Law.com Subscribers SAVE 30%
Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.
Reforming Characteristics of Maintenance Deposits to Avoid Treatment as Cash Collateral
One of the common issues facing businessmen and lawyers in the lease financing of complicated equipment such as aircraft, is how to impose an obligation upon the lessee to pay and segregate funds sufficient to assure aircraft maintenance expenses, while preventing these funds from being treated as property of a debtor and cash collateral within the meaning of Bankruptcy Code Section 363 (11 U.S.C. '363). If a lessee is asked in a written lease agreement to deposit, from time to time, contemplated amounts of cash by which to assure the lessor that certain long-term maintenance obligations will be funded and completed, or that rent will be paid, then there is a risk that these deposits might be treated as cash collateral and property of the estate. This subjects the lessor to the risk that the bargained-for cash set-aside funds, might, in a bankruptcy case context, not be available for the purposes for which they were originally intended. This article addresses a risk avoidance approach to that problem.
Example
In a typical equipment lease for modern, transport category, intercontinental jet aircraft, investors and lessors are keen to assure themselves that funds will be on hand for regularly scheduled maintenance when due, regardless of the identity of the lessee. This is because it is not only intrinsic to the value of the leased equipment, but it is necessary to ensure that these monies are available in order to encourage a new lessee to take on the equipment, and the attendant maintenance expenses, by establishing the availability of funds to pay for that portion of the maintenance cost attributable to prior use by other, earlier lessees, who may nonetheless have used the aircraft, its engines and landing gear. Engines, landing gear, and auxiliary power units are the frequent focal points for maintenance reserves in aircraft leases. Generally speaking, the lessor will look at the regularly accruing interval between maintenance events measured in hours, and will divide the maintenance expense by the hours for a maintenance reserve amount collectable from the lessee per hour of use for each of the engines, the landing gear, the auxiliary power unit, and other major pieces of equipment (eg, if the aircraft has a supplemental structural inspection program, this too might be included in the maintenance reserves). Each month, the lessee is required to account for the use of the equipment and pay the corresponding reserves for these items. The money is deposited into a segregated account that may be pledged to the lessor and/or a financier that has financed the acquisition of the aircraft by the lessor investor. As and when maintenance events occur, funds from the reserve account are withdrawn and made available to the lessee in order to pay some or all of the cost of the relevant item of maintenance. As the aircraft moves from lessee to lessee, so usually does the availability of these funds. Well, this is the theory, anyway.
Major Differences In UK, U.S. Copyright Laws
This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.
The Article 8 Opt In
The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.
Strategy vs. Tactics: Two Sides of a Difficult Coin
With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.
Legal Possession: What Does It Mean?
Possession of real property is a matter of physical fact. Having the right or legal entitlement to possession is not "possession," possession is "the fact of having or holding property in one's power." That power means having physical dominion and control over the property.
Removing Restrictive Covenants In New York
In Rockwell v. Despart, the New York Supreme Court, Third Department, recently revisited a recurring question: When may a landowner seek judicial removal of a covenant restricting use of her land?