May 5, 2006
General
Instructions
1.
You
have three (3) hours to complete
this exam.
2.
This
entire exam is open book; all
books and papers of any sort are permitted.
3.
Part
One consists of 36
multiple choice questions on secured transactions that commence on the next
page; this part will count for two-thirds (2/3) of the grade. Other Part One details:
a.
Generally
assume that all steps were properly taken (e.g. documents were properly signed,
security interests were properly perfected, lawsuits were properly filed,
repossessions were made peacefully, sales were conducted in a commercially
reasonable manner, etc.) except for any problem or defect specifically
mentioned in the question; i.e. do not derive your answer from an assumption
that somebody did something wrong which was not mentioned in the problem.
b.
Also
assume that all related necessary steps occurred, i.e., if we say Sparky had a
security interest in Deborah's goods, you should assume that Deborah owned
goods, that Sparky loaned money to Deborah, that Deborah signed a note to pay
it back, that the parties executed a security agreement, and that it was
appropriately perfected, etc., etc., unless we indicate explicitly that one of
these steps was missing.
c.
No
question is intended to be ambiguous; each answer is intended to be
unconditionally right or wrong. Therefore you should write comments alongside
your answers only if necessary. Indicate
on the first page of the multiple-choice questions the number of any question
where there are any comments you want me to read.
d.
There
are certain characters in these questions whose role is constant:
Ÿ
Deborah – the debtor;
Ÿ
Sparky – the secured creditor;
Ÿ
Jerry – the junior secured creditor;
Ÿ
Ursula – the unsecured creditor;
Ÿ
Beulah – a buyer from Deborah.
Ÿ
Other
characters appear for only a question or two and may be thereafter forgotten
about.
4.
Part
Two consists of one
essay question, which you should take home and return by email by midnight
tonight to NChung@ggu.edu.
5.
6.
Correct
multiple-choice answers are to be marked on the ParSCORE answer sheet form
provided using pen or pencil and following the instructions on that form. If you change your answer, place an “X”
through the wrong answer and mark the correct answer. A machine will score the exam and any
ambiguities will be counted as a wrong answer.
If two answers are true, you should select only the best answer.
7.
Write
your exam number on your exam
envelope and at the top of this
page, and the top of each page of questions, each blue book and on your
ParSCORE answer form. Do not use
your name, student ID number or Social Security Number on any exam materials.
8.
At
the conclusion of the exam, return all exam materials to the exam envelope and
submit it to the proctor. Do not
seal the envelope. Students who do
not return all exam materials at the end of the exam will not be graded.
Good luck!
May 5, 2006
PART TWO, ESSAY
QUESTION
1.
This
part constitutes one third of the exam and consists of one essay question. Take
it home and email it to NChung@GGU.Edu by
midnight tonight.
2.
Read
the facts carefully. Answers based on
incorrect facts are treated as incorrect answers. If you think that important facts are missing
or ambiguously stated, make reasonable and explicit assumptions about them; do
not make assumptions that make the entire problem vanish. Do resolve the issues; don't just discuss
them for a while and then drop them without any conclusion. Write legibly. I do not read illegible answers.
Magnificent Monitors (MM) manufactures
sells and installs computer monitors. It
has three departments: 1) the consumer division (ConDiv), that sells portable
pocket size monitors that hook up to pocket computers and cell phones for
individuals on the go to use in their cars; 2) the merchant division
(MerchDiv), that sells large monitors to businesses that offering supplementary
viewing of their central business accounts in other departments of the
business; 3) the industrial division (IndDiv) that builds very large monitors
into the walls of factory type operations to give their users better control
over the machinery operating on the premises.
MM gets most of its general financing
from Inverness Lending (IL) who has had a properly executed and filed security
interest in all present and after-acquired inventory since 2001. Since it sells and installs many of its
products on credit, it also has had an arrangement with Acton Loans (AL) to
finance all of its receivables for 90% of their face amount; AL has had a
properly executed and filed security interest in all present and after acquired
accounts, notes, and chattel paper since 2002.
Finally, MM also purchases the screens that go into its monitors from
SilverScreenWorks (SSW), who has had a properly executed and filed security
interest in all screens that it has sold or will sell to MM since 2003; SSW,
however, has been careful to always send timely and proper notices to IL and AL
before making any shipments to MM.
MM’s various divisions all handle sales
separately. Each division has its
customers properly execute conditional sales contracts which it keeps in its
own safe until that obligation is paid.
(A few documents representing very large obligations are turned over
directly to AL, who thereafter handles the accounting and collecting of
them.) ConDiv does not utilize financing
statements, but both MerchDiv and IndDiv do.
MerchDiv files its properly executed financing statements with the
Secretary of State, while IndDiv records its properly executed financing
statements with the
(Continued
on next page)
MM
has just filed under Chapter 11and has retained your firm to propose a plan of
reorganization that will satisfy its various creditors and the bankruptcy
court. MM’s auditors report that it has
the following assets:
1)
Inventory
consisting of a large number of monitors: many of these include SilverScreens,
but others contain non-SSW screens that MM itself makes. In addition, MM also has 1,000 freestanding
SilverScreens that it was preparing to install in its monitors but had not yet
done so. Finally, MM has a large supply
of used computer parts that it has taken in trade or as returns, which it holds
out for sale.
2)
Cash. Each MM division deposits all cash received
from sales and from payments on accounts into a special deposit maintained by
it, which is held there until the first of the month when it is used to pay
creditors. Those amounts are currently
quite large.
2)
Paper. As mentioned, each of the divisions currently
holds large amounts of conditional sales contract, although some have been
turned over to
As far as creditors go, in addition to
the creditors abovementioned, there are also some suppliers who have not been
paid: a) The Class A suppliers, who have obtained judgments, and in some cases
sought to levy execution on MM’s assets, and b) The Class B suppliers, who have
not yet filed suit. In addition, certain
banks holding mortgages on the real estate owned by some of MM’s industrial
customers (where the monitors were installed), have written requesting that
they be kept informed of all proceedings.
Draft a proposed plan that will, if
necessary liquidate MM’s assets in an orderly and profitable way and give to each
creditor what it is entitled to claim.
You don’t need to employ any special bankruptcy concepts, but do explain
your reasoning behind the plan, trying to keep it all under 1,500 words.
END OF EXAM