Discuss the distribution of assets to creditors and explain how much each creditor would be expected to receive toward its debt interest.

Distribution of assets to creditors

Facts:  World Greenery, Inc. (Greenery) is a lawn and garden products company.  Greenery manufactures lawn seeds and chemical-free plant sprays to sell to retailers throughout the country.

Greenery also operates 2 retail garden supply stores, and a distribution warehouse.  The manufacturing plant, retail stores and warehouse are all located in the state of Oz.

In addition to manufacturing products, Greenery buys large orders of supplies from Chem-Free, Inc., Farmers’ Seed ‘N Grow Company, Martin’s Mulch, Neville’s Nursery, US Pottery, and several other companies, on a regular basis.  Most orders are delivered to Greenery, then billed ton a monthly basis with balances due in 30 days.

In 2002, Greenery took a mortgage for 1 building that houses 1 of its 2 retail stores.  Greenery owes $450,00 on that mortgage.  In 2008, Greenery took another mortgage for its second retail store building on which it still owes $400,000. National Bank holds both these mortgages. All necessary paper work was properly filed to perfect National’s mortgages on each of the 2 store buildings in 2002 and 2008, respectively.

Greenery took out a mortgage on its manufacturing plant in 2001.  Central Bank holds the mortgage on which $100,000 is owed.  All necessary paper work was properly filed to perfect Central’s mortgage interest.

Greenery leases its distribution warehouse space from Warehouse Rentals, Inc.  Greenery pays $800 rent on a monthly basis to Warehouse Rentals, Inc.

Greenery has a loan with ABC Bank on which Greenery owes $350,000.  The loan money was used for start-up costs to build its second retail store.  ABC did not file paperwork perfecting its secured interest.

Greenery received a new loan for $75,000 to pay for supplies for its manufacturing plant, and for inventory for its 2 retail stores.  Greenery’s store inventory is purchased monthly from suppliers, then moved out through store sales continuously.   ABC filed perfection papers for the secured transaction.

1.  Would you have advised ABC Bank to grant the new loan of $75,000 to Greenery for inventory, with OR without an after acquired inventory clause?  Why?

2.  Assume Greenery decided to close all its business operations and liquidate all its business interests.  Greenery currently owns assets, including equipment, inventory, vehicles, etc. totaling $1,000,000.

At the time Greenery closed its business operations, it owed the following:

Chem-Free, Inc.:  $475

Farmers’ Seed ‘N Grow Company:  $500

Martin’s Mulch:  $700

Neville’s Nursery:  $3500

US Pottery:  $600

National Bank:  $450,00

National Bank:  $400,000

Central Bank:  $100,000

ABC Bank:  $350,00

ABC Bank:  $75,000

(a) List the priority of creditors.

(b) Explain why/how each creditor listed has a priority interest, if any, in 

Greenery’s assets.

3.  Discuss the distribution of assets to creditors and explain how much each creditor would be expected to receive toward its debt interest.

Format:

Third person writing is required.  Third person means that there are no words such as “I, me, my, we, or us” (first person writing), nor is there use of “you or your” (second person writing).

Contractions are not used in business writing, so you are expected NOT to use contractions in writing this assignment.

When using a source document, the expectation is that the information is cited and referenced with a page or paragraph number.

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