Form vs. Function: When Is a Lease a 'True Lease'? The Seventh Circuit Applies Substance over Form in United Airlines v. HSBC Bank
December 02, 2005
Financing deals have become increasingly complicated as parties attempt to raise capital and take advantage of accounting and tax incentives. These transactions often face scrutiny when one party files for bankruptcy. During a Chapter 11 reorganization, a debtor must use all tools at its disposal to best restructure its obligations. In contrast, a creditor must work to ensure it receives the best possible return. The term "lease" is not defined in the Bankruptcy Code. Due to this lack of a clear definition, creditors and debtors will often attempt to recharacterize agreements between the parties. In this context, a secured creditor or debtor may argue that a "lease" is actually a disguised secured financing. In the converse, a party could also argue a secured financing is actually a "true lease." This is due to the Bankruptcy Code's different treatment of secured debt and leases. Depending on the factual scenario, this differing treatment could significantly change the parties' obligations.
Revised Article 9's Assignment Provisions: An Analysis
December 02, 2005
Chapter 4 of Revised Article 9, titled "Rights of Third Parties," deals with several issues affecting the assignment of accounts, leases, and other contract rights. See, in particular, Sections 9-403 to 9-409. These sections replace former Sections 9-206 and 9-318 and part of Section 2A-303. This article summarizes some of the key provisions of Chapter 4 of Revised Article 9, compares these provisions to former Article 9, and describes a few recent cases under this Chapter. Note that different rules apply in a consumer transaction or if the account debtor is an individual who incurred the obligation primarily for personal, family or household purposes; this article does not address these issues. In addition, this article does not address the assignment of a health care insurance receivable.
In the Marketplace
December 02, 2005
Highlights of the latest equipment leasing news from around the country.
Legal Opinions and Title Insurance Mitigate Risk Under The Cape Town Convention
November 02, 2005
Last month's newsletter contained an article on The Cape Town Convention on International Interests in Mobile Equipment ("Cape Town" or "CT") and the related Aircraft Protocol ("Protocol" and together with CT, "the Treaty") <i>www.unidroit.org/english/conventions/mobile-equipment/main.htm)</i> The Treaty is expected to raise many questions and present new risks before and after its expected effective date early in 2006. How do you answer these questions and prepare for the day the Treaty becomes effective? What options are available to a diligent and responsible lender, seller, buyer, lessor or lessee? How does one answer many of the questions posed in the October newsletter article? Two potential solutions lie in obtaining quality legal opinions and/or title insurance covering Cape Town risks.
Sarbanes-Oxley: Bane or Boon?
November 02, 2005
Expenditures to implement the provisions of the Sarbanes-Oxley Act ("SOX") are staggering. For instance, <i>CFO</i> magazine recently reported that 225 companies surveyed planned to spend an aggregate $6.2 billion on SOX compliance. It is no wonder, then, that questions are being raised as to the cost of this legislation relative to its benefits. This article examines the proposition that, given proper perspective and attention, SOX compliance can in fact lead to tangible benefits for equipment lessors.
State Licensing: A Trap for the Unwary?
November 02, 2005
Unlike consumer lenders and real estate mortgage brokers, lessors of business equipment have generally enjoyed freedom from state licensing requirements. A survey of state laws presented at this year's Equipment Leasing Association Legal Forum, however, has revealed that certain state licensing requirements do exist for commercial lessors, especially where motor vehicle leasing is concerned. This article describes certain of these requirements and highlights some of the areas in which there are statutes pertaining to licensure; the reader is advised to check the law in each state where he or she is doing business and never take freedom from licensing for granted.
In the Marketplace
November 02, 2005
Highlights of the latest equipment leasing news from around the country.
California Supreme Court Strikes Down Jury Waiver Clauses
November 02, 2005
The California Supreme Court has thrown a wrench into the California trial courts' long-accepted practice of enforcing contractual jury waivers by holding that such pre-dispute waivers do not effectively supersede a party's constitutional right to a jury trial. The court's conclusion is not surprising given the express provisions of the California Constitution, but it nonetheless sent a shockwave through the finance and leasing community.
