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Bank
Administrated Asset Liquidations
_____________
The
Benefits of Structuring Liquidations
As
Charitable Contributions
Executive Summary
Banks, like other Corporations may find a positive benefit in their
cash position on assets and properties resulting from foreclosures, (as well as
other non-performing assets) by structuring the liquidation of product
inventories, equipment and buildings into a Charitable Donation
transaction.
Considerations:
1.
Liquidation of foreclosed inventories and property by sale or
auction often results in low percentage capital recoveries for the Bank,
requiring the large portion of the losses to be written off as a cost or
charge.
2.
Liquidation of some assets requires fees and disposal costs that
actually increase the cash losses to the Bank. Example: foreclosure on special-use land,
buildings and equipment resulting from a proprietors death and cessation of the
business, leaves the Bank holding title to an asset that cannot readily be sold
or business restarted.
3.
A Charitable Donation of the non-performing asset accomplishes
several valuable benefits including:
a.
Avoiding disposal costs
b.
Relieving the Bank of ownership and recurring carrying
costs
c.
Possibly a tax deductible event as a Charitable Donation
4.
Donations of Non-Cash inventories and assets are most commonly
seen in smaller values such as clothing to the Salvation Army or DAV, or seen in
vehicle donations to National Kidney Foundation or American Lung
Association. Yet major Nonprofit
Organizations (NPOs) such as Gifts In Kind, World Vision, Compassion, Red Cross,
Second Harvest and Food for the Hungry receive high value and large Non-Cash
Donations from Corporations donations totaling hundreds of millions of dollars
each year. These donations almost
always involve food, pharmaceuticals, clothing, and supplies that can be quickly
and effectively utilized within the mission activities of the NPOs.
AdTech programs manage all possible inventories of product, materials and equipment that are not of direct use in the NPOs mission and which the NPO wishes instead to convert to cash. AdTech is able to handle most product and assets resulting from Mergers & Acquisitions, Bankruptcies, Foreclosures, and Corporate downsizing.
5.
For Corporations to donate product inventories and assets that
cannot be utilized in the mission of the NPOs, the NPOs must have a Program in
place to efficiently receive these Donations and take them into the market place
to convert them to cash funding for the NPO. The AdTech program provides these
services as well as meeting any marketing restrictions the Corporate Donor may
have, while also managing the logistics of moving the inventory away from the
Donor Corporation.
6.
Corporations can now consider utilizing non-performing assets and
problematic inventories to fulfill their Public Service or cash commitments to
charity. This approach avoids
further carrying costs and disposal costs, and in some cases where qualified,
provides a way to enjoy a tax benefit for the
Donation.
7.
A third party company is often required to manage the transaction
and logistics involved between the Corporate Donor and the receiving Nonprofit
Organization. AdTechs business is
the Non-Cash Gifts Management for Nonprofit Organizations. AdTech provides domestic and
International markets for most every kind of asset and inventory, as well as the
Logistics management to get it there.
Example Transaction (based on real life
situation)
1.
Bank holds product inventory as collateral for a loan of
$5,000,000 for a printing Company (greeting card publisher and
distributor).
2.
Inventory is valued at $60,000,000 Retail and $30,000,000
wholesale.
3.
Company loses critical contracts to competitors and indicates it
plans to cease business, therefore the Bank forecloses, takes possession, and
all sales activity stops.
4.
150 truck loads of inventory are now stored in public warehousing
at a cost of $100,000 per month, for which the Bank now becomes
responsible.
5.
Liquidation value of the inventory is confirmed to be $1,000,000
(3.33 % of wholesale) if the product is sold within 3 months to one buyer taking
all. Besides a sale within the 3
months, an additional 4 months will be required to palletize the cased goods and
load trucks (5 per day) to remove, for a total of 7 months or $700,000 for storage rental plus the
additional costs of labor, equipment and materials for palletizing the
product.
This same product can be sold by the pallet in more customized
sales for a higher pricing estimated at $2,000,000, maybe more. But that would take over a 12 to 18
month period, resulting in costs of $1,200,000 to $1,800,000 for storage costs
plus sales fees to the liquidator plus labor, equipment, and materials costs for
loading out the product.
Liquidation by
Donation
- The Owner may donate the inventory based on its Fair
Market Value which could be as much as $45,000,000 in this case. This valuation is based on the IRS
Code 170e3 and requires a recipient Nonprofit Organization involved in the
care of the ill, needy, or infants.
- If the Owner Corporation is profitable, the cash
value of the tax deduction may be as much as
$9,000,000
- Even if no tax deduction value is determined in this
example, the avoidance of the carrying cost ($100,000 per month) and the
avoidance of the disposal costs (Liquidation fees, additional storage rent,
etc.) remain beneficial considerations.
- Additionally, cash savings might be considered by
the Owner by assigning the non-cash inventory donation to a charity or group
of NPOs the Owner currently supports with cash, making this non-cash donation
in lieu of cash. Proceeds from
the sale of the non-cash donation would be distributed to the NPO(s) by AdTech
per agreement.
When your Organization learns of any Corporation with certain
inventories that might qualify under this IRS Code, AdTech would be glad to
become involved in reviewing the inventory, tax objectives, and requirements to
properly manage these kinds of Corporate donations.