Report Title:

State Preference; Creditors; Bankruptcy

 

Description:

Provides procedures to allow assignments for the benefit of creditors in bankruptcy proceedings.

 


HOUSE OF REPRESENTATIVES

H.B. NO.

3382

TWENTY-FOURTH LEGISLATURE, 2008

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT


 

 

RELATING TO BANKRUPTCY.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


     SECTION 1.  The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

CREDITORS' ACTIONS

§   -1  Definitions.  For the purposes of this chapter:

"Insolvent" refers to a person who meets any of the following conditions:

     (1)  The aggregate of the person's property at a fair valuation, exclusive of any property that the person may have conveyed, transferred, concealed or removed, or permitted to be concealed, or removed, with intent to defraud, hinder, or delay the person's creditors, shall not be sufficient in amount to pay the person's debts;

(2)  An execution against the person or the person's property is returned unsatisfied; or

(3)  The person makes an assignment for the benefit of creditors;

"Petition" means a petition for the appointment of a receiver under this chapter;

§   -2  Jurisdiction.  The state circuit courts shall have supervision of proceedings under this chapter and may make all necessary orders and judgments therefor; provided that all assignments for the benefit of creditors shall be subject to this chapter.

§   -3  Assignment; mistakes; amendments.  (a)  Voluntary assignments for the benefit of creditors may be made to an assignee who is a resident of the State, who before taking possession of the property assigned and before taking upon the assignee any trust conferred by the assignment, shall file the assignment and deliver a bond pursuant to section    -9, to the clerk of the circuit court of the county in which the assignor resides or the assignor's principal place of business at the time of the assignment.

(b)  No assignment shall be void because of any defect, informality, or mistake in the assignment or in the bond, inventory, or list of creditors accompanying the assignment.  The court may direct the amendment of the assignment or of any other document to effect the intention of the assignor or assignee, or to obtain a distribution of the assignor's assets as provided in this chapter.  Any amendment shall relate back to the time of the execution of the document.  No mistake in filing a copy instead of an original or any like mistake or inadvertent failure to comply with this chapter shall void the assignment.

(c)  No creditor, in case a debtor has attempted to make an assignment for the benefit of creditors, or in case of the insolvency of any debtor, by attachment, garnishment, or otherwise, shall obtain priority over other creditors upon the assignment being adjudged void, or in consequence of any sale, lien, or security being adjudged void.  In all cases, the property of the debtor shall be administered for the ratable benefit of all of the debtor's creditors under the direction of the court by the assignee or by a receiver.

§   -4  Liens by legal proceedings; assignment.  When a lien has been obtained by legal proceedings against the property of a debtor, the debtor, within thirty days thereafter, may make an assignment of all of the debtor's nonexempt property for the benefit of all of the debtor's creditors, whereupon the lien shall be dissolved and the property shall be turned over to the assignee.

§   -5  Assignee's consent, recording copy of assignment.  (a)  An assignee shall endorse in writing the assignee's acceptance of the assignment, and shall file the assignment with the clerk of circuit court in the county where the debtor's residence or principal place of business is located.  The court, upon the filing of the assignment, shall order the assignee to administer the debtor's estate pursuant to this chapter and the assignee shall be vested with the powers of a receiver.

(b)  A certified copy of an assignment filed pursuant to subsection (a) shall be recorded in the state bureau of conveyances.

§   -6  Assignee required to comply, when.  An assignee under a voluntary assignment not previously filed under this chapter, upon petition of any creditor without proof of the insolvency of the assignor, shall be required to file the assignment and comply with this chapter.

§   -7  Preferred creditors.  (a)  A person is considered to have given a preference if the insolvent person has made a transfer of any of the person's property or has procured or permitted a judgment to be entered against the person in favor of any other person and the effect of the transfer or the enforcement of the judgment will enable any creditor to obtain a greater percentage of the person's debt than any other creditor of the same class.

(b)  For the purposes of this section:

     "Recipient" means a person or that person's agent who receives a preference or benefits from a preference.

"Transfer" means any of the following, whether made absolutely or conditionally, voluntarily or involuntarily, by or without judicial proceedings, as a conveyance, sale, assignment, payment, pledge, mortgage, lien, encumbrance, gift, security, or otherwise:

(1)  The sale or other disposal of, or parting with property, an interest in property, or the possession of property; or

(2)  The fixing of a lien upon property or upon an interest in property;

(c)  The retention of a security title to property delivered to a debtor shall be considered a transfer permitted by the debtor.

(d)  If the debtor has given a preference within four months before the filing of a petition or an assignment, after the filing of the petition and before the appointment of a receiver, or after the filing of an assignment and before the qualification of the assignee, and the recipient has reasonable cause to believe that the enforcement of the judgment or transfer would effect a preference, the judgment shall be voidable by the receiver or assignee.  The receiver or assignee may recover the property or its value from the recipient.

     (e)  A transfer of property other than real property is considered to have been made or permitted at the time when it became so far perfected that no subsequent lien upon the property obtainable by legal or equitable proceedings on a simple contract could become superior to the rights of the transferee.  A transfer of real property shall be considered to have been made or permitted when it became so far perfected that no subsequent bona fide purchase from the debtor could create rights in the property superior to the rights of the transferee.

     If any transfer of real property is not perfected against a bona fide purchase, or if any transfer of other property is not perfected against such liens by legal or equitable proceedings prior to the filing of a petition initiating a proceeding in insolvency, it shall be considered to have been made immediately before the filing of the petition.

§   -8  Receiver; custodian.  (a)  The circuit court within the proper county may sequester the property of a debtor and appoint a receiver:

(1)  When an execution against a judgment debtor is returned unsatisfied in whole or in part; or

(2)  When a corporation has been dissolved, is insolvent, or is in imminent danger of insolvency or has forfeited its corporate rights.

(b)  Upon application, the court shall appoint as receiver the person nominated by the petitioning creditor or creditors.

§   -9  Bond.  To qualify, the receiver or assignee shall give to, and file with the clerk of the circuit court, a bond sufficient to cover all property likely to come into the receiver's or assignee's hands, conditioned in the usual manner with surety to be approved by the judge having supervision of the proceedings.

§   -10  Meetings of creditors; removal or death of receiver.  (a)  The circuit court may provide for hearings and meetings of creditors to elect a receiver or to pass upon matters submitted to creditors by a majority vote in number and amount of claims.

(b)  The circuit court, upon notice and hearing may remove any receiver or assignee who is shown to be incompetent, unqualified, or has wasted or misapplied any of the trust estate.  The court shall remove any assignee or receiver upon the application of a majority of the creditors who shall represent a majority in number and amount of claims against the subject estate and order a settlement of the receiver's or assignee's account and the surrender of all the estate to a successor.

The court shall appoint the person named in the petition or some suitable person as the receiver's or assignee's successor who shall qualify in the manner provided by this chapter.  In place of any receiver or assignee who dies or is removed, the court may appoint a replacement who shall provide bond and administer the estate pursuant to this chapter.

§   -11  Provisional remedies.  In all actions authorized by this chapter, appropriate provisional remedies may be made and final relief administered to equally distribute all assets recovered among the creditors of the debtor.  The circuit court may order the payment of costs and expenses as necessary.

An action or proceeding authorized by this chapter for the benefit of all creditors may be taken by a creditor although the creditor's demand is not due at the commencement thereof.

§   -12  Dismissal; intervention.  (a)  After the designation of a receiver or custodian by the court, proceedings under this chapter shall not be dismissed for want of prosecution or by consent of parties until after reasonable notice to creditors.  The circuit court, before entertaining an application for dismissal, shall require the debtor to file a list, under oath, of all of the debtor's creditors and their addresses and shall notify by mail, all the creditors of the pendency of the application.  The court shall fix a date for the hearing to allow parties in interest an opportunity to be heard.

(b)  When proceedings have been commenced under this chapter and are not diligently prosecuted or delayed, causing possible injury to other creditors, any creditor may intervene for the purpose of obtaining a continuance of the administration or dismissal of the proceedings.

§   -13  Inventory of assets and list of creditors.  With the filing of an assignment or within ten days after the appointment of a receiver, the debtor shall file with the clerk of the circuit court, a correct inventory of the debtor's assets and a list of the debtor's creditors, stating the place of residence of each and the amount due.  The inventory and list shall be verified by the debtor by oath.  No mistake in the inventory or list shall affect the rights of any creditor.

§   -14  Notice; injunction; time of filing claims.  (a)  The circuit court shall require creditors to file their verified claims within three months from the date of the filing of an assignment or the appointment of a receiver and may enjoin proceedings by any other creditor against the insolvent party.  The receiver or assignee shall be required to give notice promptly to the department of taxation and to all creditors of the pendency of the proceeding, the injunction against other actions, and the time within which creditors are required to file claims.

The notice shall be mailed to the department of taxation and to each creditor at the creditor's last-known address and shall be published in the county where the claim is filed.

(b)  Creditors not filing claims within the time limit may be precluded from participation in any dividend that may be declared.

§   -15  Objections to claims; appeal; secured claims.  (a)  At the expiration of the period for the filing of claims, the receiver or assignee shall file all of the following with the clerk of the circuit court:

(1)  Proof of publication of the notice under section    ‑14;

(2)  A list of the creditors to whom the notice was given, including the debts owed to the creditors verified by an affidavit; and

(3)  A list of claims filed stating the name, residence, and the amount claimed by each creditor who has filed a claim.

     (b)  At any time after the expiration of the period for the filing of claims by a receiver or assignee, or upon the receiver's or assignee's refusal or failure to act, any creditor may file written objections to any claim specifying the grounds for the objection.  The party filing the objection shall serve a copy of the objection upon the claimant as ordered by the circuit court.  Depositions may thereafter be taken as in civil actions.

     The circuit court, on the application of either party, shall enter an order fixing a time when the objections shall be heard, which shall be served upon the adverse party as prescribed in the order.  Upon the final hearing, the court may order the payment of costs as necessary.

(c)  Claims of secured creditors may be allowed to enable the creditors to participate in the proceedings but shall be allowed for sums proved to be due, over and above the value of the securities.  Dividends shall be paid only upon the excess of the claim over the value of the security at the time of the commencement of the proceedings.

§   -16  Discovery.  (a)  The circuit court may compel the debtor to discover any property alleged to belong or to have belonged to the debtor, the disposition of the property, the consideration, and all the circumstances of the disposition.

Every officer, agent, or stockholder of a corporation, every manager or member of a limited liability company, and every person to whom it shall be alleged that any transfer of property has been made, or in whose possession or control the property is alleged to be, may be compelled to testify in relation to the property and to the transfer or possession of the property; provided that the witness shall not be criminally liable for such testimony.

(b)  The immunity provided under subsection (a) is subject to any restriction provided by law.

§   -17  Order of distribution.  (a)  The order of distribution out of the debtor's estate shall be as follows:

(1)  The actual and necessary costs of preserving the estate subsequent to the commencement of the proceedings;

(2)  The costs of administration, including reasonable attorney's fees for the representation of the debtor;

(3)  Wages, including pension, welfare and vacation benefits for workers, clerks, salespersons, or servants that have been earned and unpaid within three months before the commencement of the proceedings, not to exceed $      to each claimant;

(4)  Taxes, assessments, and debts due the United States, the State or county;

(5)  Other debts entitled to priority;

(6)  Debts due to creditors generally, in proportion to the amount of their claims, as allowed; and

(7)  After payment of the foregoing, the surplus, if any, shall be returned to the debtor.

(b)  Debts to become due and debts due may be proved, but a lessor's claim shall be limited to past due rent and to any actual damage caused to the lessor by a rejection of the lease on the part of the debtor or by its termination by force of its provisions.  The lessor shall be entitled to payment in full at the rate specified in the lease for the period of any actual occupancy by the receiver or assignee.

(c)  The receiver or assignee may pay or the circuit court may order a dividend to be paid at any time; provided that claims in dispute are adequately protected.

(d)  The receiver or assignee, as soon as practicable, shall report to the circuit court the amount due the employees of the debtor.  The court shall order the receiver or assignee to promptly, if practicable, pay the wage claims with priority under this chapter.

§   -18  Liens.  (a)  Claims that for lack of record or for other reasons would not have been valid liens as against creditors of the debtor armed with process, pursuant to which the property has been attached or levied upon, shall not be liens against the estate.

(b)  Whenever a creditor is prevented from enforcing the creditor's rights as against a lien created or attempted to be created by a debtor, the receiver or assignee shall be subrogated to, and may enforce the rights of a creditor for the benefit of the estate.

(c)  For the purposes of this section, "preference" has the meaning referred to in section    -7.

     (d)  A lien created by, or obtained in, or pursuant to any action that was begun against a person within ninety days before the commencement of proceedings for the appointment of a receiver or the filing of an assignment under this chapter shall be dissolved by the appointment of a receiver or the qualification of the assignee.  The receiver or assignee shall be subrogated to the rights of the holder of the lien for the benefit of all creditors, if:

     (1)  It appears that the lien was obtained and permitted while the debtor was insolvent and that its existence or enforcement will work a preference; or

     (2)  The lien was sought and permitted in violation of this chapter.

(e)  Liens given or accepted in good faith for a present consideration that have been properly recorded or filed, to the extent of the present consideration only, shall not be affected by this chapter.

(f)  All conveyances, transfers, assignments, or encumbrances of a debtor's property, or any part of a debtor's property made or given by the debtor within ninety days prior to the filing of a petition or assignment under this chapter with the intent to hinder, delay, or defraud any of the debtor's creditors, shall be void against the debtor's creditors except as to purchasers in good faith for a present fair consideration.

(g)  All property that is the subject of a conveyance, transfer, assignment, or encumbrance rendered void under subsection (d) and is not exempt from execution, shall be and remain a part of the assets and estate of the debtor.  The property shall pass to the debtor's receiver or assignee who shall recover and retain the property for the benefit of the creditors.

(h)  All conveyances, transfers, or encumbrances of a debtor's property made by the debtor at any time within four months prior to the filing of a petition or assignment hereunder while insolvent that are null and void against creditors by law, shall pass to the receiver or assignee for the benefit of the creditors.

(i)  All levies, judgments, attachments, or other liens obtained through legal proceedings against a person who is insolvent at any time within four months prior to the filing of a petition or assignment under this chapter are void in case a receiver is appointed or an assignee qualifies.

The property affected by the levy, judgment, attachment, or other lien shall be wholly discharged and released from the levy, judgment, attachment, or lien and pass to the receiver or assignee as a part of the estate of the debtor, unless the court, on due notice, orders that the right under the levy, judgment, attachment, or lien shall be preserved for the benefit of the estate.  The right under the levy, judgment, attachment, or lien may pass to, and shall be preserved by the receiver or assignee for the benefit of the estate.

§   -19  Title to property.  (a)  The receiver or assignee upon qualifying, shall be vested with the title of the debtor as of the date of the filing of the petition or assignment, except for property that is exempt, including:

     (1)  Property transferred by the debtor in fraud of the debtor's creditors;

     (2)  Property that prior to the filing of the petition or assignment could by any means have transferred or levied upon and sold under judicial process against the debtor; and

     (3)  Rights of action arising upon contracts or from the unlawful taking or detention of, or injury to the debtor's property.

(b)  The receiver or assignee may avoid any transfer by the debtor of the debtor's property that any creditor might have avoided, and may recover the property transferred or its value from the person to whom it was transferred unless the transferee was a bona fide holder for value prior to the filing of the petition or assignment hereunder.

§   -20  Settlement of receiver's or assignee's accounts.  (a)  Every receiver or assignee, within six months after the time limited for filing claims or within any further time that the circuit court allows, shall file with the clerk of the circuit court, a full and itemized statement verified by the receiver's or assignee's oath showing all of the following in regard to the receivership or assignment:

     (1)  The property received by the receiver or assignee;

     (2)  The manner of the receiver's or assignee's dealing with the property received;

     (3)  The amount of money realized by the receiver or assignee;

     (4)  The condition of the property and funds in the receiver's or assignee's possession;

     (5)  The names and residences of the debtor's creditors;

     (6)  The dividends paid to the debtor's creditors;

     (7)  The receiver's or assignee's receipts and disbursements; and

     (8)  The receiver's or assignee's claim for compensation and administrative expenses.

     (b)  If any receiver or assignee neglects to promptly apply for a settlement account, the circuit court, upon application of any creditor, may compel the making and filing of the account or settlement of the account and the receiver or assignee may be denied compensation.

(c)  Upon filing the report described in subsection (a), the receiver or assignee may apply to the circuit court upon not less than ten days notice by mail to the respective creditors named in the report for a final settlement of the account.  The circuit court shall fix a time and place for the hearing of objections or taking of evidence and by order, settle and adjust the accounts and the compensation and expenses of the receiver or assignee, regardless of whether objection is made.  The order shall be conclusive upon all parties including the sureties of the receiver or assignee.

The receiver or assignee or any creditor may appeal from the order in the manner prescribed for appeals in civil actions, except that the receiver or assignee may file a notice and undertaking with the clerk without other service of the notice and undertaking.

The receiver or assignee shall be discharged of the trust and the cancel the bond upon compliance with the final order of the court.

§   -21  Voluntary proceedings by wage earners for amortization of debts.  (a)  Any person whose principal source of income consists of wages or salary may file a verified petition with the circuit court in the county of the person's residence stating that the person is unable to meet current debts as they mature but is able to make regular future payments on account sufficient to amortize the debts over a period of not more than three years and that the person desires the aid of the court to effectuate the amortization.

The petition shall also set forth the names and addresses of any creditors who have levied any executions, attachments, garnishments, and of any garnishees.  The court shall order that proceedings for the enforcement of the executions, attachments, or garnishments be stayed during the pendency of proceedings under this section.  The petition shall be accompanied by a fee as prescribed by the court.

(b)  After the filing of a petition under this section and until the dismissal of the proceedings, no execution, attachment, or garnishment may be levied or enforced by any creditor seeking the collection of any claim that arose prior to the proceedings, unless the claim is not included by the debtor in the claims to be amortized pursuant to this section.

With respect to the claims to be amortized, the time between the filing of the petition and the dismissal of the proceedings shall not be counted as a part of the period of any statute of limitation.

(c)  On the filing of the petition, the circuit court shall appoint a disinterested trustee who shall forthwith meet with the debtor to make a list of the debtor's creditors with their addresses and the amounts owing to each.  The debtor shall:

     (1)  Sign and verify the list;

     (2)  Send notices to each creditor and the amount claimed by that creditor; and

     (3)  Hold a meeting in the trustee's office not less than five nor more than ten days thereafter to consider an amortization plan to determine the claims covered by the plan.

(d)  Upon conclusion of the meeting, the trustee shall:

     (1)  Report to the circuit court that no equitable plan of amortization is feasible or needed, in which case the court may forthwith dismiss the proceedings; or

     (2)  Recommend to the circuit court an amortization plan calculated by bi-weekly or monthly payments to discharge in full, the claims of the creditors listed in the plan within a period not to exceed three years.

(e)  The trustee shall attach to a plan recommended under subsection (d), the written consents and objections, if any, of the creditors present or represented at the meeting and an analysis with the trustee's recommendations regarding the disposition of any claim whose amount is in dispute or appears to be uncertain.

(f)  If warranted, the circuit court shall enter an order approving the plan recommended under subsection (d) and determine for the purposes of the plan, the amounts of the claims, unless a creditor objects under subsection (d) and requests a hearing with respect to the plan, the amount of the creditor's claim, or the person named as trustee.

The circuit court shall set a date for a hearing as soon as possible after notifying the debtor, the trustee, and creditors. At the hearing, the court shall:

     (1)  Enter an order either approving the plan, if satisfied that it is feasible and equitable, and determine for the purposes of the plan, the amounts of the claims;

     (2)  Dismiss the proceedings; or

     (3)  Modify and approve a fair and just plan.

The circuit court may replace an unsuitable trustee after proper objection.

(g)  If the plan recommended under subsection (d) or a modification of the plan is approved under this section, the debtor shall make the periodic payments provided for in the plan to the trustee; provided that the debtor may make additional payments from time to time to the trustee.  The trustee shall distribute the payments proportionally among the creditors listed in the plan, less the following:

     (1)  A deduction for the trustee's compensation shall be fixed by the court when the plan is approved in an amount not to exceed seven per cent of each distribution if the payments are made through an assignment to the trustee of the debtor's wages or salary.  Compensation shall not exceed ten per cent if no assignment is made; and

     (2)  A deduction for postage to mail payments, meeting notices required under this section, and any correspondence with creditors.

(h)  If any payment under subsection (g) is so small as to make its immediate distribution impractical or needlessly expensive, the trustee shall deposit it in a special trustee account.  The trustee may make additional deposits until the amount is large enough for distribution; provided that no payments shall remain undistributed for more than ninety days.

(i)  If the debtor defaults in any payment provided for under the plan for a period of more than thirty days, the trustee shall, and before the end of the thirty day period may, report the matter to the court with the trustee's recommendations.  The circuit court shall either dismiss the proceedings or, if satisfied from the trustee's report that the debtor is in good faith and should be able to make good on the default, extend the grace period for not more than thirty days.

At the end of the grace period, the trustee shall again report to the circuit court and if all defaults have not then been cured, the court shall immediately dismiss the proceedings.

If the debtor makes preferential payments to creditors during the pendency of the proceedings or appears for any reason to be abusing the privileges of this section, the trustee shall promptly report the matter to the court and the circuit court may dismiss the proceedings.

If the claims of all creditors as listed in the plan are satisfied in full, the trustee, upon completion of the final distribution, shall report to the court and the court shall dismiss the proceedings.

(j)  Neither the determination of the amount of any claim for the purposes of the plan, nor the acceptance of payments under the plan, shall affect the right of any creditor to litigate the creditor's claim and obtain judgment on the claim or the right of the debtor to dispute the claim.  The amount of any judgment shall be substituted by the trustee for the amount fixed in the plan.

(k)  Any secured creditor who wishes to realize on the creditor's security, shall give the trustee at least five days notice in writing of the time, place, and manner of the proposed realization and shall notify the trustee of the amount realized, by which amount the creditor's claim as listed under the plan shall be reduced.

(l)  The state supreme court may adopt rules and forms not inconsistent with this chapter and may provide forms of petitions for clerks of the circuit courts who upon request, and without charge, shall assist debtors in the preparation of their petitions.

(m)  The circuit court in its discretion upon application, may amend or modify the plan of amortization and may render orders relating to the proceedings or the plan of amortization as required.

§   -25  Uniform act governing secured creditor's dividends in liquidation proceedings.  (a)  As used in this section, unless the context or subject matter requires otherwise:

"Creditor's sale" includes any sale effected by a secured creditor, by judicial process, or by the terms of the creditor's contract, or applicable law for the purpose of realizing the creditor's security.

"Liquidation proceeding" includes:

     (1)  All assignments for the benefit of creditors whether voluntary or by operation of law;

     (2)  Administration of insolvent decedents' estates;

     (3)  Liquidations of insolvent banks;

     (4)  Equity receiverships where the subject under receivership is insolvent; and

     (5)  Any other proceedings for distribution of assets of any insolvent debtor, whether a person, decedent's estate, partnership, corporation, or business association.

"Liquidator" means any person administering assets in any liquidation proceeding as defined in this section.

"Insolvent debtor" means any insolvent person, decedent's estate, partnership, corporation, or business association involved in a liquidation proceeding as defined in this section.

"Secured creditor" means a creditor who has either legal or equitable security for the creditor's debt upon any property of the insolvent debtor of a nature to be liquidated and distributed in a liquidation proceeding, or a creditor to whom is owed a debt for which the security is possessed by some endorser, surety, or other person secondarily liable.

(b)  In a liquidation proceeding every secured creditor's claim against the general assets shall disclose the nature of the security.  When a decedent's estate already in the course of administration is judicially declared insolvent or when in an equity receivership it is determined that the subject under receivership is insolvent, secured creditors having claims on file that do not comply with this subsection shall disclose the security as ordered by the circuit court.

(c)  Any secured creditor who, with intent to evade the provisions of this section, fails to disclose the existence of the security shall not be entitled to receive or retain dividends out of the general assets, unless the creditor thereafter releases or surrenders to the liquidator the security that the creditor failed to disclose or the creditor procures the release or surrender of the security if the security is in the possession of an endorser, surety, or other person secondarily liable for the insolvent debtor.

(d)  Dividends paid to secured creditors shall be computed only upon the balance due after the value of all security not exempt from the claims of unsecured creditors and not released or surrendered to the liquidator is determined and credited upon the claim secured by it.

(e)  When the asset constituting the security is an obligation for the payment of money, the secured creditor may determine the security's value by collection or by exhausting the creditor's remedies against the security and surrendering the obligation to the liquidator.

(f)  When the asset constituting the security is other than an obligation for the payment of money, the secured creditor may determine its value by creditor's sale.

(g)  Where valuation under subsection (d) is impracticable or would cause undue delay, the court, upon petition by either the secured creditor or the liquidator, may order the value of the security determined by:

     (1)  Compromise, if the secured creditor and the liquidator agree upon a value.  The liquidator may redeem the assets by payment of the agreed value, if authorized by the court;

(2)  Litigation, through proceedings in a liquidation proceeding.  The liquidator may redeem the assets by paying the value so determined if authorized by the court; or

     (3)  Liquidator's sale of the assets that, when completed and approved by the court, shall pass to the purchaser good title, free and clear of all liens of the secured creditor.  The liens shall be transferred to the proceeds of the sale.  The order of sale may be:

         (A)  Conditional, requiring the sale to be made by the liquidator only if the secured creditor does not complete a determination by collection or creditor's sale as set forth in subsection (f) within a time fixed by the court; or

         (B)  Absolute, requiring the sale to be made by the liquidator within a time fixed by the court.  This paragraph shall not apply to security upon real estate of insolvent decedents' estates administered by the probate court.

(h)  When any creditor has legal or equitable security upon assets that are exempt from process for the satisfaction of unsecured debt and are duly claimed as exempt by the insolvent debtor, the value of the security shall not be credited upon the claim.  Amounts realized by the creditor from the security after liquidation proceedings are begun shall be disregarded in computing dividends, unless the dividend computed exceeds the sum actually owing upon the claim, in which event only the amount owing shall be paid."

     SECTION 2.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.


     SECTION 3.  This Act shall take effect on January 1, 2009.

 

INTRODUCED BY:

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