When Is a Lease a 'True Lease'?
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. This article reviews the Seventh Circuit Court of Appeals' recent decision in <i>United Airlines, Inc. v. HSBC Bank USA, N.A.</i>, 416 F.3d 609 (7th Cir. 2005). In this decision, authored by Judge Easterbrook, the court held that it must look to the substance of a transaction and beyond the label given by the parties to determine whether it is a "true lease."
Form vs. Function: When Is a Lease a 'True Lease'? The Seventh Circuit Applies Substance over Form in United Airlines v. HSBC Bank
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.
In the Marketplace
Highlights of the latest equipment leasing news from around the country.
Is Your Company in Compliance with the Anti-Terrorism Laws?
The fourth anniversary of the tragedy in New York has come and gone, and our country remains on alert in an effort to prevent another terrorist attack. While we see frequent warnings published in the news and through industry groups, the heightened awareness those warnings generate does not put our companies in compliance with the laws requiring our participation in the fight against terrorism. This article examines the anti-terrorism laws that affect our industry and outlines best practices for compliance with those laws. It also provides information on enforcement activities that have occurred. It provides a basis for evaluating whether or not your company is in compliance with the anti-terrorism laws.
Negotiating Alignment, Not Agreement: A Guide to Effective Tenant Negotiations
What do negotiators fear most? Failure, being manipulated and being second-guessed. Why do negotiators fail and why are they manipulated or second-guessed? Often, it's lack of adequate preparation and disregard for the issues, purposes and concerns of the other side. A lack of internal alignment can lead to confusion and that dreaded second-guessing. A well-prepared negotiator can be manipulation proof, avoid the second-guessing and achieve valuable results.
A Primer on Terrorism Insurance
The Terrorism Risk Insurance Act ("TRIA"), 15 USC §6701 <i>et. seq.</i>, designed to make terrorism insurance readily available to property owners, is scheduled to sunset on Dec. 31, 2005. If the Act is not extended and the cost of terrorism insurance becomes prohibitive, lenders and borrowers may once again find themselves embroiled in controversy over the question of whether governing loan documents require such insurance.
'Buy/Burn/Return' May Violate Copyright Law
Buy It, Burn It, Return It" is the policy recently adopted by a record chain in New Jersey. A radio ad for another retail store states: "You find it, you buy it, you burn it. What, I mean, not really burn it. You know. Put it in your iPod or MP3. And then sell it back. That's right: we'll buy your CDs back." The retailer can then sell the recording as used, over and over again, buying it back for less than the selling price and profiting perhaps even more than by selling it only one time. <br>The problem with these "new" record-retail tactics is that they clearly violate the rights of sound-recording and musical-composition copyright owners to control the rental distribution of their works.
