Distinguishing Between Securities Account and Deposit Accounts Under the UCC
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3.5 FINANCIAL ASSETS and LIABILITIES Definitions 1. Financial Assets Include Cash, Equity Instruments of Other Entities
128 SU 3: Financial Accounting I 3.5 FINANCIAL ASSETS AND LIABILITIES Definitions 1. Financial assets include cash, equity instruments of other entities (e.g., preference shares), contract rights to receive cash or other financial assets from other entities (e.g., accounts receivable), etc. 2. Financial liabilities include obligations to deliver cash or another financial asset (e.g., bonds or accounts payable), obligations to exchange financial instruments under potentially unfavorable conditions (e.g., written options), etc. Initial Recognition 3. A financial asset or liability is initially recognized only when the entity is a party to the contract. Thus, contract rights and obligations under derivatives are recognized as assets and liabilities, respectively. a. A firm commitment to buy or sell goods or services ordinarily does not result in recognition until at least one party has performed. 1) However, certain contracts to buy or sell a nonfinancial item may result in recognition of an asset or liability. a) For example, a firm commitment to buy a commodity in the future that (1) can be settled in cash and (2) is not held for the purpose of receiving the commodity is treated as a financial instrument. Accordingly, its net fair value is recognized at the commitment date. b) If an unrecognized firm commitment is hedged in a fair value hedge,a change in its net fair value related to the hedged risk is recognized as an asset or liability. 4. An issuer of a financial guarantee initially recognizes a liability and measures it at fair value. Subsequent measurement is at the greater of (a) the amount based on accounting for provisions or (b) the amortized amount. -
The Anti-Lien: Another Security Interest in Land*
The Anti-Lien: Another Security Interest in Land* Uriel Reichmant The law recognizes various security interests in land, which are de- signed to provide two distinct advantages over unsecured interests: the right to priority over general creditors in bankruptcy proceedings, and the right to satisfy the debt from a specified parcel of property. This article proposes recognition of an intermediate concept between secured and unsecured debt: an interest in land that secures to some extent the repayment of a debt, but does not possess the twin characteristics of full security interests. This interest in land, the "anti-lien,"1 is a preventive measure; the debtor's power of alienation and power to grant another security interest are suspended while the debt remains outstanding. The anti-lien creditor has no powers or rights other than this passive rem- edy; for all other purposes, he is treated as a simple debt creditor. The few cases that have dealt with contracts containing anti-lien re- strictions have limited the analysis to a narrow question: did the con- tract create an equitable lien (that possesses the characteristics of a traditional security interest) or merely a personal obligation? Framing the question in this way eliminated consideration of the anti-lien alter- native-an alternative that is potentially useful when a regular security interest is unavailable or economically impractical. This paper attempts to explain deficiencies in the application of the equitable lien analysis to the anti-lien situation and argues the case for the anti-lien concept. Just a decade ago, documents evidencing an anti-lien approach were widely used in California. -
Credit Applications and Beyond
Credit Enhancements: Beyond the Personal Guaranty Thomas R. Fawkes and Brian J. Jackiw Goldstein & McClintock LLLP Warning Signs of Impending Default • Deviations in the manner or timing of counterparty payment may suggest liquidity issues or a potential bankruptcy filing • Counterparty requests lengthening of payment terms or additional trade credit • Counterparty becomes less cooperative and avoids communications concerning outstanding amounts due • Public reports (such as those published by Dun & Bradstreet) suggest that the counterparty is not paying its trade debts in a manner consistent with past practices • Rumors of the counterparty’s imminent demise are being conveyed by competitors or industry sources 2 What do you do if you do not have credit enhancements in place? TAKE THE MONEY!!!! • Comply strictly with any contracts in place • Do not extend additional credit • Evaluate past history • Make every effort to maintain ordinary course of business terms 3 Credit Enhancements and Protections Credit enhancements offer greater protection in the event a counterparty experiences financial distress and/or becomes a debtor in bankruptcy, and include: • Irrevocable Letters of Credit • Pre-payment of goods and services • Guaranty Agreements and Puts • Cross/Intercompany Guarantees • Deposits • Trust Agreements • Credit Insurance • Security Interests in Collateral (including purchase-money security interests) 4 Standby Letters of Credit • A letter of credit (LOC) is, simply put, a commitment to make a payment, typically issued by a counterparty’s -
IFRS 9, Financial Instruments Understanding the Basics Introduction
www.pwc.com/ifrs9 IFRS 9, Financial Instruments Understanding the basics Introduction Revenue isn’t the only new IFRS to worry about for 2018—there is IFRS 9, Financial Instruments, to consider as well. Contrary to widespread belief, IFRS 9 affects more than just financial institutions. Any entity could have significant changes to its financial reporting as the result of this standard. That is certain to be the case for those with long-term loans, equity investments, or any non- vanilla financial assets. It might even be the case for those only holding short- term receivables. It all depends. Possible consequences of IFRS 9 include: • More income statement volatility. IFRS 9 raises the risk that more assets will have to be measured at fair value with changes in fair value recognized in profit and loss as they arise. • Earlier recognition of impairment losses on receivables and loans, including trade receivables. Entities will have to start providing for possible future credit losses in the very first reporting period a loan goes on the books – even if it is highly likely that the asset will be fully collectible. • Significant new disclosure requirements—the more significantly impacted may need new systems and processes to collect the necessary data. IFRS 9 also includes significant new hedging requirements, which we address in a separate publication – Practical guide – General hedge accounting. With careful planning, the changes that IFRS 9 introduces might provide a great opportunity for balance sheet optimization, or enhanced efficiency of the reporting process and cost savings. Left too long, they could lead to some nasty surprises. -
Accounting & Reporting of Financial Instruments 2016
Accounting & Reporting of Financial Instruments 2016 Illustration 1 (Exchange of Financial Liability at Unfavorable terms) A company borrowed `50 lacs @ 12% p.a. Tenure of the loan is 10 years. Interest is payable every year and the principal is repayable at the end of 10th year. The company defaulted in payment of interest for the year 4, 5 and 6. A loan reschedule agreement took place at the end of 7 year. As per the agreement the company is required to pay `90 lacs at the end of 8th year. Calculate the additional amount to be paid on account of rescheduling and also the book value of loan at the end of 8th year when reschedule agreement took place. Solution Assumption: Interest is compounded in case of default. Outstanding Amount at the end of 8th year = `50,00,000 x 1.12 x 1.12 x 1.12 x 1.12 x 1.12 = `88,11,708 (i.e. adding interest for 4th to 8th year) Rescheduled amount to be paid at the end of the 8th year = `90,00,000 Additional amount to be paid on rescheduling = `90,00,000 - `88,11,708 = `1,88,292. Illustration 2 Entity A holds an option to purchase equity shares in a listed entity B for `100 per share at the end of a 90 day period. Evaluate the contract whether a financial asset or a financial liability? What if the entity A has written the option? Solution The above call option gives entity A, a contractual right to exchange cash of `100 for an equity share in another entity and will be exercised if the market value of the share exceeds `100 at the end of the 90 day period. -
Perfecting a Security Interest in an LLC Membership Interest in Virginia
Perfecting a Security Interest in an LLC Membership Interest in Virginia Rebecca C. Bowen Thompson McMullan, P.C. (804) 698-6223 / [email protected] With limited liability companies being the entity of choice for many businesses in Virginia and the lending opportunities that they create, it is important to understand how to perfect a security interest in an LLC membership interest. Under Virginia’s UCC, a membership interest may be classified as either a “security” (Va. Code § 8.8A-103(c)) or a “general intangible” (Va. Code § 8.9A-102(42)). Establishing and determining the correct classification is important because different rules are invoked for the perfection and priority of a security interest in a security versus a general intangible. Va. Code § 8.8A-103(c) provides that a membership interest is not a “security” unless it is “dealt in or traded on securities exchanges or in securities markets, its terms expressly provide that it is a security governed by [Article 8.8A of the Virginia Code], or it is an investment company security. However, an interest in a partnership or limited liability company is a financial asset if it is held in a securities account.” Accordingly, a membership interest is not a “security” unless: the LLC’s articles of organization or operating agreement “opt-in” to Article 8.8A by specifying that the membership interests are securities governed by Article 8.8A; (ii) the membership interests are actually dealt in or traded on securities exchanges or securities markets; (iii) the LLC is an investment company; or, (iv) the membership interest is a financial asset held in a securities account. -
Frs139-Guide.Pdf
The KPMG Guide: FRS 139, Financial Instruments: Recognition and Measurement i Contents Introduction 1 Executive summary 2 1. Scope of FRS 139 1.1 Financial instruments outside the scope of FRS 139 3 1.2 Definitions 3 2. Classifications and their accounting treatments 2.1 Designation on initial recognition and subsequently 5 2.2 Accounting treatments applicable to each class 5 2.3 Financial instruments at “fair value through profit or loss” 5 2.4 “Held to maturity” investments 6 2.5 “Loans and receivables” 7 2.6 “Available for sale” 8 3. Other recognition and measurement issues 3.1 Initial recognition 9 3.2 Fair value 9 3.3 Impairment of financial assets 10 4. Derecognition 4.1 Derecognition of financial assets 11 4.2 Transfer of a financial asset 11 4.3 Evaluation of risks and rewards 12 4.4 Derecognition of financial liabilities 13 5. Embedded derivatives 5.1 When to separate embedded derivatives from host contracts 14 5.2 Foreign currency embedded derivatives 15 5.3 Accounting for separable embedded derivatives 16 5.4 Accounting for more than one embedded derivative 16 6. Hedge accounting 17 7. Transitional provisions 19 8. Action to be taken in the first year of adoption 20 Appendices 1: Accounting treatment required for financial instruments under their required or chosen classification 21 2: Derecognition of a financial asset 24 3: Financial Reporting Standards and accounting pronouncements 25 1 The KPMG Guide: FRS 139, Financial Instruments: Recognition and Measurement Introduction This KPMG Guide introduces the requirements of the new FRS 139, Financial Instruments: Recognition and Measurement. -
United States
Finance Handbook 2011 Country Q&A United States George E Zobitz, Paul H Zumbro and Christopher J Kelly www.practicallaw.com/9-501-2871 Cravath, Swaine & Moore LLP OVERVIEW OF THE LENDING MARKET In a minority of states, however, a mortgage transfers title to the lender until the secured obligations are met. 1. Please give a brief overview of the main trends and important Deeds of trust. A deed of trust is a variant of the mortgage and developments in the lending market in your jurisdiction in is used in many states in its place. It usually involves a convey- the last 12 months. ance of the real property by the borrower to a third party, who holds it in trust for the lender as security for the debt. The US loan market has experienced some volatility over the past Leasehold mortgages/leasehold deeds of trust. A leasehold 12 months, being marked by rapid swings in market demand for mortgage or deed of trust enables a lender to take a security in- new loans. At the beginning of 2010, much of the loan market ac- terest in the borrower’s interest as a tenant under a lease. Upon tivity focused on extending the maturity of existing loan facilities an event of default, the lender can foreclose on its leasehold through amend and extend transactions, as few investors were mortgage and become the tenant under the lease, or transfer the willing to make new money loans. As the year has progressed, tenancy to another entity. Leases often prohibit such mortgages new syndicated loan financings have become more prevalent, in- or deeds of trust, or require the landlord’s consent. -
Foreclosure of Security Interests in Personal Property Phillip L
Agricultural Business Management FARM LEGAL SERIES June 2015 Foreclosure of Security Interests in Personal Property Phillip L. Kunkel, Jeffrey A. Peterson, Jason Thibodeaux Attorneys, Gray Plant Mooty virtually every security agreement contains a INTRODUCTION broad definition of events that constitute a default. Such events include the failure to Lenders typically require borrowers to pledge make an installment payment when due, the property (or collateral) to secure the loan. sale of collateral without the creditor's prior Collateral is real or personal property owned written consent, the failure to keep the by the borrower that is pledged to the lender collateral adequately insured or the as security for the repayment of the debt occurrence of any other event that causes the obligation. For further discussion, see creditor to deem itself insecure. Financing the Farm Operation; Contracts, Notes and Guaranties; Mortgages and Acceleration Clause Contracts for Deed; and Security Interest in Both the promissory note and the security Personal Property. In the event of default, the agreement will generally contain an lender may look to the collateral to satisfy acceleration clause. This clause allows the the debt. creditor to demand payment of the loan in The process of foreclosing a mortgage in real full upon the occurrence of any event of property and foreclosing a security interest default. in personal property are very different. In this fact sheet, we will discuss the options SECURED PARTY OPTIONS AFTER DEFAULT available to creditors with a security interest Once a default has occurred, there are a in personal property and review the number of options available to the secured procedures under Minnesota law that are party. -
Section 3856 - Financial Instruments December 2014
ASPE AT A GLANCE Section 3856 - Financial Instruments December 2014 Section 3856 – Financial Instruments Effective Date Fiscal years beginning on or after January 1, 20111 SCOPE COMMON FINANCIAL INSTRUMENTS Applies to all financial instruments except for the following: • Interests in subsidiaries, entities subject to significant influence, and joint arrangements that are accounted for in accordance with Section 1591, Subsidiaries, Section • Cash; 3051, Investments, Section 3056, Interests in Joint Arrangements; however, this Section does apply to a derivative that is based on such an interest. • Demand and fixed-term deposits; • Leases (see Section 3065, Leases), although Appendix B of this Section applies to transfers of lease receivables. • Commercial paper, bankers’ • Employer's rights and obligations for employee future benefits and related plan assets (see Section 3462, Employee Future Benefits). acceptances, treasury notes and • Insurance contracts, including the cash surrender value of a life insurance policy. bills; • Investments held by an investment company that are accounted for at fair value in accordance with AcG-18, Investment Companies; however, the disclosure requirements • Accounts, notes and loans in paragraphs 3856.37-.54 apply to an investment company. receivable and payable; • Contracts and obligations for stock-based compensation to employees and stock-based payments to non-employees (see Section 3870, Stock-based Compensation and • Bonds and similar debt Other Stock-based Payments). instruments, both issued and held • Guarantees, other than guarantees that replace financial liabilities as described in paragraph 3856.A58 (see also AcG-14, Disclosure of Guarantees). as investments; • Contracts based on revenues of a party to the contract. • Common and preferred shares • Loan commitments (see Section 3280, Contractual Obligations, and Section 3290, Contingencies). -
A Roadmap to the Preparation of the Statement of Cash Flows
A Roadmap to the Preparation of the Statement of Cash Flows May 2020 The FASB Accounting Standards Codification® material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116, and is reproduced with permission. This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication. The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances. As used in this document, “Deloitte” means Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Tax LLP, and Deloitte Financial Advisory Services LLP, which are separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of our legal structure. Copyright © 2020 Deloitte Development LLC. All rights reserved. Publications in Deloitte’s Roadmap Series Business Combinations Business Combinations — SEC Reporting Considerations Carve-Out Transactions Comparing IFRS Standards and U.S. -
The Unfortunate Life and Merciful Death of the Avoidance Powers Under Section 103 of the Durbin-Delahunt Bill: What Were They Thinking?
University of Pennsylvania Carey Law School Penn Law: Legal Scholarship Repository Faculty Scholarship at Penn Law 2004 The Unfortunate Life and Merciful Death of the Avoidance Powers Under Section 103 of the Durbin-Delahunt Bill: What Were They Thinking? Steven L. Harris Chicago-Kent Law School Charles W. Mooney Jr. University of Pennsylvania Carey Law School Follow this and additional works at: https://scholarship.law.upenn.edu/faculty_scholarship Part of the Bankruptcy Law Commons, Labor and Employment Law Commons, Retirement Security Law Commons, and the Secured Transactions Commons Repository Citation Harris, Steven L. and Mooney, Charles W. Jr., "The Unfortunate Life and Merciful Death of the Avoidance Powers Under Section 103 of the Durbin-Delahunt Bill: What Were They Thinking?" (2004). Faculty Scholarship at Penn Law. 513. https://scholarship.law.upenn.edu/faculty_scholarship/513 This Article is brought to you for free and open access by Penn Law: Legal Scholarship Repository. It has been accepted for inclusion in Faculty Scholarship at Penn Law by an authorized administrator of Penn Law: Legal Scholarship Repository. For more information, please contact [email protected]. THE UNFORTUNATE LIFE AND MERCIFUL DEATH OF THE A VOIDANCE POWERS UNDER SECTION 103 OF THE DURBIN-DELAHUNT BILL: WHAT WERE THEY THINKING? Steven L. Harris & Charles W. Mo oney, Jr.* lNTRODUCTIO This Article seeks to draw some lessons from the drafting, introduction, claimed justification, and eventual withdrawal of Section 103 of the Employee Abuse Prevention Act of 2002 (the "2002 Bill"). I The Bill was introduced by Senator Richard J. Durbin (D-Ill.) and Rep. vVilliam D.