In the Marketplace
October 30, 2006
Highlights of the latest equipment leasing news from around the country.
When Is Equipment Not 'Equipment'? Inventory Leasing or Leasing to Rental Companies
October 30, 2006
Part One of this series discussed special perfection rules for purchase money security interest in inventory and additional risks when leased goods are 'inventory.' This second installment addresses: buyer in ordinary course of business under revised Article '9-320(A); power to transfer and entrusting under '2-403; and rights of buyers and Sublessee in ordinary course under '2A-305.
Revised Proposal: Understanding the Interagency Statement on Complex Structured Finance Activities
October 30, 2006
Many U.S. financial institutions that have participated in equipment leasing transactions (particularly in the large-ticket and municipal markets) in the last 20 years will be keenly aware that as the structures grew ever more complicated, Congress and the federal regulatory agencies grew intensely interested. Whether the institution had a major role in the transaction or simply provided a service, some degree of scrutiny could be expected, often in conjunction with a tax audit of its client. The risks to financial institutions from participating in complex structured finance transactions of all types became a source for concern for banking and securities regulators. The principal federal regulators responded in 2004 with a proposal that financial institutions investigate, and bear responsibility for evaluating, the legal, tax, and accounting basis of their clients' complex structured finance transactions. The goal: to limit the institutions' own credit, legal, and reputational risk from such participation.
The USA PATRIOT Act Renewed: Reassessing Money Laundering Risk in Finance Transactions
October 30, 2006
The federal government is stepping up its aggressive enforcement of anti-money laundering/combating the financing of terrorism ('AML/CFT'). Enforcement actions have already spread beyond 'traditional' financial institutions, such as banks. Regulations that are expected to be promulgated soon will likely embolden these enforcement actions against leasing companies, equipment vendors, finance companies, and other 'financial institutions.' These parties should reassess their compliance risk under the AML/CFT rules. The consequences of these risks are important. For example, the loss of reputation from being brushed with the taint of money laundering can sink a business.
In the Marketplace
September 29, 2006
Highlights of the latest equipment leasing news from around the country.
Dealing with Insurers in Liquidation
September 29, 2006
Part One of this article discussed state insolvency statutes and how liquidation remains a state regulator's remedy of last resort. The conclusion discusses the liquidator's broad powers; automatic stay of other proceedings; distribution plans; issues pertaining to claims; distribution and priorities; drop down; set-offs; and claims by third parties.
Keep Your Lease A Lease: Seventh Circuit Finds the Severability of a Contract Defeats Re-characterization
September 29, 2006
In the December 2005 issue of this publication, this author reviewed the Seventh Circuit's decision in <i>United Air Lines, Inc. v. HSBC Bank USA, N.A.</i>, 416 F.3d 609 (7th Cir. 2005) (<i>'United I'</i>). In that decision, the Seventh Circuit was asked to determine whether a transaction involving land at the San Francisco airport that was denominated as a lease in the agreement would be treated as a lease for bankruptcy purposes. The Seventh Circuit held that it would look at the substance of the transaction and beyond the form and labels imposed by the parties' documentation.
When Is Equipment Not 'Equipment'? Inventory Leasing or Leasing to Rental Companies
September 29, 2006
It is not unusual for a finance lessor to discover that its Lessee intends to enter into a contract with a third party whereby the Lessee delivers possession of the leased equipment to that third party. Although many finance lessors may be aware of the practical risks associated with having its leased property/collateral in the hands of a third party, many are unaware of the increased legal risks that result from such a situation. This article addresses some of the key issues. For the sake of clarity, the third party receiving possession and control of the leased equipment will be referred to as a 'Sublessee,' and the agreement between the Lessee and the Sublessee will be referred to as a 'Sublease.' It should be noted that a contract of service pursuant to which the Sublessee receives possession also constitutes a 'Sublease' for purposes of this article.
