
13,875
90,793
Of the 13,875 Class A Interests relating to unresolved claims as of June 30, 2023, 1,880 were for Qualifying Victims (Note 7).
11)
Distributions
The Plan provides for a distribution waterfall that specifies the priority and manner of distribution of available cash to all Interestholders, excluding distributions of the net sales proceeds from Forfeited Assets (Note 7). Distributions are to be made (a) to the Class A Interests until they have received distributions of $75.00 per Class A Interest; thereafter (b) to the Class B Interests until they have received distributions of $75.00 per Class B Interest; thereafter (c) to each Liquidation Trust Interest (whether a Class A Interest or Class B Interest) until the aggregate of all distributions made pursuant to this clause equals an amount equivalent to interest, at a per annum fixed rate of 10%, compounded annually, accrued on the aggregate principal amount of all Net Note Claims, Allowed General Unsecured Claims and Net Unit Claims, all as defined in the Plan, treating each distribution pursuant to (a) and (b) above as reductions of such principal amount; and thereafter (d) to the holders of Allowed Subordinated Claims, as defined in the Plan, until such claims are paid in full, including interest, at a per annum fixed rate of 10% or such higher rate as may be agreed to, as provided for in the Plan, compounded annually, accrued on the principal amount of each Allowed Subordinated Claim, as defined.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2023 and 2022 (Continued)
One distribution was declared and two distributions were paid during the year ended June 30, 2023, and three distributions were declared and two distributions were paid during the year ended June 30, 2022 ($ in millions, except for $ per Class A Interest):
Year ended June 30, 2023
Year ended June 30, 2022
Deposits Into
Deposits Into
$ per
Restricted
Restricted
Date
Class A
Total
Cash
Total
Cash
Declared
Interest
Declared
Paid
Account
Declared
Paid
Account
Eleventh
5/10/2023
$ 2.18
$ 25.02
$ 24.90
$ 0.12
$ -
$ -
$ -
Tenth
6/15/2022
(a)
$
5.63
-
64.18
0.83
65.01
-
-
Ninth
2/4/2022
$
3.44
-
-
-
39.98
39.15
0.83
Eighth
10/8/2021
$
3.44
-
-
-
40.01
39.13
0.88
Total
$
25.02
$
89.08
$
0.95
$
145.00
$
78.28
$
1.71
(a)
The distribution was paid on July 15, 2022.
See Note 15 for information relating to the suspension of distributions.
As claims are resolved, additional Class A Interests may be issued or cancelled. Therefore, the total amount of a distribution declared may change. In addition, distributions may change if Interestholders that were previously deemed to have forfeited their rights to receive Class A Interest distributions subsequently respond and if overpaid distributions are returned.
For every distribution, a deposit is made into a restricted cash account for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims, (b) in respect of Class A Interests issued on account of recently allowed claims, (c) for holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions, (d) for distributions that were withheld due to pending avoidance actions, and (e) for holders of Class A Interests for which the Trust is waiting for further beneficiary information.
During the years ended June 30, 2023 and 2022, as (a) claims were resolved, (b) claims were recently allowed, (c) addresses for holders of uncashed distribution checks were obtained, (d) pending avoidance actions were resolved and (e) further beneficiary information was received, distributions of approximately $789,000 and $700,000, respectively, were paid to holders of Class A Interests from the restricted cash account and distributions payable were reduced by the same amount.
During the years ended June 30, 2023 and 2022, as a result of claims being disallowed or Class A Interests being cancelled, approximately $2,629,000 and $815,000, respectively, were released from the restricted cash account and distributions payable were reduced by the same amount.
During the years ended June 30, 2023 and 2022, approximately $20,000 and $0, respectively, was received from Interestholders that had been overpaid on prior distributions.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2023 and 2022 (Continued)
As a result of distribution checks that had not been cashed within 180 days of their issuance, Interestholders were deemed to have forfeited their rights to reserved and future Class A Interest distributions. During the years ended June 30, 2023 and 2022, approximately $0 and $1,159,000, respectively, was released from the restricted cash account and distributions payable were reduced by the same amount. During the years ended June 30, 2023 and 2022, some Interestholders that had previously been deemed to have forfeited their rights to receive Class A Interest distributions responded and therefore approximately $27,000 and $0, respectively, was added to the restricted cash account and distributions payable were increased by the same amount.
12)
Related Party Transactions
Terry Goebel, a member of the Trust Supervisory Board, is president and a principal owner of G3 Group LA (“G3”), a construction firm specializing in the development of high-end luxury residences. G3 is owned by Terry Goebel and his son Kelly Goebel. During the year ended June 30, 2023, G3 completed its contract for the development of one single-family home in Los Angeles, California. As of June 30, 2023 and 2022 the remaining amounts payable under this contract were approximately $0 and $438,000, respectively. During the years ended June 30, 2023 and 2022, approximately $220,000 and $6,050,000, respectively, were paid by the Company to G3 related to this contract.
The Liquidation Trustee of the Trust is entitled to receive 5% of the total gross amount recovered by the Trust from the pursuit of the Causes of Action. During the years ended June 30, 2023 and 2022, approximately $33,000 and $1,346,000, respectively, were accrued as amounts due to the Liquidation Trustee, respectively. As of June 30, 2023 and 2022, approximately $32,000 and $81,000, respectively, were payable to the Liquidation Trustee. These amounts are included in accounts payable and accrued liabilities in the accompanying consolidated statements of net assets in liquidation. During the years ended June 30, 2023 and 2022, approximately $83,000 and $1,425,000, respectively, were paid to the Liquidation Trustee.
In November 2019, the Trust entered into an arrangement with Akerman LLP, a law firm based in Miami, Florida of which the Liquidation Trustee is a partner, for the provision, at the option of the Trust on an as-needed basis, of e-discovery and related litigation support services in connection with the Trust’s prosecution of the Causes of Action. Under the arrangement, the Trust is charged for the services at scheduled rates per task which, depending on specific task, include flat rates, rates based on volume of data processed, rates based on the number of data users, the hourly rates of Akerman LLP personnel, or other rates. During the years ended June 30, 2023 and 2022, respectively, approximately $428,000 and $420,000, respectively, were paid related to these services and there are no outstanding payables as of June 30, 2023 and 2022.
On March 10, 2023, as a result of the failure of two large financial institutions, as a protective measure, the Company deposited the restricted cash relating to Forfeited Assets and distribution reserves into two separate Akerman LLP trust accounts for the benefit of the Company (the “Trust Accounts”). The balance deposited in these accounts was approximately $3,170,000 and $1,222,000, respectively. On April 5, 2023, the Company transferred approximately $25,000 relating to the distribution reserves and on May 11, 2023, the Company transferred the remaining balances in the Trust Accounts to one of the banking institutions with which it has a depositor relationship.
The executive officers of the Wind-Down Entity were entitled to a bonus based on the Wind-Down Entity achieving certain specified cumulative amounts of distributions to the Trust. Based on the carrying amounts of the net assets in liquidation included in the accompanying consolidated statements of net assets in liquidation, approximately $0 and $3,000,000 were accrued as of June 30, 2023 and 2022, respectively, as the estimated amount of the bonus (including associated payroll taxes). This amount was included in the payroll and payroll-related costs portion of accrued liquidation costs in the accompanying consolidated statement of net assets in liquidation. During the years ended June 30, 2023 and 2022, $3,273,000 and $692,000, respectively, were paid related to executive bonuses.
13)
Causes of Action
One of the Trust’s liquidation activities is to litigate and/or settle Causes of Action. The main areas of litigation have involved actions against Comerica Bank, law firms and individual attorneys and avoidance actions. The Company recognizes recoveries from settlements when an agreement is executed and collectability is reasonably assured.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2023 and 2022 (Continued)
In December 2021, the Trust received court approval of its agreement to settle its litigation against Comerica Bank. The Trust has also pursued litigation against nine law firms and ten individual attorneys. The cases against five law firms and six individual attorneys have been settled or dismissed. At June 30, 2023, two of the settlements were subject to the California Superior Court granting a motion for a court order that the settlements were made by the parties in good faith. As of June 30, 2023, litigation against the other four law firms and four individual attorneys are in various stages (see Note 15 for additional information).
The Trust has also filed numerous avoidance actions, most of which have been resolved, resulting in recoveries by or judgments in favor of the Trust. As of June 30, 2023, 40 legal actions remain pending. Additionally, since February 15, 2019 and as of June 30, 2023, the Trust has obtained default and stipulated judgments related to certain avoidance actions. It is unknown at this time how much, if any, will ultimately be collected on the judgments. Therefore, the Company has not recognized any recoveries from these judgments.
During the years ended June 30, 2023 and 2022, the Company recorded the following amounts from the settlement of Causes of Action ($ in thousands):
For the Years Ended June 30,
Other settlement recoveries
$
$
2,107
Comerica Bank
-
24,815
Total
$
$
26,922
The Company also recorded liabilities of 5% of the settlement as amounts payable to the Liquidation Trustee and an allowance for uncollectible settlement installment receivables. See Note 5 for information about the settlement receivables, net as of June 30, 2023 and 2022.
14)
Commitments and Contingencies
The Company had a lease for its office space that expired on August 31, 2021. On June 4, 2021, the Company entered into a new office lease at a different location. The new lease, which commenced on August 1, 2021 and expired on July 31, 2022, included two six-month extension options. On May 18, 2022, the Company exercised its first option to extend the lease for six months. On November 16, 2022, the Company exercised its second option to extend its lease for an additional six months through July 31, 2023. In addition, the Company amended its lease to include a third six-month option to extend. As of June 30, 2023, the Company had not exercised its third six-month option to extend (see Note 15 for additional information). The monthly base rent as of June 30, 2023 is approximately $4,000 plus common area maintenance charges. The amount of rent paid, including common area maintenance and parking charges, during the years ended June 30, 2023 and 2022, was approximately $55,000 and $55,000, respectively.
The Wind-Down Entity has part-time employment agreements with its two executive officers through December 31, 2023. The agreements renew automatically until terminated, subject to the right of either party to terminate the agreement at any time and for any reason on thirty days’ advance written notice.
During the year ended June 30, 2023, a construction defect claim was asserted against one of the Wind-Down Subsidiaries by the buyer of one of the subsidiary’s single-family homes. The subsidiary has tendered the claim to its insurance carrier. At this time, the amount of the liability exposure, if any, has not been determined and it is not known whether the subsidiary has any exposure in excess of its insurance coverage. The subsidiary is investigating the claim, including the extent and causes of the alleged damage and the identification of other potentially responsible persons (see Note 15).
The Company is not presently the defendant in any material litigation nor, to the Company’s knowledge, is any material litigation threatened against the Company other than as described herein.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2023 and 2022 (Continued)
15)
Subsequent Events
The Company evaluates subsequent events up until the date the unaudited consolidated financial statements are issued.
Causes of Action
On July 19, 2023, the California Superior Court granted a motion that the settlement with Bailey Cavalieri LLC and Thomas Geyer was made by the parties in good faith. On July 27, 2023, the California Superior Court granted a motion that the settlement with Halloran & Sage and Richard Roberts was made by the parties in good faith. On August 31, 2023, the California Superior Court granted a motion that the settlement with Davis Graham & Stubbs LLP and S. Lee Terry was made by the parties in good faith.
During the period from July 1, 2023 through September 27, 2023, the Company recognized approximately $34,390,000, net of litigation costs and attorney fees, from the settlement of Causes of Action. This amount was recognized because it was received or concluded that collectibility was reasonably assured.
During the period from July 1, 2023 through September 27, 2023, the Company recorded approximately $2,478,000 payable to the Liquidation Trustee, related to the settlement of Causes of Action.
During the period from July 1, 2023 through September 27, 2023, the Company paid approximately $1,212,000 to the Liquidation Trustee related to the recovery of amounts from settled Causes of Action.
Distributions
During the period from July 1, 2023 through September 27, 2023, as a result of Class A Interests being cancelled, approximately $40,000 was released from the restricted cash account and distributions payable were reduced by the same amount.
Suspension of Distributions
On August 3, 2023, at the recommendation of the Liquidation Trustee, the Trust suspended the making of additional Trust distributions pending the results of the Company’s investigation of a construction defect claim asserted against one of the Wind-Down Subsidiaries by the buyer of one of subsidiary’s single-family homes.
Beneficial Interests
The following table summarizes the Liquidation Trust Interests for the period from July 1, 2023 through September 27, 2023:
Liquidation Trust Interests
Class A
Class B
Outstanding at July 1, 2023
11,515,800
675,617
Allowed claims
-
-
Settlement of claims by cancelling Liquidation Trust Interests
(1,222
)
-
Outstanding at September 27, 2023
11,514,578
675,617
Of the 11,514,578 Class A Interests outstanding as of September 27, 2023, 11,435,288 are held by Qualifying Victims (Note 7).
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (Continued)
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
As of June 30, 2023 and 2022 (Continued)
Forfeited Assets
During the period from July 1, 2023 through September 27, 2023, the Company realized net proceeds of approximately $50,000 from the sale of Forfeited Assets.
Office Lease
On July 27, 2023, the Company exercised its third and final six-month option to extend its office lease through January 31, 2024.
Pro Forma Net Assets in Liquidation (Unaudited)
The following is a pro forma statement of net assets in liquidation as of September 27, 2023, which only reflects the subsequent events discussed above in this footnote ($ in thousands):
Pro Forma
Pro Forma
June 30, 2023
Adjustments
(a)
September 27, 2023
Assets
Real estate assets held for sale, net
$
$
-
$
Cash and cash equivalents
25,704
34,390
(b)
58,922
(1,212
)
(c)
(d)
Restricted cash
4,473
(40
)
(d)
4,483
(e)
Other assets
2,645
(f)
3,030
(50
)
(e)
Total assets
$
33,592
$
33,613
$
67,205
Liabilities
Accounts payable and accrued liabilities
$
$
2,478
(g)
$
1,303
(1,212
)
(c)
Distributions payable
1,283
(40
)
(h)
1,243
Accrued liquidation costs
25,499
-
25,499
Total liabilities
$
26,819
$
1,226
$
28,045
Commitments and Contingencies
Net Assets in Liquidation
Restricted for Qualifying Victims
$
3,491
$
-
$
3,491
All Interestholders
3,282
34,390
(b)
35,669
(f)
(h)
(2,478
)
(g)
Total net assets in liquidation
$
6,773
$
32,387
$
39,160
Notes to pro forma statement of net assets in liquidation.
(a)
Only for subsequent events discussed in Footnote 15. There may be changes in estimates and other transactions during the three months ending September 30, 2023 that are not reflected in the pro forma statement of nets assets in liquidation as of September 27, 2023.
(b)
Recognition and receipt of approximately $34.390 million from settlement of Causes of Action during the period from July 1, 2023 through September 27, 2023.
(c)
Payment of approximately $1.212 million to the Liquidation Trustee during the period from July 1, 2023 through September 27, 2023.
(d)
Transfer from distribution reserve restricted cash to cash and cash equivalents of approximately $40,000 during the period from July 1, 2023 through September 27, 2023 related to cancelled Class A Interests.
(e)
Receipt of cash from the sale of Forfeited Assets during the period July 1, 2023 and September 27, 2023.
(f)
Accrual of estimated interest revenues for additional cash on hand during the period July 1, 2023 through December 31, 2023.
(g)
Accrual of approxiamtely $2.478 million payable to the Liquidation Trustee from the settlement of Causes of Action during the period from July 1, 2023 through September 27, 2023.
(h)
Reversal of distributions payable of approxinately $40,000 during the period from July 1, 2023 through September 27, 2023 related to cancelled Class A Interests.