Woodbridge Liquidation Trust - Quarter Report: 2020 December (Form 10-Q)

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Delaware		36-7730868
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employment Identification No.)

14140 Ventura Boulevard Suite 302 Sherman Oaks, California		91423
(Address of principal executive offices)		(Zip Code)

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☒

PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Statements of Net Assets in Liquidation (Unaudited) as of December 31, 2020 and June 30, 2020	1
		Consolidated Statements of Changes in Net Assets in Liquidation (Unaudited) for the Three and Six Months Ended December 31, 2020 and 2019	2
		Notes to Consolidated Financial Statements (Unaudited) for the three and Six Months Ended December 31, 2020 and 2019	3
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32
	Item 4.	Controls and Procedures	32
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	33
	Item 1A.	Risk Factors	39
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
	Item 3.	Defaults upon Senior Securities	39
	Item 4.	Mine Safety Disclosures	39
	Item 5.	Other Information	39
	Item 6.	Exhibits	40

PART I.

FINANCIAL INFORMATION

		12/31/2020				6/30/2020
Assets
Real estate assets held for sale, net (Note 3):
Single-family homes		$	152,045			$	281,296
Other real estate assets			2,931				8,041
Subtotal			154,976				289,337
Cash and cash equivalents			126,596				86,073
Restricted cash (Note 4)			6,624				5,358
Other assets (Note 5)			2,635				4,183
Total assets		$	290,831			$	384,951
Liabilities
Accounts payable and accrued liabilities		$	19			$	615
Distributions payable			3,638				2,368
Accrued liquidation costs (Note 6)			76,698				117,451
Total liabilities		$	80,355			$	120,434
Commitments and Contingencies (Note 12)
Net Assets in Liquidation		$	210,476			$	264,517

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

		Three Months Ended December 31, 2020				Three Months Ended December 31, 2019				Six Months Ended December 31, 2020				Six Months Ended December 31, 2019
Net Assets in Liquidation as of beginning of period		$	239,723			$	333,582			$	264,517			$	329,971
Change in assets and liabilities (Note 7):
Change in carrying value of assets and liabilities, net			472				960				5,555				4,535
Distributions (declared) reversed, net			(29,719	)			41				(59,596	)			77
Net change in assets and liabilities			(29,247	)			1,001				(54,041	)			4,612
Net Assets in Liquidation as of end of period		$	210,476			$	334,583			$	210,476			$	334,583

PART I.

FINANCIAL INFORMATION (CONTINUED)

Item 1.

Financial Statements (Continued)

1)	Formation and Description of Business

PART I.

FINANCIAL INFORMATION (CONTINUED)

Item 1.

Financial Statements (Continued)

2)	Summary of Significant Accounting Policies

PART I.

FINANCIAL INFORMATION (CONTINUED)

Item 1.

Financial Statements (Continued)

PART I.

FINANCIAL INFORMATION (CONTINUED)

Item 1.

Financial Statements (Continued)

Item 1.

Financial Statements (Continued)

3)	Real Estate Assets Held for Sale, Net

		December 31, 2020																June 30, 2020
		Number of Assets				Gross Value				Closing and Other Costs				Net Value				Number of Assets				Gross Value				Closing and Other Costs				Net Value
Single-family homes			8			$	161,750			$	(9,705	)		$	152,045				13			$	298,368			$	(17,072	)		$	281,296
Other real estate assets:
Lots			-				-				-				-				2				3,500				(193	)			3,307
Secured loans			4				1,965				(86	)			1,879				4				1,984				(86	)			1,898
Other properties			2				1,107				(55	)			1,052				13				3,018				(182	)			2,836
Subtotal			6				3,072				(141	)			2,931				19				8,502				(461	)			8,041
Total			14			$	164,822			$	(9,846	)		$	154,976				32			$	306,870			$	(17,533	)		$	289,337

PART I.

FINANCIAL INFORMATION (CONTINUED)

Item 1.

Financial Statements (Continued)

4)	Restricted Cash

		December 31, 2020				June 30, 2020
Distributions restricted by the Company related to unresolved claims, distributions for recently allowed claims, uncashed distribution checks, distributions withheld due to pending avoidance actions and distributions that the Trust is waiting for further beneficiary information		$	3,638			$	2,372
Interest reserve (Note 8)			1,750				1,750
Fair Funds, legally restricted for distribution			1,236				1,236
Total restricted cash		$	6,624			$	5,358

5)	Other Assets

		December 31, 2020				June 30, 2020
Insurance claim receivable		$	1,900			$	1,900
Escrow receivables (a)			-				1,500
Settlement installment receivables, net (b)			305				575
Other (c)			430				208
Total other assets		$	2,635			$	4,183

PART I.

FINANCIAL INFORMATION (CONTINUED)

Item 1.

Financial Statements (Continued)

		December 31, 2020				June 30, 2020
Development costs:
Construction costs		$	39,173			$	67,204
Construction warranty			2,870				2,870
Indirect costs			1,160				1,407
Bond refunds			(1,446	)			(1,562	)
Total development costs			41,757				69,919
Holding costs:
Property tax			2,492				5,918
Insurance			1,611				2,125
Maintenance, utilities and other			969				1,518
Total holding costs			5,072				9,561
General and administrative costs:
Legal and other professional fees			13,174				17,588
Payroll and payroll related			10,389				13,425
State, local and other taxes			2,186				1,725
Board fees and expenses			1,345				2,118
Marketing			717				765
Other			2,058				2,350
Total general and administrative costs			29,869				37,971
Total accrued liquidation costs		$	76,698			$	117,451

PART I.

FINANCIAL INFORMATION (CONTINUED)

Item 1.

Financial Statements (Continued)

		Cash Activities				Remeasure- ment				Total
Real estate assets held for sale, net		$	(87,675	)		$	(1,277	)		$	(88,952	)
Cash and cash equivalents			72,508				-				72,508
Restricted cash			578				-				578
Other assets			(1,293	)			248				(1,045	)
Total assets		$	(15,882	)		$	(1,029	)		$	(16,911	)
Accounts payable and accrued liabilities		$	(493	)		$	31			$	(462	)
Accrued liquidation costs			(18,067	)			1,146				(16,921	)
Total liabilities		$	(18,560	)		$	1,177			$	(17,383	)
Change in carrying value of assets and liabilities, net		$	2,678			$	(2,206	)		$	472

Distributions (declared)		$	(29,957	)
Distributions reversed			238
Distributions (declared) reversed, net		$	(29,719	)

PART I.

FINANCIAL INFORMATION (CONTINUED)

Item 1.

Financial Statements (Continued)

		Cash Activities				Remeasure- ment				Total
Real estate assets held for sale, net		$	(82,967	)		$	(7,040	)		$	(90,007	)
Cash and cash equivalents			61,843				-				61,843
Restricted cash			(358	)			-				(358	)
Other assets			(968	)			1,950				982
Total assets		$	(22,450	)		$	(5,090	)		$	(27,540	)
Accounts payable and accrued liabilities		$	(365	)		$	117			$	(248	)
Accrued liquidation costs			(25,839	)			(2,413	)			(28,252	)
Total liabilities		$	(26,204	)		$	(2,296	)		$	(28,500	)
Change in carrying value of assets and liabilities, net		$	3,754			$	(2,794	)		$	960

Distributions (declared)		$	-
Distributions reversed			41
Distributions (declared) reversed, net		$	41

PART I.

FINANCIAL INFORMATION (CONTINUED)

Item 1.

Financial Statements (Continued)

		Cash Activities				Remeasure- ment				Total
Real estate assets held for sale, net		$	(121,167	)		$	(13,194	)		$	(134,361	)
Cash and cash equivalents			98,849				-				98,849
Restricted cash			1,266				-				1,266
Other assets			(1,877	)			329				(1,548	)
Total assets		$	(22,929	)		$	(12,865	)		$	(35,794	)
Accounts payable and accrued liabilities		$	(989	)		$	393			$	(596	)
Accrued liquidation costs			(29,998	)			(10,755	)			(40,753	)
Total liabilities		$	(30,987	)		$	(10,362	)		$	(41,349	)
Change in carrying value of assets and liabilities, net		$	(8,058	)		$	(2,503	)		$	5,555

Distributions (declared)		$	(59,927	)
Distributions reversed			331
Distributions (declared) reversed, net		$	(59,596	)

PART I.

FINANCIAL INFORMATION (CONTINUED)

Item 1.

Financial Statements (Continued)

		Cash Activities				Remeasure- ment				Total
Real estate assets held for sale, net		$	(103,929	)		$	(5,251	)		$	(109,180	)
Cash and cash equivalents			63,832				-				63,832
Restricted cash			(394	)			-				(394	)
Other assets			(1,396	)			2,556				1,160
Total assets		$	(41,887	)		$	(2,695	)		$	(44,582	)
Accounts payable and accrued liabilities		$	(370	)		$	226			$	(144	)
Accrued liquidation costs			(46,231	)			(2,742	)			(48,973	)
Total liabilities		$	(46,601	)		$	(2,516	)		$	(49,117	)
Change in carrying value of assets and liabilities, net		$	4,714			$	(179	)		$	4,535

Distributions (declared)		$	-
Distributions reversed			77
Distributions (declared) reversed, net		$	77

8)	Credit Agreements

PART I.

FINANCIAL INFORMATION (CONTINUED)

Item 1.

Financial Statements (Continued)

9)	Beneficial Interests

		For the Six Months Ended December 31,
		2020								2019
Liquidation Trust Interests		Class A				Class B				Class A				Class B
Outstanding at beginning of period			11,518,232				675,558				11,433,623				655,261
Allowed claims			7,388				1,133				84,855				21,334
5% enhancement for certain allowed claims			166				56				459				5
Settlement of claims by cancelling Liquidation  Trust Interests			(9,742	)			(435	)			(2,663	)			(761	)
Outstanding at end of period			11,516,044				676,312				11,516,274				675,839

PART I.

FINANCIAL INFORMATION (CONTINUED)

Item 1.

Financial Statements (Continued)

		For the Six Months Ended December 31,
		2020								2019
Liquidation Trust Interests		Class A				Class B				Class A				Class B
Outstanding at beginning of period			193,559				7,118				482,734				34,697
Allowed claims			(7,388	)			(1,133	)			(84,855	)			(21,334	)
5% enhancement for certain allowed claims			(16	)			-				-				-
Disallowed claims			(18,682	)			(974	)			(41,688	)			(5,406	)
Outstanding at end of period			167,473				5,011				356,191				7,957

10)	Distributions

PART I.

FINANCIAL INFORMATION (CONTINUED)

Item 1.

Financial Statements (Continued)

11)	Related Party Transactions

PART I.

FINANCIAL INFORMATION (CONTINUED)

Item 1.

Financial Statements (Continued)

12)	Commitments and Contingencies

13)	Subsequent Events

PART I.

FINANCIAL INFORMATION (CONTINUED)

Item 1.

Financial Statements (Continued)

Liquidation Trust Interests		Class A				Class B
Outstanding at
January 1, 2021			11,516,044				676,312
Allowed claims			-				-
5% enhancement for certain allowed claims			-				-
Settlement of claims by cancelling Liquidation Trust Interests			(2,529	)			-
Outstanding at
February 12, 2021			11,513,515				676,312

Liquidation Trust Interests		Class A				Class B
Outstanding at
January 1, 2021			167,473				5,011
Allowed claims			-				-
Disallowed claims			-				-
Outstanding at
February 12, 2021			167,473				5,011

PART I.

FINANCIAL INFORMATION (CONTINUED)

Item 1.

Financial Statements (Continued)

PART I.

FINANCIAL INFORMATION (CONTINUED)

The Trust operates pursuant to the Plan and the Trust Agreement. The Trust was formed as a Delaware statutory trust and is administered by the liquidation trustee under the supervision of its Supervisory Board. The Wind-Down Entity, a wholly-owned subsidiary of the Trust, operates pursuant to the Plan and the Wind-Down Entity LLC Agreement. The Wind-Down Entity was formed as a Delaware limited liability company and is administered by its Board of Managers, one of which is the chief executive officer. One member of the Board of Managers is also a member of the Supervisory Board of the Trust.

The Bankruptcy Court has retained certain jurisdictions regarding the Trust, the liquidation trustee, the Supervisory Board, the Wind-Down Entity, the Board of Managers, and assets of the Trust and the Wind-Down Entity, including the determination of all disputes arising out of or related to administration of the Trust and the Wind-Down Entity and its subsidiaries.

As of December 31, 2020, the number of Liquidation Trust Interests outstanding in each class is as follows:

For each of the classes of Liquidation Trust Interests, the number of Liquidation Trust Interests outstanding will increase to the extent that the disputed claims become allowed claims.  In addition, the number of Liquidation Trust Interests outstanding will decrease to the extent that claims are settled by cancelling Liquidation Trust Interests.

On December 24, 2019, the Trust’s Registration Statement on Form 10 became effective under the Exchange Act. The trading symbol for the Trust’s Class A Interests is WBQNL. The Trust’s Class A Interests are quoted on OTC Link ATS, the SEC-registered alternative trading system. The Class A Interests are eligible for the Depository Trust Company’s DRS services.

Since the Plan Effective Date through December 31, 2020, the Wind-Down Subsidiaries have disposed of approximately 131 properties for aggregate net sales proceeds of approximately $403.73 million.  As of December 31, 2020, the Company owned fourteen real estate assets with a gross carrying value of approximately $164.82 million. Therefore, it is unlikely that the amount of net sales proceeds that the Company will receive in the future will be consistent with the amount received from the Plan Effective Date through December 31, 2020. During the three months ended December 31, 2020 and 2019, the Company completed construction of zero and three single-family homes, respectively. During the six months ended December 31, 2020, the Company sold one single-family home that was under construction. The buyer assumed the remaining obligations to complete the construction of the property. The Company expects to complete the liquidation of its assets during the fiscal year ending June 30, 2023.

PART I.

FINANCIAL INFORMATION (CONTINUED)

Three months ended December 31, 2020

Consolidated Statement of Changes in Net Assets in Liquidation

For the three months ended December 31, 2020

($ in thousands)

Net assets in liquidation decreased approximately $29.25 million during the three month period ended December 31, 2020. This decrease was due to: (a) an increase in the carrying value of assets and liabilities  of approximately $0.47 million and (b) net distributions of approximately $29.72 million. The components of the approximately $0.47 million net change in the carrying value of assets and liabilities are as follows ($ in thousands):

During the three months ended December 31, 2020, the Company:

PART I.

FINANCIAL INFORMATION (CONTINUED)

Consolidated Statement of Changes in Net Assets in Liquidation

For the three months ended December 31, 2019

($ in thousands)

Net assets in liquidation increased approximately $1.00 million during the three months ended December 31, 2019. This increase was due to:  (a) an increase in the carrying value of assets and liabilities of approximately $0.96 million and (b) distributions that were reversed for disallowed claims of approximately $0.04 million. The components of the approximately $0.96 million net change in the carrying value of assets and liabilities, net are as follows ($ in thousands):

During the three months ended December 31, 2019, the Company:

PART I.

FINANCIAL INFORMATION (CONTINUED)

Consolidated Statement of Changes in Net Assets in Liquidation

For the six months ended December 31, 2020

($ in thousands)

Net assets in liquidation decreased approximately $54.04 million during the six month period ended December 31, 2020. This decrease was due to: (a) an increase in the carrying value of assets and liabilities of approximately $5.55 million and (b) net distributions of approximately $59.59 million. The components of the approximately $5.55 million net change in the carrying value of assets and liabilities are as follows ($ in thousands):

During the six months ended December 31, 2020, the Company:

PART I.

FINANCIAL INFORMATION (CONTINUED)

Six months ended December 31, 2019

Consolidated Statement of Changes in Net Assets in Liquidation

For the six months ended December 31, 2019

 ($ in thousands)

Net assets in liquidation increased approximately $4.61 million during the six months ended December 31, 2019. This increase was due to:  (a) changes in the carrying value of assets and liabilities, net of approximately $4.53 million and (b) distributions that were reversed for disallowed claims of approximately $0.08 million. The components of the approximately $4.53 million net change in the carrying value of assets and liabilities, net are as follows ($ in thousands):

During the six months ended December 31, 2019, the Company:

Liquidity

The Company’s primary sources for meeting its capital requirements are its cash, availability under the LOC,  proceeds from the sale of its real estate assets and recoveries from Causes of Action. The Company’s primary uses of funds are and will continue to be for distributions, development costs, holding costs and general and administrative costs, all of which the Company expects to be able to adequately fund over the next twelve months from its primary sources of capital.

PART I.

FINANCIAL INFORMATION (CONTINUED)

Capital Resources

In addition to consolidated cash and cash equivalents at December 31, 2020 of approximately $133.22 million (of which approximately $6.62 million is restricted), the capital resources available to the Company and its uses of liquidity are as follows:

Revolving Line of Credit

On June 19, 2020, two wholly-owned subsidiaries of the Wind-Down Entity entered into a $25,000,000 revolving LOC. The LOC may be increased to up to $30,000,000 with the pledge of one or more additional properties and lender approval. The LOC matures on June 19, 2022, but may be extended for one additional year thereafter. The LOC required the borrowers to establish an interest reserve of $1,750,000, which is to be used to pay the potential monthly interest payments. Outstanding borrowings bear interest at a fixed rate of 3.50% per annum. Indebtedness under the LOC is secured by a deed of trust on one property, the personal property associated therewith and the interest reserve. The Wind-Down Entity is the guarantor of the LOC. The Company is required to keep a cash balance of  $20,000,000 on deposit with the lender in order to avoid a non-compliance fee of 2% of the shortfall in the required deposit and is required to comply with various covenants.

The property that was collateral for the LOC was sold in December 2020. The LOC agreement provides that the borrower has 60 days after the sale of the property that was collateral to add an additional borrower(s) and additional property(ies) as collateral. During the 60-day period, the available borrowings under the LOC were reduced to $100,000.

On February 11, 2021, the LOC was amended.  Two additional wholly owned subsidiaries of the Wind-Down Entity were joined to the LOC as co-borrowers and two properties were added as replacement collateral as allowed for in the original agreement.  As a result of this amendment, the available borrowing commitment was adjusted back up to $25,000,000.  The maturity of the LOC was amended to January 31, 2023 with an option to extend for one additional year.  There were no other significant changes to the LOC.

No amounts were outstanding under the LOC as of December 31, 2020 and February 12, 2021.

Sales of Real Estate Assets

The Wind-Down Entity and the Wind-Down Subsidiaries are in the process of developing, marketing and selling their real estate assets, all of which are held for sale, with the exception of seven single-family homes which were under development as of December 31, 2020. There can be no assurance as to the amount of net proceeds that the Company will receive from the sale of real estate assets or when the net sales proceeds will be received. As of December 31, 2020, the Company owned fourteen real estate assets with a gross carrying value of approximately $164.82 million. Therefore, it is unlikely that the net proceeds for the three and six months ended December 31, 2020 will be indicative of future net proceeds, which may be significantly lower. In addition, it may take longer to sell the properties than the Company has estimated.

Recoveries

During the three and six months ended December 31, 2020, the Company recognized approximately $0.58 and $6.74 million, net, respectively, from the settlement of Causes of Action. There can be no assurance that the amounts the Company recovers from settling Causes of Action, Fair Funds recoveries and Forfeited Assets' recoveries in the future will be consistent with the amount recovered during the three and six months ended December 31, 2020.

PART I.

FINANCIAL INFORMATION (CONTINUED)

Forfeited Assets

The Trust is in the process of transferring the Forfeited Assets. The assets consist of cash and other assets. The Trust is required to distribute the net sale proceeds from liquidating the Forfeited Assets to the Qualifying Victims. Qualifying Victims are the former holders of Class 3 and Class 5 Claims and their permitted assigns. Former holders of Class 4 claims are not Qualifying Victims. Because of the requirement to distribute the net sale proceeds of the Forfeited Assets to the Qualifying Victims, the net sales proceeds will be presented in the consolidated statement of net assets as restricted net assets in liquidation. At December 31, 2020, approximately 11,444,832 of the 11,516,044 Class A Interests were held by Qualifying Victims.

Uses of Liquidity

The primary uses of the Company’s liquidity are to pay (a) distributions payable, (b) development costs, (c) holding costs, and (d) general and administrative costs. As of December 31, 2020, the Company’s total liabilities were approximately $80.35 million. The total liabilities recorded as of December 31, 2020 may not be indicative of the costs paid in future periods, which may be significantly higher.

Given current cash and cash equivalent balances, projected sales of real estate assets, availability under the LOC, Causes of Action recoveries, distributions declared and expected cash needs, the Company does not expect a deficiency in liquidity in the next twelve months. Due to the uncertain nature of future net sales proceeds, recoveries and costs to be incurred, it is not possible to be certain that the current liquidity will be adequate to cover all future financial needs of the Company.  Creating contingent obligation agreements and/or seeking methods to reduce professional costs, including legal fees, and administrative costs are strategies that could be undertaken to address liquidity issues should they arise. These strategies could impact the Company’s ability to maximize recoveries from the settlement of Causes of Action.

Distributions will be made at the sole discretion of the Liquidation Trustee in accordance with the provisions of the Plan and the Trust Agreement. As of February 12, 2021, the Liquidation Trustee has declared six distributions to the Class A Interestholders. The distributions are paid on account of the then-allowed claims and a deposit is made into a restricted cash account for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims, (b) in respect of Class A Interest on account of recently allowed claims, (c) to holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions, (d) that were withheld due to pending avoidance actions and (e) in respect of which the Trust is waiting for further beneficiary information.

PART I.

FINANCIAL INFORMATION (CONTINUED)

The following tables summarize the distributions declared, distributions paid and the activity in the restricted cash account for the periods from February 15, 2019 (inception) through December 31, 2020 and from February 15, 2019 (inception) through February 12, 2021:

The liquidation trustee will continue to assess the adequacy of funds held and expects to make additional cash distributions on account of Class A Interests, but does not currently know the timing or amount of any such distribution(s).

As of December 31, 2020, the Company has contractual commitments related to construction contracts totaling approximately $17.70 million. The Company expects to complete the construction of these single-family homes during the fiscal year ending June 30, 2022. The Company has an office lease that expires in August 2021. The Company expects that it will continue to lease office space until the liquidation process is completed.

As of December 31, 2020, the Company did not have any off-balance sheet arrangements, other than those disclosed under “Contractual Obligations” above, that have or are reasonably likely to have a material effect on its consolidated financial statements, liquidity or capital resources.

As of December 31, 2020, the Company does not have any market risk exposure as defined by Securities and Exchange Commission Regulation 229.305.

Until the Company completes the liquidation of its assets, it may be exposed to inflation risks relating to increases in the costs of construction and other accrued liquidation costs.

PART I.

FINANCIAL INFORMATION (CONTINUED)

The Company’s consolidated financial statements are prepared in accordance with U.S. GAAP. The accounting policies and practices that the Company believes are the most critical are discussed below. These accounting policies and practices require management to make decisions on subjective and/or complex matters that may inherently be uncertain. Estimates are required to prepare the consolidated financial statements in conformity with U.S. GAAP. Significant estimates, judgments and assumptions are required in a number of areas, including, but not limited to, the sales price of real estate assets, selling costs, development costs, holding costs and general and administrative costs to be incurred until the completion of the liquidation of the Company. In many instances, changes in the accounting estimates are likely to occur from period to period. Actual results may differ from the estimates. The Company believes the current assumptions and other considerations used in preparing the consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in the Company’s consolidated financial statements, the resulting changes could have a material adverse effect on the Company’s net assets in liquidation.

Liquidation Basis of Accounting

Under the liquidation basis of accounting, all assets are recorded at their estimated net realizable value or liquidation value, which represents the estimated amount of net cash that may be received upon the disposition of the assets (on an undiscounted basis). Liabilities are measured in accordance with U.S. GAAP that otherwise applies to those liabilities. The Company has not recorded any amount for future recoveries from unsettled Causes of Action, Fair Funds or Forfeited Asset recoveries in the accompanying consolidated financial statements because they cannot be reasonably estimated.

Valuation of Real Estate

The measurement of real estate assets held for sale is based on current contracts (if any), estimates and other indications of sales value, net of estimated selling costs. To determine the value of real estate assets held for sale, the Company considers the three traditional approaches to value (cost, income and sales comparison) commonly used by the real estate appraisal community. The applicability and relevancy of each valuation approach as applied may differ by asset. In most cases, the sales comparison approach was accorded the greatest weight. This approach compares a property to other properties with similar characteristics that have recently sold. To validate management’s estimate, the Company also considers opinions from qualified real estate professionals and local real estate brokers and, in some cases, obtained third party appraisals.

Accrued Liquidation Costs

The estimated costs associated with implementing and completing the Company’s plan of liquidation are recorded as accrued liquidation costs. The Company has also recorded the estimated development costs to be incurred to prepare the assets for sale as well as the estimated holding costs to be incurred until the projected sale date and the estimated general and administrative costs to be incurred until the completion of the liquidation of the Company.

Changes in Carrying Value

On a quarterly basis, the Company will review the estimated net realizable values and liquidation costs and record any significant variances. The Company will also evaluate an asset when it is under contract for sale and the buyer’s contingencies have been removed. During the period that this occurs, the carrying value of the asset and the estimated closing and other costs will be adjusted, if necessary. If the Company has a change in its plan for the disposition of an asset, the carrying value will be adjusted to reflect this change in the period that the change is approved. The change in value may also include a change to the accrued liquidation costs related to the asset.

All changes in the estimated liquidation value of the Company’s assets, real estate held for sale, or other assets and liabilities are reflected as a change to the Company’s net assets in liquidation.

PART I.

FINANCIAL INFORMATION (CONTINUED)

Not applicable, as the Company is a “smaller reporting company” within the meaning of Rule 12b-2 of the Exchange Act.

Item 4.

Controls and Procedures

This quarterly report does not include a report of management’s assessment of internal controls over financial reporting due to a transition period established by rules of the SEC for newly public companies.

PART II.

OTHER INFORMATION (CONTINUED)

Below is a description of pending litigation. As the Company is the plaintiff in these legal proceedings and does not have the ability to estimate the ultimate recovery amount until they are settled, and in accordance with the Company’s accounting policy, no recoveries have been recorded in the Company’s consolidated financial statements for these legal proceedings, other than for settlements for which the Trust has entered into a signed settlement agreement.

Goldberg v. Halloran & Sage LLP, et al., Case No. 19STCV42900 (Cal. Super. Ct., L.A. Cnty., filed Dec. 2, 2019), is an action by the Trust against nine law firms (Halloran & Sage LLP; Balcomb & Green, P.C.; Rome McGuigan, P.C.; Haight Brown & Bonesteel LLP; Bailey Cavalieri LLC; Sidley Austin LLP; Davis Graham & Stubbs LLP; Robinson & Cole LLP; and Finn Dixon & Herling LLP) and ten individual attorneys (Richard Roberts, Lawrence R. Green, Jon H. Freis, Brian Courtney, Ted Handel, Thomas Geyer, Neal Sullivan, S. Lee Terry, Jr., Shant Chalian, and Reed Balmer) for conduct in connection with their representation of Robert Shapiro, the Debtors or their affiliates before the commencement of the Bankruptcy Cases, as well as against up to 100 “Doe” defendants. The conduct challenged in the complaint includes knowingly and/or negligently preparing loan documents and investment agreements with material misstatements and omissions, designing deceptive securities products, preparing incorrect legal opinion memoranda on which investors relied, and assisting in the creation of nominally third-party borrower entities that were in fact controlled by Robert Shapiro.

The first set of counts in the complaint are against law firm Halloran & Sage LLP, attorney Richard Roberts, and the “Doe” defendants for aiding and abetting securities fraud (First Count), aiding and abetting fraud (Second Count), aiding and abetting breach of fiduciary duty (Third Count), negligent misrepresentation (Fourth Count), professional negligence (Fifth Count), and aiding and abetting conversion (Sixth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.

The second set of counts in the complaint are against law firm Balcomb & Green, P.C., attorney Lawrence R. Green, and the “Doe” defendants for aiding and abetting securities fraud (Seventh Count), aiding and abetting fraud (Eighth Count), aiding and abetting breach of fiduciary duty (Ninth Count), negligent misrepresentation (Tenth Count), professional negligence (Eleventh Count), and aiding and abetting conversion (Twelfth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.

The third set of counts in the complaint are against attorney Jon H. Freis and the “Doe” defendants for aiding and abetting securities fraud (Thirteenth Count), aiding and abetting fraud (Fourteenth Count), aiding and abetting breach of fiduciary duty (Fifteenth Count), negligent misrepresentation (Sixteenth Count), professional negligence (Seventeenth Count), and aiding and abetting conversion (Eighteenth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.

The fourth set of counts in the complaint are against law firm Rome McGuigan, P.C., attorney Brian Courtney, and the “Doe” defendants for aiding and abetting securities fraud (Nineteenth Count), aiding and abetting fraud (Twentieth Count), aiding and abetting breach of fiduciary duty (Twenty-First Count), negligent misrepresentation (Twenty-Second Count), professional negligence (Twenty-Third Count), and aiding and abetting conversion (Twenty-Fourth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.

The fifth set of counts in the complaint are against law firm Haight Brown & Bonesteel LLP, attorney Ted Handel, and the “Doe” defendants for aiding and abetting securities fraud (Twenty-Fifth Count), aiding and abetting fraud (Twenty-Sixth Count), aiding and abetting breach of fiduciary duty (Twenty-Seventh Count), negligent misrepresentation (Twenty-Eighth Count), professional negligence (Twenty-Ninth Count), and aiding and abetting conversion (Thirtieth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $20 million, as well as for punitive damages.

PART II.

OTHER INFORMATION (CONTINUED)

Item 1.

Legal Proceedings (Continued)

The seventh set of counts in the complaint are against law firm Sidley Austin LLP, attorney Neal Sullivan, and the “Doe” defendants for aiding and abetting securities fraud (Thirty-Seventh Count), aiding and abetting fraud (Thirty-Eighth Count), aiding and abetting breach of fiduciary duty (Thirty-Ninth Count), negligent misrepresentation (Fortieth Count), professional negligence (Forty-First Count), and aiding and abetting conversion (Forty-Second Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.

The eighth set of counts in the complaint are against law firm Davis Graham & Stubbs LLP, attorney S. Lee Terry, Jr., and the “Doe” defendants for aiding and abetting securities fraud (Forty-Third Count), aiding and abetting fraud (Forty-Fourth Count), aiding and abetting breach of fiduciary duty (Forty-Fifth Count), negligent misrepresentation (Forty-Sixth Count), professional negligence (Forty-Seventh Count), and aiding and abetting conversion (Forty-Eighth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $200 million, as well as for punitive damages.

The ninth set of counts in the complaint are against law firm Robinson & Cole LLP, attorney Shant Chalian, and the “Doe” defendants for aiding and abetting securities fraud (Forty-Ninth Count), aiding and abetting fraud (Fiftieth Count), aiding and abetting breach of fiduciary duty (Fifty-First Count), negligent misrepresentation (Fifty-Second Count), professional negligence (Fifty-Third Count), and aiding and abetting conversion (Fifty-Fourth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $5 million, as well as for punitive damages.

 The tenth set of counts in the complaint are against law firm Finn Dixon & Herling LLP, attorney Reed Balmer, and the “Doe” defendants for aiding and abetting securities fraud (Fifty-Fifth Count), aiding and abetting fraud (Fifty-Sixth Count), aiding and abetting breach of fiduciary duty (Fifty-Seventh Count), negligent misrepresentation (Fifty-Eighth Count), professional negligence (Fifty-Ninth Count), and aiding and abetting conversion (Sixtieth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $5 million, as well as for punitive damages.

The eleventh set of counts in the complaint are against law firms Halloran & Sage LLP; Balcomb & Green, P.C.; Rome McGuigan, P.C.; Haight Brown & Bonesteel LLP; Bailey Cavalieri LLC; Sidley Austin LLP; Davis Graham & Stubbs LLP; Robinson & Cole LLP; and Finn Dixon & Herling LLP; attorney Jon H. Freis, and the “Doe” defendants for actual-intent fraudulent transfer (Sixty-First Count) and constructive fraudulent transfer (Sixty-Second Count). These defendants are alleged to be liable for damages in an amount believed to be in excess of $5 million, as well as for provisional remedies, avoidance of the transfers, and punitive damages.

The case was designated as a complex matter on December 18, 2019, and was assigned to the Honorable Amy Hogue.

PART II.

OTHER INFORMATION (CONTINUED)

On April 13, 2020, four sets of defendants – Rome McGuigan, P.C. and Brian Courtney; Bailey Cavalieri LLC and Thomas Geyer; Robinson & Cole LLP and Shant Chalian; and Finn Dixon & Herling LLP and Reed Balmer – filed motions to quash the service of summonses.  The defendants that filed these motions asserted that they are not subject to suit in California because they do not have sufficient contacts with California to justify a California court’s exercise of jurisdiction over them.  The Trust opposed these motions, and the matters were heard in part on July 15, 2020 and in part on July 20, 2020, and (with exception of the motion filed by Finn Dixon & Herling LLP and Reed Balmer) were taken under submission on July 20, 2020.  The motion filed by Finn Dixon & Herling LLP and Reed Balmer was taken off calendar prior to July 20, 2020, and the parties thereafter reached a confidential settlement.  On July 21, 2020, the Court entered orders granting the motions to quash filed by Rome McGuigan, P.C. and Brian Courtney; Bailey Cavalieri LLC and Thomas Geyer; and Robinson & Cole LLP and Shant Chalian.  On September 10, 2020, the Trust filed a notice of appeal of the foregoing orders.

On June 16, 2020, the Trust reached a confidential settlement with Balcomb & Green, P.C. and Lawrence R. Green.  On July 6, 2020, these defendants filed a motion seeking the Court’s determination that the settlement was made in good faith under a California statute (Civil Procedure Code section 877.6) that permits settling defendants to seek a good faith settlement finding in order to bar any other defendant from seeking contribution or indemnity.  The motion was unopposed, and the Court entered an order granting it on August 12, 2020.

On January 21, 2021, the Trust reached a confidential settlement with Robinson & Cole LLP and Shant Chalian.  As part of that settlement, the appeal of the jurisdictional ruling as to those parties has been dismissed.

On October 28, 2020, the Trust filed a federal lawsuit against four defendants that prevailed on the motions to quash service of summons in the California state court action (Rome McGuigan, P.C.; Brian Courtney; Bailey Cavalieri LLC; and Thomas Geyer), as well as a fifth defendant (Ivan Acevedo), and certain “Doe” defendants.”  The case is styled Goldberg v. Rome McGuigan, P.C., et al., Case No. 2:20-cv-09958-JFW-SK (C.D. Cal.).  The complaint contains counts for (i) violations of section10(b) of the Exchange Act and Rule 10b-5; (i) aiding and abetting fraud; (iii) aiding and abetting breach of fiduciary duty; (iv) negligent misrepresentation; (v) professional negligence; (vi) aiding and abetting conversion; (vii) actual fraudulent transfer; and (viii) constructive fraudulent transfer.  The conduct challenged in the complaint includes certain of the same conduct challenged in the California state court action, and a footnote in the complaint explains:  “Plaintiff filed an action in Los Angeles Superior Court against [four of these defendants] raising some of the claims asserted in this action.  Those defendants filed a motion to quash service, alleging that the court did not have personal jurisdiction.  The Court granted those motions, and Plaintiff appealed.  Plaintiff brings this action to preserve his rights and ensure that his claims against [the defendants] are adjudicated on the merits.  Should the state court appeal be successful, resulting in two cases being simultaneously litigated on the merits in two forums, [plaintiff] will consider dismissing this action and litigating the case in state court.”  On January 4, 2021, the four defendants from the California state court action filed motions to dismiss this federal lawsuit, and those motions are set for hearing on February 22, 2021. On February 9, 2021, the Court entered a schedule setting certain dates and deadlines, including: (i) November 22, 2021 as the discovery (fact and expert) cut-off; (ii) December 13, 2021 as the deadline for hearings on dispositive motions; (iii) September 27, 2021 as the deadline for initial expert disclosures and reports; (iv) October 4, 2021 as the last day to conduct a settlement conference or mediation; (v) January 21, 2022 as the final pretrial conference; and (vi) February 8, 2022 as the start of what is estimated to be a 5-day jury trial.

 Comerica Bank litigation. There are two pending actions against Comerica Bank, the institution at which the Debtors maintained all of their bank accounts, alleging various causes of action:

(1) In re Woodbridge Investments Litigation, Case No. 2:18-cv-00103-DMG-MRW (C.D. Cal.), is a consolidated class action (Class Action) in the United States District Court for the Central District of California (California District Court) brought on behalf of former Noteholders and Unitholders against Comerica Bank. It is comprised of five separate lawsuits filed between January 4, 2018 and April 26, 2018. The five lawsuits were consolidated, Lead Class Counsel was appointed, and Lead Class Counsel filed a Consolidated Class Action Complaint on September 19, 2019. The Consolidated Class Action Complaint asserted claims for aiding and abetting fraud (Count 1), aiding and abetting breach of fiduciary duty (Count 2), negligence (Count 3), and violations of California’s unfair competition law (Count 4).

PART II.

OTHER INFORMATION (CONTINUED)

On August 5, 2020, the Court entered an order granting in part and denying in part Comerica’s motion to dismiss.  The Court denied Comerica’s request to dismiss Counts 1 and 2 on the ground that the allegations of the Consolidated Class Action Complaint sufficiently alleged that Comerica had the requisite knowledge of the underlying fraud and breach of fiduciary duty.  The Court granted Comerica’s request to dismiss Count 3 on the ground that the allegations of the Consolidated Class Action Complaint did not sufficiently allege a duty of care owed to non-customers of Comerica.  On Count 4, the Court granted the motion to dismiss to the extent it relied on a failure to file a SAR (which claim the Court found was preempted by federal law, which prohibits disclosure of a SAR), but denied the motion to dismiss to the extent the complaint relied on violations arising from non-SAR-related conduct, and the Court granted the class leave to amend the complaint.  The Court also denied Comerica’s request to dismiss based on Comerica’s allegations that the class lacked standing and that the Trust cannot be a member of a class, finding instead that the class has plausibly alleged standing to sue, and that the question of whether the Trust can be a class member did not need to be answered at this stage.

On August 26, 2020, the putative class filed a First Amended Consolidated Class Action Complaint, which asserted claims for aiding and abetting fraud (Count 1), aiding and abetting breach of fiduciary duty (Count 2), and violations of California’s unfair competition law (Count 3).  Comerica answered the First Amended Consolidated Class Action Complaint on September 16, 2020.  Discovery is now proceeding in the litigation, and the Court has entered a schedule setting the following dates and deadlines: (i) April 16, 2021 as the deadline for plaintiffs to move for class certification; (ii) August 3, 2021 as the fact discovery cut-off; (iii) August 20, 2021 as the deadline to file dispositive motions; (iv) September 7, 2021 as the deadline for initial expert disclosures and reports; (v) October 22, 2021 as the expert discovery cut-off; (vi) December 14, 2021 as the final pretrial conference; and (vii) January 11, 2022 as the start of what is estimated to be a 10-day jury trial.

The Trustee asserts that he is a member of the putative class and Comerica disputes that assertion.

(2) Goldberg vs. Comerica Bank, Adv. Pro. No. 20-ap-50452-BLS (Bankr. D. Del., originally filed Apr. 26, 2019 in California and transferred on February 5, 2020 to Delaware), is an action by the Trust against Comerica Bank alleging fraudulent transfer liability under the California Civil Code. The Trust’s complaint also incorporates the claims asserted against Comerica Bank in the class action (referenced in paragraph (1) above) to the extent that such claims are ultimately determined to belong to the Trust rather than to individual former Noteholders and Unitholders.

 On June 28, 2019, Comerica filed three motions: (i) a motion to transfer venue to the Bankruptcy Court; (ii) alternatively, a motion to dismiss the action for failure to state a claim; and (iii) a motion to strike the portion of the Complaint that incorporates the class action claims. Comerica argued that venue should be transferred to the Bankruptcy Court on the grounds that, inter alia, that court is familiar with the facts underlying the litigation and is best positioned to adjudicate it. In the alternative, in the event that the court declines to transfer venue, Comerica argued that the Complaint should be dismissed on the grounds that, among other grounds, (i) the Trust’s claims are barred by the doctrine of in pari delicto, and (ii) the transfers that the Trust seeks to recover are not avoidable as a matter of law because the payment of a secured banking obligation cannot be the subject of a fraudulent transfer claim.

PART II.

OTHER INFORMATION (CONTINUED)

Avoidance actions. The Trust is currently prosecuting numerous legal actions to recover preferential payments, fraudulent transfers, and other funds subject to recovery by the bankruptcy estate.  These actions were filed in the United States Bankruptcy Court for the District of Delaware, are pending before the Honorable Brendan L. Shannon, and generally fall into the following categories:

The Trust has filed over 400 legal actions of this nature, many of which have been resolved, resulting in recoveries by or judgments in favor of the Trust. Since inception and as of January 31, 2021, the Trust has obtained judgments of approximately $6.3 million and has entered into settlements in approximately 120 legal actions and approximately 245 potential avoidance claims for which litigation was not filed, resulting in an aggregate of approximately $12.9 million of cash payments made or due to the Trust and approximately $9.1 million in reductions of claims against the Trust.

In addition, other legal proceedings are being prosecuted by the Trust and United States governmental authorities, which actions may result in recoveries in favor of the Trust. Such actions currently include:

PART II.

OTHER INFORMATION (CONTINUED)

Wind-Down Group Litigation. The Wind-Down Group owns a portfolio of real estate assets, which includes secured loans and other properties.  As part of its recovery efforts, the Wind-Down Group, through its subsidiaries, is involved in ordinary routine litigation incidental to such assets.

PART II.

OTHER INFORMATION (CONTINUED)

Please see the applicable risks in Item 1A of our Annual Report on Form 10-K filed with the SEC on September 28, 2020.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

In accordance with the Plan, all Liquidation Trust Interests have been issued without registration under the Securities Act.  The Liquidation Trust Interests have been issued only to holders of allowed claims in Class 3, Class 4, and Class 5 entirely in exchange for such claims.  See “Item 1.  Business - D. Plan Provisions Regarding the Company - 2. Treatment under the Plan of holders of claims against and equity interests in the Debtors” of our Annual Report on Form 10-K filed with the SEC on September 28, 2020.  As of December 31, 2020, the Trust has issued an aggregate of 11,516,044 Class A Liquidation Trust Interests  and an aggregate of 676,312 Class B Liquidation Trust Interests.  All Liquidation Trust Interests were issued on the Plan Effective Date or from time to time thereafter as soon as practicable as and when claims in Class 3, Class 4 or Class 5 have become allowed.

During the three months ended December 31, 2020, the Trust did not issue any Liquidation Trust Interests.

The issuance of Liquidation Trust Interests has occurred in reliance upon the exemption from the registration requirements of the Securities Act afforded by Section 1145(a)(1) of the Bankruptcy Code. Section 1145(a)(1) exempts the offer and sale of securities under a plan of reorganization from registration under the Securities Act and state securities laws and regulation if (i) the securities are offered and sold under a plan of reorganization and are securities of the debtor, of an affiliate of the debtor participating in a joint plan with the debtor, or of a successor to the debtor under the plan; (ii) the recipients of the securities hold a pre-petition or administrative claim against the debtor or an interest in the debtor; and (iii) the securities are issued entirely in exchange for the recipient’s claim against or interest in the debtor, or principally in such exchange and partly for cash or property. The Trust believes that the Liquidation Trust Interests are securities of a “successor” to the Debtors within the meaning of Section 1145(a)(1), and such securities were issued under the Plan entirely in exchange for allowed claims in Class 3, Class 4, and Class 5.

Item 3.

Defaults upon Senior Securities

None.

None.

None.

PART II.

OTHER INFORMATION (CONTINUED)