BNP Paribas v. Olsen's Mill, Inc.
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Olsen's Mill, a grain elevator, and BNP Paribas, the elevator's largest creditor, entered into a voluntary assignment agreement for the benefit of creditors under Wis. Stat. 128 after Olsen's Mill defaulted on its obligations to Paribas. The circuit court approved of the assignment and ordered the sale of certain assets free and clear of Paribas's security interest without its consent. The court of appeals affirmed the order. On review, the Supreme Court reversed the judgment of the court of appeals, holding (1) the circuit court erred by ordering the sale of Paribas's collateral free and clear of Paribas's security interest without its consent; and (2) the court contravened the statute by approving an offer that circumvented the order of distribution mandated by Ws. Stat. 128.17(1). Remanded for a determination of what remedy was available under the circumstances.
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2011 WI 61 SUPREME COURT CASE NO.: COMPLETE TITLE: OF WISCONSIN 2009AP1007 BNP Paribas as Agent, Plaintiff-Appellant-Petitioner, v. Olsen's Mill, Inc., Defendant-Respondent. REVIEW OF A DECISION OF THE COURT OF APPEALS OPINION FILED: SUBMITTED ON BRIEFS: ORAL ARGUMENT: SOURCE OF APPEAL: COURT: COUNTY: JUDGE: JUSTICES: CONCURRED: DISSENTED: NOT PARTICIPATING: July 8, 2011 March 2, 2011 Circuit Court Green Lake William M. McMonigal ROGGENSACK, J. concurs (Opinion filed). ZIEGLER, J. and GABLEMAN, J. join concurrence. PROSSER, J. did not participate. ATTORNEYS: For the plaintiff-appellant-petitioner there were briefs by Brady C. Williamson, Katherine Stadler, Patricia L. Wheeler and Godfrey & Kahn, S.C. and Joseph J. Wielebinski and Munsch Hardt Kopf & Harr, P.C, and oral argument by Mr. Williamson. For the defendant-respondent there was a brief by Thomas M. Olejniczak, Colleen M. Kelly, Patrick M. Blaney and Liebmann, Conway, Olejniczak Olejniczak. & Jerry, S.C. and oral argument by Mr. 2011 WI 61 NOTICE This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports. No. 2009AP1007 (L.C. No. 2009CV25) STATE OF WISCONSIN : IN SUPREME COURT BNP Paribas as Agent, FILED Plaintiff-Appellant-Petitioner, v. JUL 8, 2011 Olsen's Mill, Inc., A. John Voelker Acting Clerk of Supreme Court Defendant-Respondent. REVIEW of a decision of the Court of Appeals. Reversed and cause remanded. ¶1 ANN WALSH BRADLEY, J. The petitioner, BNP Paribas as Agent ("Paribas"), seeks review of an unpublished opinion of the court of 1 appeals affirming an order of the circuit court.1 BNP Paribas v. Olsen's Mill, Inc., No. 2009AP1007, unpublished slip. op. (Wis. Ct. App., June 30, 2010). The court of appeals entered a summary disposition pursuant to Wis. Stat. § 809.21 affirming an order of the circuit court for Green Lake County, William M. McMonigal, J. No. 2009AP1007 Paribas and Olsen's Mill entered into a voluntary assignment agreement for the benefit of creditors under Wis. Stat. ch. 128.2 The circuit court ordered the sale of certain assets free and clear of all liens to Olsen's Mill's Acquisition Company, LLC ("OMAC"). ¶2 As a secured creditor, Paribas argues that the circuit court erred by ordering the sale of its collateral free and clear of Paribas's Additionally, contravened it the security contends order of interest that without the distribution its sale of the consent. impermissibly proceeds of a debtor's estate set forth in Wis. Stat. § 128.17(1). ¶3 We conclude that the circuit court erred by ordering the sale of Paribas's collateral free and clear of Paribas's security interest without its consent. value of Paribas's security interest However, because the in the assets sold is unclear on this record, we are unable to discern if Paribas was harmed as a result of this error. court contravened circumvented the the statute order Wis. Stat. § 128.17(1). We further determine that the by of approving distribution an offer mandated that by Accordingly, we reverse the court of appeals and remand to the circuit court for a determination of what remedy is available under the circumstances. I 2 All references to the Wisconsin Statutes are to the 200910 version unless otherwise indicated. 2 No. ¶4 2009AP1007 In 2009, Olsen's Mill, Inc. was one of the largest grain elevators in Wisconsin. Olsen's Mill's largest creditor was a French bank, BNP Paribas, which had extended Olsen's Mill an $80 million line of credit. It is undisputed that Paribas had a properly perfected security interest in certain assets of Olsen's Mill including equipment, real estate, inventory, and general intangibles. Olsen's Mill It is likewise undisputed that at the time defaulted on its obligations to Paribas, approximately $58 million was due and owing on the loan. It is unclear from the record, however, what part of the $58 million represented a secured interest. ¶5 Olsen's Mill had a number of creditors in addition to Paribas. Baylake Bank had interest in certain assets. a properly perfected security Olsen's Mill also had a number of unsecured creditors, including local businesses and farmers. ¶6 On February 11, 2009, Paribas and Olsen's Mill entered into a written agreement for an assignment for the benefit of creditors under Wis. Stat. ch. 128. the assignment receiver of and appointed Olsen's Mill's The circuit court approved Michael estate S. Polsky pursuant as to interim Wis. Stat. § 128.08(1)(b). ¶7 In a document entitled "Agreed Order Appointing Interim Receiver and Granting Other Relief," the court ordered that the Olsen's receiver assets" "shall and shall have full "hold management said property authority for pending this action with the usual powers and duties of a receiver under 3 No. Chapter 128." It provided that the receiver 2009AP1007 "is hereby authorized to sell any and all of Olsen's property free and clear of all liens, with all liens attaching to the proceeds of sale, through public or private proceedings, in a commercially reasonable manner, subject to the prior consent of the creditors holding perfected liens of the assets being sold, and the approval of the Court." ¶8 Shortly thereafter, the receiver requested authority to sell certain assets, including inventory and owned equipment.3 He averred that "[t]he sale of Olsen's assets is subject to the consent of BNP Paribas and BNP Paribas has authorized the Receiver to represent to this Court that BNP Paribas consents to the relief requested in this Sale Motion." for authority proposed to sell procedures the set assets forth in "in the He moved the court accordance Auction with the Terms and Procedures to be established by the Receiver with the consent of BNP Paribas." ¶9 The receiver submitted a document setting forth the agreed-upon terms and procedures for the auction (hereinafter, "Auction Terms Agreement"). In relevant part, it provided that all sales of secured assets "shall be free and clear of all liens, claims and encumbrances, with any and all liens, claims and encumbrances attaching to the proceeds of sale in the order 3 The receiver did not seek authority to sell other assets. Accordingly, after the auction, the unsold assets would remain in Olsen's Mill's estate under the receiver's management. 4 No. of their priority." 2009AP1007 It gave the secured creditors the option to withhold consent to "the final bid for any particular Lot": The sale of the Assets that are subject to properly perfected liens in favor of Debtor's lenders . . . shall be subject to the consent of such Lenders, as to the specific collateral securing such Lender's claims. The Lenders and the Receiver reserve the right to reject the final bid for any particular Lot [] and to decline to sell any of the Assets in such Lot at the Auction. ¶10 The Auction Terms Agreement specified that "[a]ll bids are subject to approval of the Court." It further specified that the receiver had authority to accept a "Winning Bid" and that he would ask the court to approve the "Winning Bid": If the Receiver agrees, in consultation with the Lenders, to accept a Tentative Winning Bid for the purchase of any Lot (a 'Winning Bid'), he shall do so at the conclusion of the Auction, and the Receiver shall use his best efforts to have the Court enter an Order authorizing the Receiver to (a) consummate the sale of that Lot pursuant to the terms of the Winning Bid, . . . . No Winning Bid is binding on the Receiver or the Debtor until the Court enters an Order approving the sale of the Assets included in such Lot pursuant to such Winning Bid. The Receiver will ask the Court to approve the best offer for the Lots, with the right of the Receiver to accept and close on the sale with the next highest bidder, as set forth below, if the party making the best offer fails to timely close. ¶11 The Auction Terms Agreement did not contemplate that the court could accept any bids submitted outside the auction procedures. Likewise, it did not provide that the court could approve a bid over a secured creditor's objection to the sale of its collateral. 5 No. ¶12 The auction was held registered bidders present. on April 7, 2009AP1007 2009, with Two frontrunners emerged. ten Olsen's Mill Acquisition Corporation (OMAC), which was headed by Phillip J. Martini, was affiliated with Olsen's Mill's prior management. PRM Wisconsin, LLC (PRM) was affiliated with the secured creditor, Paribas. ¶13 of A total of 22 bids were submitted during five rounds bidding. submitted During by OMAC, the and auction, PRM the submitted penultimate the final bid was bid. The receiver concluded that the "highest and best bid" was the final bid submitted by PRM, and he designated it as the Winning Bid. ¶14 The receiver described PRM's Winning Bid as follows: $9,000,000 for all owned inventory; $6,500,000 for all owned equipment and real estate; and PRM shall cause Paribas "to agree to fund certain collateral, up loans to or authorize $2,710,000, for the use outstanding of its checks cash due to various farmers and producers and other post-petition accounts payable." The receiver also reported that PRM "informed the Receiver that Buyer will offer employment to substantially all of the current employees of Olsen's." ¶15 The receiver's report advised that PRM's Winning Bid was "in excess of the liquidation value of Olsen's assets" and that he believed "that the proposed sale described above is in the best interests of interest." He Winning described Bid Olsen's reported that above, creditors Paribas and 6 has and "has all parties-in- consented agreed to to the release its No. 2009AP1007 liens . . . on the assets described above upon payment to BNP in cash of the net sale proceeds from all such sales." He requested the court's approval of PRM's Winning Bid. ¶16 At the hearing held the day after the auction, the receiver explained his reasons for concluding that the Winning Bid was the highest and best. $400,000 higher auction. than Further, he the He noted that the Winning Bid was bid submitted explained, he by could OMAC not during accept the OMAC's auction bid because it was contingent upon Paribas's agreement to release OMAC from any liability in connection with its acquisition of the assets: Release of a cause of action in favor of a third party, Paribas, is not something that I had the ability to deliver, is not something that was in the lot offered for sale and, in fact, was in direct violation of the bid procedures. The bid procedures clearly provided that all bids must be unconditional. ¶17 The Winning Bid because, he attorney was not asserted, for in it the Olsen's Mill opined best interest of would be operate the mill as a going concern. difficult that the for PRM's creditors Paribas to Later in the hearing, he asked the court to elicit and accept instead a revised offer from OMAC: I think we've got a real good competing bidder that's a real bidder that can put the whole thing together . . . and indeed is ready, I think, to meet the bid here on the table today except he's got all the pieces together and it won't require a liquidation of all the corn which would severely disrupt the business of the ongoing Olsen's Mill, Inc. or its 7 No. 2009AP1007 successor.4 So for those reasons, Your Honor, believe that [PRM's Winning Bid] should not approved and this Court should order the receiver go back and strong-arm these parties and see something can't be worked out here. ¶18 make we be to if The receiver contended that he had no authority to Paribas, a secured creditor, consent to a sale of its security interest: "In [a] Chapter 128 proceeding, if a secured creditor is to receive less than the full amount due and owing, that secured creditor needs to consent to the sale. always been the rule. That has And the bid procedures and amended bid procedures in this case specifically require the consent of the secured creditors." ¶19 He further explained that Paribas "has consented to the proposed sale to PRM Wisconsin. Paribas as agent has not consented to the bid submitted by Mr. Martini. I can't do anything as a receiver to make them or to compel them to consent to that bid, just like I can't compel them to give a release for other claims that they have." ¶20 Before the court made any decisions, counsel for Olsen's Mill announced that he intended to file a petition for bankruptcy in federal court. After the federal court The court adjourned the hearing. dismissed Olsen's Mill's bankruptcy petition, the hearing before the circuit court was reconvened on April 14, 2009. 4 Martini testified that if the court accepted his bid, he would merge the assets of Olsen's Mill and Olsen Brothers and would operate the business as a combined grain facility. He testified that there would be no liquidation of the stored corn. 8 No. ¶21 From the outset of the April 14 2009AP1007 hearing, it was apparent that the circuit court was interested in ordering the receiver to sell the assets to OMAC. The court said: "As attractive as the PRM bid is, the concern that the Court has is whether or not it will, in fact, result in an ongoing business or will, in fact, simply result in a liquidation." "When I inject the element of equity," the court explained, there might be an obligation to "evaluate on balance which bid may in fact be higher and better, all things considered." ¶22 Throughout the hearing, the parties argued about whether the court had authority to approve OMAC's revised offer in the place of the Winning Bid selected by the receiver and consented to by the secured creditors. Mill argued OMAC's that the circuit revised offer: court "Equity The attorney for Olsen's could be done, approve the creditors' interests, you have to balance this somehow." He "This is a terrible position the to should all urged the court to consider needs and interests you're in, of but the community: there's a big balance here, and there's a lot of other creditors in this case that I think the Court is cognizant, very cognizant of that. probably don't even need to point this out." The I court responded: "I only have to look over your head." ¶23 Paribas's attorney objected to the proposed sale to OMAC: "Just to make the record clear, I understand crystal clear what direction the Court is leaning and which way the Court may order. I just want on the record that Paribas does not consent, 9 No. 2009AP1007 for whatever that means within the scope of the Court order. Just so everybody's clear on that." ¶24 The attorney creditor, also objected. for Baylake Bank, a second secured He argued: "for [the attorneys] to say to you, it's within your power to do equity and to spread these competing offers around as far as possible, it ignores a secured creditor's rights under Chapter 409." He concluded: "in sum, the Court is bound by statutes nonetheless and cannot simply do what is fair and equitable for all parties." ¶25 The receiver asserted that OMAC's revised offer could not be accepted because it would upset the priority order in the statutes and also because Paribas would not consent: The problem at the end of the day is that BNP Paribas as agent has a 58 million dollar claim. If it receives 5 million dollars as a value of this claim, it still has a 53 million dollar unsecured claim in this case. And while other unsecured claims, forward contracts and prepaid expenses, under Mr. Martini's proposal, are being paid one hundred percent, BNP Paribas as agent's unsecured claim of over fifty million dollars, is receiving nothing. And that [] offer, is not acceptable to BNP Paribas. ¶26 Additionally, the receiver expressed concern that the terms of OMAC's revised offer were nebulous because they had emerged piecemeal during the course of the hearing before the court. The court adjourned to allow for further negotiation. ¶27 When the hearing was reconvened later that day, OMAC submitted a three-page following terms: $6.5 handwritten million for bid all that real included estate, the rolling stock, leased and owned equipment; $9 million for all inventory; 10 No. 2009AP1007 and other consideration in the form of a commitment to honor all checks and obligations to certain producers, a commitment to honor all forward contracts of producers, a commitment to honor prepaid inventory of producers, and a commitment to honor all pre- and post-petition trade accounts payable. OMAC specified that it was not obligated to pay the $9 million for inventory upfront, but rather, it would pay as the inventory was sold off or within 180 days of closing. ¶28 In response, the receiver alerted the court additional problems raised by OMAC's revised offer. to First, he explained, "Paribas has not consented to finance the sale of its collateral problem." priority over this period of time, which is a separate Second, he explained that the offer would disrupt the scheme set forth in Wis. Stat. § 128.17 for distribution of assets to various creditors: What OMAC has proposed is that . . . certain general unsecured claims of the buyer's choice be paid in full while others get nothing, and while claims of a higher priority, taxes, wages, administrative expenses, may or may not get paid in full. . . . My concern is if, for example, there are post-petition taxes, payroll taxes I don't know if there are. . . . I don't know if there's wage claims. I don't know if there's vacation claims. I don't know what employment claims there may be. All of which have priority over general unsecured claims. And to me the core of the problem is that picking and choosing certain general unsecured pre-petition claims to pay in full . . . and leaving everybody else at zero, I think is a problem. 11 the No. ¶29 of OMAC's 2009AP1007 As the court and parties waded through the specifics revised offer in detail, Paribas's attorney again objected: [W]e don't think the Court can approve this offer because of our lack of consent, which is required under the statute. . . . And so where I think we end up, Your Honor, is we go through a lot of the details and specifics, but we get to a situation where you're gonna be faced with a much more difficult question on whether you can cram this offer into Chapter 128 without the consent of the lenders. . . . So I wanted to at least let you know that now and not let my silence somehow constitute consent and to raise it with you at this point. ¶30 The circuit court concluded that the negotiations had produced "an enhanced second offer that has met and exceeded the original offer that the Court was being asked to approve." Without specifically addressing any statutory text, the court approved OMAC's revised offer because it "works for the balanced interest of those who are entitled to be protected." "If I can't do what I've been attempting to do or I can't do what I've been asked to do," the court determined, "then the whole purpose of Chapter 128 would seem to be out the window. And I'm not about to buy that." ¶31 The revised offer. court ordered the receiver to accept OMAC's In its written decision, it found as a fact that Paribas had a security interest in certain assets of Olsen's, which included equipment, real estate, inventory, and general intangibles. Further, it found that Paribas did not consent to the its sale of collateral free interest: 12 and clear of its security No. 2009AP1007 [Paribas] has a properly perfected security interest in certain assets of Olsen's (including equipment, real estate, inventory and general intangibles), does not consent to the OMAC Offer described above, or the sale of the Subject Assets in accordance therewith and has not agreed to release its liens and security interests on the assets described above. ¶32 and The Paribas's court "overruled" objections receiver's OMAC's to the revised recommendation offer, and it concluded that "the sale of the Subject Assets by the Receiver to OMAC pursuant to the OMAC Offer will constitute a valid, legal and enforceable transfer to OMAC of all right, title and interest of the Receiver to the Subject Assets, free and clear of all liens, claims and encumbrances." The court determined that the payments received by Paribas for inventory would be "in partial satisfaction of its secured claim." ¶33 The receivership court's would written continue decision after acknowledged the closing, that given the that certain assets of Olsen's Mill had not been included in the sale. It explained: "The Receiver shall continue to administer all assets of the receivership estate other than the Subject Assets, contract including, rights, without cash, the limitation, tax refund accounts owed to receivable, Olsen's, any avoidance actions and all other claims or causes of action of Olsen's or the receivership estate . . . except any preference actions against producers, which will not be pursued by the Receiver." ¶34 From the record and the circuit court's findings of fact, it is clear that the sale included equipment, real estate, and inventory, and that Paribas 13 held a security interest in No. these assets. 2009AP1007 It is unclear, however, whether Paribas held a security interest in any of the other assets that were sold. ¶35 Paribas asked that the judgment be stayed appeal. The circuit court denied the motion. filed petition a for a supervisory writ pending Paribas then and a motion for emergency relief in the court of appeals and also in this court. These requests were denied. ¶36 On appeal, the court unpublished summary disposition. of appeals affirmed in an BNP Paribas v. Olsen's Mill, Inc., No. 2009AP1007, unpublished slip. op. (Wis. Ct. App., June 30, 2010). A central premise of the court of appeals' opinion was that Wis. Stat. ch. 128 permits a circuit court to value a secured creditor's security interest, and that the circuit court had valued Paribas's collateral at $9 million. Id. at 4. Because Paribas had been paid $9 million, the court of appeals concluded that Paribas's arguments were moot. Id. II ¶37 We are required to determine whether the circuit court erred under Wis. Stat. ch. 128 and other applicable law when it ordered the sale of Paribas's collateral without Paribas's consent and approved the distribution of proceeds from the sale. Resolution of these issues We statutes interpret requires independently statutory of the interpretation. interpretations rendered by the circuit court and the court of appeals. Martin v. Am. Fam. Mut. Ins. Co., 2002 WI 40, ¶11, 252 Wis. 2d 103, 643 N.W.2d 452. 14 No. 2009AP1007 III ¶38 there Although are Wis. Stat. ch. relatively interpretation. few 128 appellate was created cases 1937,5 in devoted to its We begin with an overview of the laws governing proceedings under chapter 128. Next, we turn to applying those laws to evaluate whether the circuit court erred when it ordered the sale approved of Paribas's the collateral distribution of the without its proceeds consent from the and sale. Finally, we discuss issues related to remedy. A ¶39 of Chapter 128, which governs assignments for the benefit creditors, bankruptcy. provides a state law alternative to federal It sets forth a statutory scheme under which a debtor's assets may be liquidated and the proceeds distributed to creditors in an orderly and controlled manner. See Charles G. Center, et al, Wisconsin Business Advisor Series: Collections and Bankruptcy provides that § 4.2.16 "the (2006). circuit courts Wisconsin shall Stat. have § 128.01 supervision of proceedings under this chapter and may make all necessary orders and judgments therefor and all assignments for the benefit of creditors shall be subject to this chapter." ¶40 To initiate the assignment, the debtor designates an assignee who files the assignment with the clerk of court. Wis. Stat. assignment, 5 § 128.02. the assignee Upon the court's is "vested with See § 2, ch. 431, Laws of 1937. 15 approval the powers See of of an a No. receiver" and is ordered pursuant to" chapter 128. ¶41 receiver To effectively must determine to "administer the 2009AP1007 debtor's estate Wis. Stat. § 128.05(1). administer the the debtor's debtor's assets and estate, the liabilities. Therefore, the receiver is required to file a correct inventory of any assets and a list of creditors, setting forth the amount due each creditor.6 Wis. Stat. § 128.13. Creditors are given notice of the proceedings, and unsecured creditors are required to timely file their claims against the debtor's estate. Wis. Stat. § 128.14; Wis. Stat. § 128.15(2). ¶42 With permission of the court, the receiver may sell assets and distribute the proceeds of the sale. Often, the proceeds debts will obligations. be insufficient to satisfy all and Accordingly, Wis. Stat. § 128.17(1) mandates the order of distribution of the proceeds.7 6 The receiver's inventory is not included in the record before this court. 7 Wisconsin Stat. § 128.17(1) provides that "[t]he order of distribution out of the debtor's estate shall be as follows": (a) The actual and necessary costs of preserving the estate subsequent to the commencement of the proceedings. (b) Costs of administration including a reasonable attorney's fee for the representation of the debtor. (d) Wages . . . which have been earned within 3 months before the date of the commencement of the proceedings . . . . (e) Taxes, assessments and debts due the United States, this state or any county, district or municipality. 16 No. ¶43 2009AP1007 There are significant differences in the treatment of secured creditors and general unsecured creditors under chapter 128. Unsecured creditors have no property interest in the debtor's assets, and they cannot withhold consent to the sale of the estate's assets. Further, unsecured creditors are entitled to distribution of any proceeds of a sale only after priority claims have been satisfied. See Wis. Stat. § 128.17(1); Collections and Bankruptcy, supra, § 4.2.23. ¶44 We explained in Wisconsin Brick & Block Corporation v. Vogel, 54 Wis. 2d 321, 326, 195 N.W.2d 664 (1972), that "[a] secured creditor under ch. 128 cannot have his security taken away from him without his consent." Without the secured creditor's consent to the sale of its collateral, "the court [does] not have the power in the ch. 128, Stats., proceeding to sell the property free of the [secured creditor's] mortgage[.]" Id. at 329. ¶45 This explanation recognizes the assertion advanced by Paribas at the outset of its oral argument. It asserted: "To decide this case, this court need not depart from the undisputed facts, the statutory commands of ch. 128, and the most basic legal principles of secured transactions. The foremost of those principles is that a court cannot compromise, cannot eliminate, (f) Other debts entitled to priority. (g) Debts due to creditors generally, in proportion to the amount of their claims, as allowed. (h) After payment of the foregoing, the surplus, if any, shall be returned to the debtor. 17 No. 2009AP1007 cannot depreciate a secured interest without the consent of the interest holder." ¶46 An example of this assertion lies in a security interest in inventory governed by the Uniform Commercial Code, Wis. Stat. ch. 409. The general rule under that chapter is that a secured creditor must consent before its collateral may be sold free and clear of liens: "A security interest or agricultural lien continues in collateral notwithstanding sale, lease, license, exchange, or other disposition thereof unless the secured security party interest authorized or the disposition agricultural free lien." of Wis. the Stat. § 409.315(1)(a) (emphasis added); see also Cristina M. Choi & Margaret E.M. Utterback, Wisconsin Secured Transactions Under Revised Article 9 of the Uniform Commercial Code § 8-1 (rev. ed. 2010) (explaining that § 419.315(1)(a) sets forth a "general rule" with many exceptions).8 ¶47 Wisconsin Stat. § 128.18 governs the validity of liens when there has been an assignment for the benefit of creditors. Under some circumstances, a receiver may determine that a lien on the debtor's property is void or may be dissolved, such as when the lien was given in an attempt to circumvent the order of 8 A lien is a "legal right or interest that a creditor has in another's property, lasting [usually] until a debt or duty that it secures is satisfied." Black's Law Dictionary 933 (7th ed. 1999). 18 No. distribution set forth in chapter 128.9 2009AP1007 By contrast, those liens "given or accepted in good faith and for a present consideration which have been properly recorded or filed shall, to the extent of such present consideration provisions of [chapter 128]." only, not be affected by the Wis. Stat. § 128.18(4) (emphasis added). ¶48 Accordingly, when a lien given and accepted in good faith meets the conditions set forth in § 128.18(4), it is "not [] affected commentator by" has the provisions explained, of "there chapter is no 128. question As one that a receiver's ability to sell collateral depends on the secured creditor's consent." Paul A. Lucey, The Liquidating "Chapter 11" in State Courts, Am. Bankr. Inst. J., Feb. 2001, at 12. ¶49 Attorney Lucey compared the great power that bankruptcy trustees may wield over secured creditors with the lesser authority wielded by a receiver appointed under state law: A bankruptcy trustee can use collateral, even cash collateral, over the objection of a secured creditor if that creditor's interests are adequately protected 9 For example, Wis. Stat. § 128.18(3)(b)3 provides that liens created within four months before the filing of an assignment shall be dissolved if the lien "was sought and permitted in fraud of the provisions of this chapter." Wisconsin Stat. § 128.18(5) provides that "[a]ll conveyances, transfers, assignments or encumbrances of a debtor's property" given by the debtor within four months prior to the filing of a petition "with the intent and purpose on the debtor's part to hinder, delay, or defraud any of the debtor's creditors shall be void as against the debtor's creditors except as to purchasers in good faith and for a present fair consideration." 19 No. 2009AP1007 under [provisions of the bankruptcy code]. There is no comparable power under state receivership law. If the secured creditor in a receivership wants to take its ball and go home, the game is over. Similarly, while there may be a division of authority as to whether a bankruptcy court can authorize the sale of assets under [federal bankruptcy law] over the objection of a secured creditor, there is no question that a receiver's ability to sell collateral depends on the secured creditor's consent. Id. (emphasis added). ¶50 accord. Wisconsin statutes, case law, and commentary are in A secured creditor may withhold its consent to the sale of its collateral in a chapter 128 proceeding. If it does, the court cannot order the sale of the collateral free and clear of the secured creditor's lien. ¶51 In other situations, however, a secured creditor "may readily agree to administration and liquidation of collateral in a chapter 128 proceeding because this is often an economical means of realizing on collateral." supra, § 4.2.20. Collections and Bankruptcy, If the secured creditor does consent to the sale free and clear of its security interest, it is entitled to the proceeds of the sale of its collateral in order of priority. ¶52 uncertain When the value of the secured creditor's collateral is or in dispute, Wis. Stat. § 128.25 procedure by which its value may be determined.10 creditor may determine the value through sets forth a The secured collection (if the security is an obligation to pay money) or by creditor's sale 10 Wisconsin Stat. § 128.25 is the Uniform Act Governing Secured Creditor's Dividends in Liquidation Proceedings. 20 No. 2009AP1007 (if the asset is something other than the payment of money). Wis. Stat. § 128.25(5). Alternatively, it may be determined by compromise if a petition is filed and the secured creditor and the liquidator agree liquidator's sale. upon value, by litigation, or by Wis. Stat. § 128.25(6).11 B ¶53 Having set forth the chapter 128 procedures, we turn to applying them to the facts of this case. that Paribas certain had assets of a properly Olsen's perfected Mill, It is undisputed security including estate, inventory, and general intangibles.12 interest equipment, in real Therefore, under 11 Additionally, regardless of whether a secured creditor consents to liquidation of its collateral, the secured creditor may make a claim against the debtor's estate for any deficiency. Wisconsin Stat. § 128.15(2) provides: "Claims of secured creditors may be allowed to enable such creditors to participate in the proceedings but shall be allowed for such sums only as shall be proved to be due, over and above the value of the securities, and dividends shall be paid only upon the excess of the claim over the value of the security at the time of the commencement of the proceedings." Wisconsin Stat. § 128.25(4) provides that the value of the debtor's security is credited against the secured creditor's total claim: "Dividends paid to secured creditors shall be computed only upon the balance due after the value of all security not exempt from the claims of unsecured creditors and not released or surrendered to the liquidator, is determined and credited upon the claim secured by it." 12 Circuit Court's finding of fact #14. In its brief to this court, OMAC acknowledged that "there is no dispute that [Paribas's] liens fall squarely within the criteria established by § 128.18(4); its liens were given to secure indebtedness and then evidenced and perfected by appropriate UCC financing statements." 21 No. 2009AP1007 Wis. Stat. § 128.18(4), Paribas's lien on these assets was "not [] affected by" the provisions of chapter 128. According to Wisconsin Brick & Block, "the court did not have the power in the ch. 128 Paribas's [] proceeding" security interest to sell the without collateral Paribas's free consent. of 54 Wis. 2d at 329. ¶54 consent Although by a OMAC secured initially creditor, acknowledges it contends the need that for Paribas's participation in the chapter 128 proceedings constituted consent under these initiation Paribas facts. and had It argues participation already that by the receivership in provided consent virtue to collateral free and clear of all liens. further consent was required from the of Paribas's proceeding, sale of its It contends that no Paribas. For this proposition, OMAC quotes a portion of this court's decision in Wisconsin Brick & Block. ¶55 In that case, the debtor made a voluntary assignment for the benefit of creditors under chapter 128. 323. The debtor's secured property, creditor, which had appeared not held in a 54 Wis. 2d at mortgage the on the chapter 128 proceedings and did not file any claim based on its mortgage. Id. On review, this court determined that because the secured creditor had not participated in the proceedings, the circuit court had no authority to sell mortgage. 22 the property free of the No. ¶56 2009AP1007 In making this determination, we stated: "As a general rule the court has the power under ch. 128, Stats., to sell the assignor's property free of valid liens and encumbrances if the lienholder participates in the proceeding." Wisconsin Brick & Block, this court Id. at 326. focused on the role In of participation because the secured creditor had not participated in the proceedings. Without participation, the secured creditor could not have consented to the sale. The Wisconsin Brick & Block court held that a secured ¶57 creditor's necessary suggest participation to establish that sufficient, the by in the consent. secured itself, to receivership It should creditor's establish proceeding not be was read participation consent. to was Likewise, it should not be read to suggest that the creditor's participation in the proceedings trumps the secured objection to the sale of its collateral. creditor's express OMAC reads the quoted language from Wisconsin Brick & Block out of context. ¶58 assets Here, under Agreement. Paribas the consented procedures to a outlined sale in the of the Auction secured Terms However, the court accepted an offer that was not submitted during the auction, was not submitted in accordance with the Auction Terms Agreement, and was not selected by the receiver. ¶59 During the hearing, Paribas's attorney raised multiple objections to the proposed sale to OMAC. Early in the hearing, he told the court that Paribas did not consent to the sale of 23 No. 2009AP1007 its collateral: "I just want on the record that Paribas does not consent, for whatever that means within the scope of the Court order. Just so everybody's clear on that." Later in the hearing, Paribas's attorney again objected to the sale of the collateral: "[W]e don't think the Court can approve this offer because of our lack of consent, which is required under the statute. . . . So I wanted to at least let you know that now and not let my silence somehow constitute consent and to raise it with you at this point." ¶60 Given Paribas's repeated assertions that it did not consent to the sale of its collateral, the circuit court made a finding of fact. the OMAC Offer It found that Paribas "[did] not consent to described above, or the sale of the Subject Assets in accordance therewith and has not agreed to release its liens and security interests on the assets described above." Under these circumstances, the circuit court erred by ordering a sale of Paribas's collateral free and clear of Paribas's security interest without its consent. ¶61 OMAC advances an alternative argument should affirm despite Paribas's lack of consent. for why we It asserts that the circuit court valued Paribas's security interest during the proceedings at $9 million, and Paribas received $9 million as a result of the sale. Therefore, OMAC contends, Paribas was not injured as a result of the sale. ¶62 To understand OMAC's argument, we must look to the transcript of the circuit court proceedings. 24 In its revised No. 2009AP1007 offer, OMAC set the purchase price for Olsen's Mill's inventory at $9 million. This was the same purchase price offered by PRM in its Winning Bid. OMAC points to a portion of the transcript where the receiver discussed the effect that OMAC's proposed purchase price would have on the largest creditor, Paribas: Paribas' claim is approximately sixty million dollars. As a result of this proposed sale [to OMAC], that amount will be reduced by approximately nine million dollars. That leaves them with an unsecured deficiency claim of over 51 million dollars plus costs, plus interest. They are the unsecured creditor pool here, Your Honor. ¶63 OMAC contends that the receiver's comments in this portion of the transcript constitute the receiver's valuation of Paribas's collateral. It argues that Paribas's failure to object to this valuation is fatal, and that Paribas was entitled to no more than it received, $9 million. ¶64 There are at least three problems with this argument. First, it is doubtful that the receiver's comments analyzing the effect of OMAC's proposed purchase price on Paribas's claims constitute a "valuation" of the inventory, as that term is used in Wis. Stat. ch. 128. That statute sets forth several distinct procedures by which a secured creditor's security interest may be valued.13 13 OMAC makes no attempt to interpret the statutory The relevant sections of Wis. Stat. § 128.25 provide: (5) Determination of value by secured creditor. (a) By collection. When the asset constituting the security is an obligation for the payment of money, the secured creditor may determine the security's value by collection . . . . 25 No. 2009AP1007 requirements or to identify any statutory subsection into which the receiver's purported valuation fits. ¶65 Indeed, it does not appear to fit squarely within any of the subsections. There was no collection or creditor's sale, as described in sub. (5). Further, there was no petition for a determination of value, as described in sub. (6). ¶66 Second, the $9 million reflects the purchase price for Olsen's Mill's inventory only. Yet, Paribas's security interest extended beyond inventory, encompassing equipment, real estate, general intangibles, and other assets.14 The circuit court's (b) By creditor's sale. When the asset constituting the security is something other than an obligation for the payment of money, the secured creditor may determine its value by creditor's sale. (6) Alternative Determinations of Value. Where valuation under sub. (5) is impractical or would cause undue delay, the court, upon petition by either the secured creditor or the liquidator, may order the value of the security determined by any of the following methods: (a) By compromise, if the secured creditor and the liquidator agree upon a value. . . . (b) By litigation, through liquidation proceeding. . . . proceedings in the (c) By liquidator's sale of the assets which, when completed and approved by the court, shall pass to the purchaser good title, free and clear of all liens of the secured creditor, such liens to be transferred to the proceeds of the sale. . . . 14 During oral argument, Paribas's attorney pointed to the security agreement in which Olsen's Mill granted Paribas a security interest in many assets, including accounts, chattel paper, commercial tort claims, documents, general intangibles, investment property, inventory, and supporting obligations. 26 No. 2009AP1007 order for sale and distribution reflected that the $9 million payment for inventory resulted in only "partial satisfaction" of Paribas's secured claim. ¶67 During oral argument, it became apparent that the full value of Paribas's security interest was unknown. Paribas's attorney asserted that the value of Paribas's security interest must have exceeded $9 million because OMAC was willing to pay over $20 million contended: "[The for the secured business assets] as were a going concern. undoubtedly worth He more than the $9 million that [Paribas] received, and their value was far less than the total amount of the debt." ¶68 15 Because the value of Paribas's security interest is unclear on this record, we are unable to fully address OMAC's alternative argument. We are unable to determine whether its security the interest in assets that were sold was fully satisfied as a result of the sale, as OMAC contends. ¶69 The third problem with OMAC's alternative argument is even more significant. court could be Even if the proceedings in the circuit considered to have produced a "valuation" of Paribas's collateral under Wis. Stat. § 128.25(5) and (6), the circuit court's order violated the statutes in other ways. 15 That Paribas asserts that "there can be no question that the nature and extent of [its] security interest was contractual and, thus, governed by the Loan Documents and Wisconsin's UCC Article 9. In other words, [its] security interests could not be properly determined . . . without regard to the Loan Documents, but rather by resorting exclusively to Chapter 128's provisions pertaining to valuation of a secured creditor's deficiency claim." 27 No. is, even Paribas if Paribas's appears to secured have interest received had nothing 2009AP1007 been on satisfied, the unsecured portion of the debt. ¶70 As discussed above, Wis. Stat. § 128.17(1) mandates the order of distribution of the proceeds of a liquidation sale when those proceeds are insufficient to satisfy the estate's debts and obligations. unsecured priority including taxes. are the Section claims costs of 128.17(1) that must administering enumerates certain satisfied first, be the estate, wages, and Once those claims are satisfied, any remaining proceeds distributed pro rata. The remaining proceeds are distributed to general unsecured creditors "in proportion to the amount of their claims." Wis. Stat. § 128.17(1); see also Linton v. Schmidt, 88 Wis. 2d 183, 198, 277 N.W.2d 136 (1979) ("The object and purpose of assignment law is to afford an equal distribution of the assignor's estate to all [unsecured] creditors in proportion to their claims."). ¶71 Even if the secured portion of Paribas's claim had been properly valued at $9 million, then Paribas would have had an unsecured Under the § 128.17(1), deficiency order of Paribas claim of distribution would have approximately set forth in $49 million. Wis. been entitled to a pro Stat. rata portion of any money that remained in the estate after priority payments were made. ¶72 In this case, however, the revised offer accepted by the circuit court had the effect of circumventing the order of 28 No. distribution mandated by Wis. Stat. § 128.17(1). 2009AP1007 In addition to enumerating a purchase price for inventory and a purchase price for real estate, rolling stock, and equipment, OMAC's revised offer included a commitment to honor various debts Olsen's Mill owed to general unsecured creditors. to pay checks contracts of and obligations producers, prepaid to Specifically, OMAC agreed certain inventory producers, of forward producers, and trade accounts payable. ¶73 According to the estimates of the parties, these combined obligations totaled somewhere around $10 million. The circuit court's order of sale allowed this $10 million to go directly to specified unsecured creditors. The circuit court contravened the statute by approving an offer that circumvented the order of distribution mandated by Wis. Stat. § 128.17(1).16 C ¶74 Having determined that the circuit court erred by ordering the sale of Paribas's collateral without its consent and approving the distribution of the proceeds from the sale, we turn to the issue of remedy. In its initial brief, Paribas asked us to, in effect, unwind the sale. order the circuit court to reinstate 16 It requested us to Paribas's liens on the Paribus makes several additional assertions of error. It contends that its due process rights were violated. Additionally, it asserts that by permitting OMAC to pay the purchase price for inventory over a six-month period, the circuit court effectively ordered Paribas to extend OMAC an interest-free loan. Because we resolve this appeal on other grounds, we do not address these arguments. 29 No. 2009AP1007 collateral that was sold pursuant to the circuit court's order and to order a new auction. In addition, it asked us to order a trial to determine any money damages that Paribas has incurred. ¶75 The sale of Paribas's collateral occurred more than two years ago. At this late date, restoring the parties to the actual position they were in prior to the sale may be neither practical nor possible. ¶76 It appears that Paribas recognizes the difficulty of fashioning attorney a remedy explained: at this point. "Clearly the At bank oral argument, knows alternatives, practical alternatives, are limited. that its its It does not expect to recover 58 million less nine, or 51 million dollars. But the fact that a remedy may require some creative thinking, might require a little bit of unorthodox approach, it should not deter this court from correcting an error of law." ¶77 Paribas has revised its requested remedy. Rather than requesting an order to unwind the sale, it now asks this court to remand to the circuit court and order that court to fashion a remedy: The remedy is a remand, and it would be for the trial court to decide . . . . Granted, this is not a case where this court can say reversed, reversed and remanded with instructions. It is going to take a little bit of work. But we can't start at the end and work to the beginning. We can't just say gee, a remedy might be a little tough here. Let's try a remedy that corrects the error of law and does a better job of restoring the parties to the position they should have been in. In other words, let's not let the perfect be the enemy of the good. And the importance of establishing some clear law in this area just should not be underestimated. 30 No. ¶78 2009AP1007 We agree that under the situation presented here, this court is poorly equipped to fashion an appropriate remedy.17 As discussed of above, we are unable to determine the value Paribas's security interest at the time of the sale. If that determination can be made at this late date, the circuit court is in the best position to collect the necessary evidence and make the necessary findings of fact. ¶79 Further, this court does not have the benefit of a developed factual record of what has transpired since the sale. According to the circuit court's order, the receiver was to continue to manage certain assets of the debtor's estate after the sale. At oral argument, the parties explained that the receivership continues to this day. The record before this 17 As previously mentioned, in its brief, Paribas specifically requested three remedies: (1) that its liens "on all collateral sold and/or transferred" be reinstated; (2) that we "order a new auction of Olsen's Mill's (now OMAC) assets to be conducted as a going-concern business" and "OMAC could then assert a claim against the receivership estate"; and (3) money damages. Paribas no longer appears to request those remedies. Rather, it now argues that this court is poorly equipped to determine what remedies may be appropriate under the circumstances: This business is very important to this part of the state, it is a very large operation, and from the distance of 150 miles or so, I do not think that this court is the right entity to be fashioning specific remedies. But the fact is we do not know the value of what is left, we do not yet know the value of [Paribas's security interest], but we do know there was value there. 31 No. 2009AP1007 court does not reflect what assets remain in the estate or their value. ¶80 Finally, we note that throughout the proceedings in the circuit court, there were references to a New York lawsuit filed by Paribas against the Olsen brothers, who had guaranteed the loan. It is unclear what effect, if any, that lawsuit would have on the appropriate remedy. ¶81 We agree with Paribas that the task of fashioning a remedy is best left for the circuit court. Accordingly, we remand to the circuit court for a determination of what remedy is available under the circumstances. On remand, the circuit court appropriate should take all necessary and actions to determine the existence of a remedy that is fair to all parties under the circumstances. ¶82 of OMAC argues that "because of the inherent complexity insolvency proceedings, the statute, if little else, emphasizes the need for the Circuit Court to have broad powers to handle the intricate issues that arise so that it may orderly administer the assets sequestered before it." circuit court has authority under the We agree that a statutes to withhold approval of a bid that had been selected by the receiver. Wis. Stat. § 128.01. See We also agree that a circuit court should take into account equitable considerations when making an order in a chapter exercising 128 these proceeding. powers, the See circuit 32 id. Nevertheless, in court is to not free No. violate the applicable statutes. 2009AP1007 A party's express statutory rights cannot be ignored or disregarded. ¶83 In sum, we conclude that the circuit court erred by ordering the sale Paribas's security of Paribas's interest collateral without its free and consent. clear of However, because the value of Paribas's security interest in the assets sold is unclear on this record, we are unable to discern if Paribas was harmed as a result of this error. We further determine that the court contravened the statute by approving an offer that circumvented the order of distribution mandated by Wis. Stat. § 128.17(1). Accordingly, we reverse the court of appeals and remand to the circuit court for a determination of what remedy is available under the circumstances. By the Court. The decision of the court of reversed and the cause is remanded. ¶84 DAVID T. PROSSER, J., did not participate. 33 appeals is No. ¶85 2009AP1007.pdr PATIENCE DRAKE ROGGENSACK, J. (concurring). Although I agree with the lead opinion that a reverse and remand is the proper disposition, I do not join the opinion. concurrence to clarify that it is BNP I write in Paribas's (Paribas) secured interest in the assets that the circuit court sold to Olsen's Mill Acquisition Company (OMAC) over Paribas's objection and the circuit court's approval of a sale that failed to pay Paribas anything on its unsecured claim while other unsecured creditors were paid that drive the result that we must reach in our review of the ch. 128 (2007-08)1 proceeding now before us. ¶86 OMAC of Paribas repeatedly refused to consent to the sale to assets in which Paribas held perfected security interests, alleging that it was not fully compensated for the value of its security in those assets. In addition, Paribas received nothing on its unsecured claims, while other unsecured claimants were paid. court violated the Accordingly, I conclude that the circuit provisions of ch. 128 and exceeded its authority in regard to the sale to OMAC in two major respects: (1) it approved the sale of assets in which Paribas held a security interest free and clear of all liens, without either Paribas's consent or the completion of a statutory determination of the value of Paribas's security in the assets sold and payment for the value of its security; and (2) it approved the 1 All further references to the Wisconsin Statutes are to the 2007-08 version unless otherwise indicated. 1 No. 2009AP1007.pdr sale to OMAC that paid Paribas nothing on its unsecured claims while other unsecured claimants were paid. ¶87 With these conclusions established, I would remand to the circuit court to determine an appropriate remedy consistent with ch. 128. Accordingly, I respectfully concur. I. ¶88 grain BACKGROUND Paribas is a secured lender of Olsen's Mill, a major elevator operation, with sites throughout Wisconsin. Paribas loaned Olsen's Mill approximately $58 million for which Paribas took a second mortgage on certain real estate and secured interests in the following collateral: all Accounts; all Bank Accounts; all Chattel Paper; all Commercial Tort claims; all Deposit Accounts; all Documents; all General Intangibles; all Instruments, including all Commodity Accounts and Commodity Contracts; all Inventory; all Investment Property; all Payment Intangibles; all Supporting Obligations; all books and records pertaining to the Collateral, including, any computer software, hardware and access codes[]; and to the extent not otherwise included, all Proceeds and products of any and all of the foregoing. Security Agreement, at 2. Paribas timely perfected its security interest in its collateral.2 ¶89 Olsen's Mill defaulted on its obligations to Paribas, and Paribas then filed the ch. 128 proceeding that is now before us. Olsen's Mill agreed to Paribas's request for the appointment of a receiver to take control of and to preserve 2 There was no question raised in this proceeding that Paribus did not timely perfect its security interests in its collateral. 2 No. Olsen's Mill's ch. 128 estate. 2009AP1007.pdr Michael S. Polsky was appointed receiver. ¶90 The parties agreed upon the order that appointed Polsky, which order provided that the receiver was empowered: to sell any and all of Olsen's property free and clear of all liens, with all liens attaching to the proceeds of sale, through public or private proceedings, in a commercially reasonable manner, subject to the prior consent of the creditors holding perfected liens on the assets being sold, and the approval of the Court. (emphasis added). ¶91 estate, As part of Polsky's duties to Olsen's Mill's ch. 128 he sent out notice of certain of Olsen's Mill's assets.3 the agreed upon order quoted an April 7, 2009 auction of The notice was in accord with in ¶6, above. The Auction Procedures noticed certain restrictions on the sale, including that Olsen's Mill's assets were subject to perfected security interests, including those of Paribas, and that the assets' sales were subject to the consent of the secured parties, for the assets in which a party held security. ¶92 The description of Auction Lots was very broad, including: All owned real estate; All owned equipment; All owned inventory (including prepaid inventory); All owned grain inventory; All owned non-grain inventory (including prepaid inventory); Belmont owned equipment; Boscobel owned equipment; Milwaukee owned equipment; Ripon/Metomen owned equipment; Viroqua owned equipment; Algoma owned real estate and 3 Polsky did not seek to auction all of Olsen's Mill's assets. Apparently, some intangibles such as accounts receivable, life insurance policies, licensed software, etc. remained in the possession of Polsky and not subject to sale. 3 No. 2009AP1007.pdr equipment (Oshkosh operation); Auroraville owned real estate and equipment; Berlin owned real estate and equipment; Newton/Westfield owned real estate and equipment; Omro owned real estate (4 lots); Stockton/Stevens Point owned real estate and equipment; Warren owned [] and equipment; All other owned equipment (not included in lots 7-19); Real estate leases with Olsen Bros. Enterprises; All rolling stock and equipment owned by Olsen Leasing, LLC; Intangible assets; Any combination of lots 2 through 22. Paribas held perfected security interests in many of assets and second mortgages on certain real estate. these Baylake Bank and Capital Crossing held the first mortgages and primary security on the real estate and certain equipment. ¶93 The highest bid, $18,210,000, was submitted by Wisconsin, LLC (PRM), an entity affiliated with Paribas. PRM The second highest bid was submitted by OMAC, an entity affiliated with the then current owners of Olsen's Mill. In the PRM bid, $9,000,000 was allocated to inventory, $6,500,000 was allocated to all owned equipment and real estate and $2,710,000 was to cover outstanding checks due to various farmers and producers. Paribas was to receive the $9,000,000 for inventory, "in partial satisfaction of its secured claim." Crossing received "full Baylake Bank and Capital satisfaction of [their] secured claim[s]." ¶94 At the hearing to confirm the sale, Polsky informed the court that the conditions of the Auction Procedures had been followed; that the purchase price was in excess of the liquidation value of the assets; that the secured creditors had consented; and that PRM was ready to proceed in closing on the 4 No. sale. 2009AP1007.pdr Polsky asserted that the sale to PRM was in the best interests of creditors and all other interested parties. ¶95 Olsen's Mill objected to the sale, and requested that OMAC be permitted to make an alternative offer outside of the Auction Procedures. Ultimately, the circuit court did as Olsen's Mill requested; it permitted a new offer and accepted that offer. ¶96 Under OMAC's offer, although Paribas was paid $9 million for its interest in inventory, the payment was not due until six months after the sale. Paribas was paid nothing on its unsecured claim that could approach $50 million, while the unsecured claims of grain producers for future purchases received $5 million. ¶97 Paribas refused to consent to the sale, and Polsky objected as well. proposal violated choice of Polsky ch. unsecured 128 informed because claims it payment unsecured claimants would get nothing. that claims of a higher priority, the court would in give full, that OMAC's the buyer's while other Polsky also pointed out such as taxes, wages and administrative expenses would not be fully funded under OMAC's proposal. He also brought to the court's attention that Paribas had not consented to the sale of assets in which it held a perfected security interest and it had not consented to financing OMAC's purchase of the inventory during the six-month period after closing on the sale. ¶98 The circuit court heard the objections of Paribas and Polsky and noted that Paribas had properly perfected security 5 No. 2009AP1007.pdr interests in certain assets and that it did not consent to the sale to OMAC and did not consent to the release of its liens and security interests on the items sold. However, notwithstanding the objections made and noted by the circuit court, the circuit court transferred all of the sale assets to OMAC, free and clear of all liens. ¶99 Paribas appealed, and the court of appeals affirmed. We granted review and now reverse and remand. II. A. DISCUSSION Standard of Review ¶100 This case requires us to interpret and apply ch. 128 in regard to the sale of Olsen's Mill's assets to OMAC, under undisputed facts. The interpretation and application of statutes in light of undisputed facts present questions of law that we decide independently, but benefitting discussions in previous court decisions. from the Admanco, Inc. v. 700 Stanton Drive, LLC, 2010 WI 76, ¶15, 326 Wis. 2d 586, 786 N.W.2d 759. B. Chapter 128 Principles ¶101 Under ch. 128, an insolvent debtor makes a voluntary assignment for the Stat. § 128.01. benefit of the debtor's creditors. Wis. A court then may sequestrate the property of the debtor and appoint a receiver to administer that property. Wis. Stat. § 128.08; Admanco, 326 Wis. 2d 586, ¶32. ¶102 During proceedings debtor's the address estate, course of objections Wis. Stat. administration, made to § 128.15, 6 claims and ch. against provide for 128 the the No. 2009AP1007.pdr orderly distribution of an insolvent debtor's property. Wis. Stat. § 128.17. ¶103 A creditor with a perfected security interest in the debtor's property is not required to participate in a ch. 128 proceeding. Wis. Brick & Block Corp. v. Vogel, 54 Wis. 2d 321, 325-26, 195 N.W.2d 664 (1972).4 The value of a secured party's perfected security in each asset of the debtor's ch. 128 estate is protected, and it is only the excess that is above that value that is consent. subject to administration, absent a secured party's See Kneeland v. Am. Loan & Trust Co., 136 U.S. 89, 97 (1890) (explaining vested contract rights in a receivership); see also Wis. Stat. § 128.18(4). ¶104 As we have explained, "[a] secured creditor under ch. 128 cannot have his security taken away from him without his consent," and a secured creditor is not required to participate in a ch. 128 proceeding. Wis. Brick, 54 Wis. 2d at 325-26. However, if a secured creditor chooses to participate in a ch. 128 proceeding, his claim against the debtor's estate is limited to the unsecured portion of what the debtor owes because the portion of the debt that is secured cannot be defeated by the ch. 128 administration. at 97.5 Id. at 326; see also Kneeland, 136 U.S. In addition, a secured party who chooses to participate 4 The secured creditor did not participate in the receivership proceeding in Wisconsin Brick & Block Corp. v. Vogel, 54 Wis. 2d 321, 195 N.W.2d 664 (1972). 5 Stated otherwise, a creditor who has full or excessive security for an outstanding debt will not choose to participate in a ch. 128 proceeding because he will be making no claim against the general fund of the receivership, which general fund pays unsecured claims. 7 No. in a ch. 128 proceeding must give notice of 2009AP1007.pdr his security interest and object to any sale that attempts to diminish the value of his security because the court's decision in regard to distribution of the debtor's estate cannot be challenged in a collateral proceeding asserting the secured interest. Littlejohn v. Turner, 73 Wis. 113, 123, 40 N.W. 621 (1888).6 ¶105 Although a ch. 128 insolvency proceeding is sometimes referred to proceeding as a differs bankruptcy,"7 "state from significant respects. a federal a Tarnowski, Therefore, when creditors, the 191 128 bankruptcy insolvency proceeding in For example, a debtor's obligations are not discharged in a ch. 128 proceedings.8 of ch. Wis. there debtor's 279, are 286, Voluntary Assignment 210 insufficient obligation to N.W. assets the 836 to creditors (1926). pay all remains after the conclusion of a ch. 128 proceeding. 6 The present ch. 128 is somewhat different from the statutes in place when Littlejohn v. Turner, 73 Wis. 113, 40 N.W. 621 (1888), was decided. However, the concept that a secured creditor who chooses to participate in a ch. 128 proceeding is to give notice of its perfected security interest in property of the estate remains valid. See Premke v. Pan Am. Motel, Inc., 35 Wis. 2d 258, 267, 151 N.W.2d 122 (1967); Wis. Stat. § 128.25. 7 See Jeffrey L. Murrell, Chapter 128: Wisconsin's Bankruptcy Alternative, Wisconsin Lawyer, May 2008, at 8. 8 The validity of ch. 128 proceedings ordering a receiver to take control of and administer property of a debtor has been challenged by a claim that the federal government has preempted the field with the federal Bankruptcy Act. Gelatt v. DeDakis, 77 Wis. 2d 578, 580, 254 N.W.2d 171 (1977). That challenge was set aside in part by suspending a past provision of ch. 128 that discharged the debt of the debtor in a ch. 128 proceeding. Id. at 585 (citing Voluntary Assignment of Tarnowski, 191 Wis. 279, 210 N.W. 836 (1926)). 8 No. ¶106 However, even though a secured 2009AP1007.pdr creditor with a perfected lien cannot have his security taken from him without his consent, Wis. Stat. § 128.18(4), when a secured creditor chooses to participate in a ch. 128 proceeding, ch. 128 provides a procedure somewhat similar to cram down9 under the federal Bankruptcy Act.10 In this regard, a ch. 128 proceeding may be held to determine the value of a participating secured party's 9 Cram down refers to the power of a federal bankruptcy court under 11 U.S.C. § 1129(b)(1) to compromise the security of a secured creditor when the court determines that the holders of secured interests receive the "indubitable equivalent of such claims." 11 U.S.C. § 1129(b)(2)(A)(iii); Dish Network Corp. v. DBSD N. Am., Inc. (In re DBSD), 634 F.3d 79, 87 (2d Cir. 2011). 10 Wisconsin Stat. § 128.25 is a uniform law: The Uniform Act Governing Secured Creditors' Dividends in Liquidation Proceedings. Wis. Stat. § 128.25(10). The history of this uniform act relates the act's intended parallels with the federal Bankruptcy Act, The purpose of taking security is primarily for protection in the event of insolvency. The determination of the adequacy of security is, therefore, vitally affected by these rules. It likewise affects the evaluation of all other claims, present or prospective, that may depend for payment upon the general assets of the debtor. Uniformity is accordingly desirable for the benefit of interstate business generally. Legislation on this subject in all English speaking countries has generally followed the principle of the bankruptcy rule. This principle has therefore been adopted in this act as being the only one likely to be generally accepted by the Legislatures of the several states. Unif. Act Governing Secured Creditors' Dividends in Liquidation Proceedings, Commissioners' Prefatory Note, 9C U.L.A. 77, 78 (1941). 9 No. 2009AP1007.pdr security in each asset in which such an interest is held and for which the secured creditor seeks payment out of the general fund for that part of his claim that is unsecured. Wis. Stat. § 128.25(5) and (6). ¶107 When an asset in which a perfected security interest is held is for the payment of money, a secured party who chooses to participate in the ch. 128 proceeding can determine the value of his security by executing Wis. Stat. § 128.25(5). against the obligation to pay. All or some portion of his debt may be satisfied by execution. ¶108 Or in the alternative, a secured party or a receiver may petition the court to determine the value of a secured party's interest in each asset in which a secured party who chooses to participate in the ch. 128 proceeding has a perfected security interest. Wis. Stat. § 128.25(6). Valuation of secured interests may be obtained by compromise, § 128.25(6)(a); by litigation, § 128.25(6)(c). (6) are secured subject creditor § 128.25(6)(b); or by a receiver's sale, All of the actions taken under § 128.25(5) and to who court approval. chooses to Therefore, participate in although a ch. a 128 proceeding cannot be forced to accept a sale of estate property in which he has a perfected lien if the sale price will not fully satisfy the value of his security interest in the property sold, how to ascertain the value of that security interest when 10 No. 2009AP1007.pdr the secured party claims under the general fund is provided by statute.11 See Wis. Stat. § 128.25. C. Paribas's Secured Interest ¶109 Olsen's Mill owed a debt of approximately $58 million to Paribas. Paribas chose proceeding now before us. to participate in the ch. 128 It had a perfected security interest in many of Olsen's Mill's assets.12 However, from the record before us we cannot determine the value of Paribas's security interest in the assets that were sold or in the assets that remain under the administration of the receiver because no Wis. Stat. § 128.25(6) proceedings were held in circuit court.13 11 The lead opinion quotes heavily from Paul A. Lucey's two page article, The Liquidating "Chapter 11" in State Court, 20 Am. Bankr. Inst. J. 12 (Feb. 2001), to make broad sweeping statements that could be interpreted as contrary to Wis. Stat. § 128.25. Lead op., ¶¶48-49. I do not find Paul Lucey's article persuasive. He cites no authority and provides not one footnote to support his assertions. This writer could find only one case that cites to the Uniform Act Governing Secured Creditors' Dividends in Liquidation Proceedings, which is the name the Wisconsin legislature adopted from the National Uniform Law Commission and gave to Wis. Stat. § 128.25. Hamberg v. Guaranteed Mortgage Co. of New York, 38 N.Y.S.2d 165 (S. Ct. N.Y. 1942), mentions the Act, but only to explain that it does not apply to the problem under review by the court. Id. at 174-75. 12 See ¶4 above. 13 Furthermore, neither the receiver's inventory (Wis. Stat. § 128.15(1)(a)) nor the debtor's inventory (Wis. Stat. § 128.13) is in the record before us. Therefore, we have not been provided a framework from which to determine the total assets of Olsen's Mill before the sale, indicating the security interests levied against each asset. Such a framework would have been helpful to us in instructing the circuit court on remand. 11 No. 2009AP1007.pdr ¶110 Paribas and the receiver petitioned the circuit court to accept the sale to PRM, which action may fall within Wis. Stat. § 128.25(6)(a) as a compromise to determine the value of Paribas's security interest in some of the assets. circuit court refused their compromise. However, the Because the court then summarily accepted OMAC's offer to purchase, no litigation was conducted to determine the value of Paribas's security interest in the assets that were sold to OMAC. ¶111 Accordingly, the record before us does not answer the questions of how much of the $58 million owed to Paribas was secured by those assets that were sold and how large Paribas's unsecured claim against the general fund was. Without Paribas's consent to the sale, or a Wis. Stat. § 128.25(6) determination of the value of Paribas's security in the assets sold and that payment for the value of its security was accorded to Paribas, the circuit court contravened the provisions of ch. 128 when it approved the sale to OMAC free and clear of all liens. ¶112 On remand, the circuit court should determine the value of Paribas's security in the assets sold to OMAC, at the time of the sale. The circuit court then can determine whether the value of Paribas's security was taken from it without its consent or payment for the value of its security due to the sale, contrary to Wisconsin Brick and Wis. Stat. § 128.18(4). The circuit court then also will be able to determine the value of Paribas's unsecured claim against the general fund of the receivership. 12 No. D. 2009AP1007.pdr Paribas's Unsecured Claim ¶113 The sale of Olsen's Mill's assets to OMAC provided Paribas with only $9 million against a debt of approximately $58 million. In addition, the $9 million that it received for inventory was not due to be paid until six months after the sale.14 Although it is not possible on the record before us to determine the amount of Paribas's unsecured claim, it appears to be significant. ¶114 Distributions of property from the debtor's estate are controlled by Wis. Stat. § 128.17, which separates debts into classes with varying degrees of priority. Section 128.17 provides in relevant part: Order of distribution. (1) The order of distribution out of the debtor's estate shall be as follows: a. The actual and necessary costs of preserving the estate subsequent to the commencement of the proceedings. b. Costs of reasonable attorney's the debtor. c. administration including fee for the representation a of [Omitted from the statute] 14 I can see no lawful basis for requiring Paribas to finance OMAC's purchase for six months. In so doing, the circuit court approved a sale that actually paid Paribas less than $9 million for its secured interest in inventory. While it is possible under some circumstances to charge the proceeds from the sale of an asset with the expenses of a sale that are attributable to the asset sold, see Thomsen v. Cullen, 196 Wis. 581, 588, 219 N.W. 439 (1928), that is not what occurred here. There is no basis in the record before us for this charge against the payment to Paribas for its perfected security in the inventory. 13 No. 2009AP1007.pdr d. Wages, including pension, welfare and vacation benefits, due to workmen, clerks, traveling or city salespersons or servants, which have been earned within 3 months before the date of the commencement of the proceedings, not to exceed $600 to each claimant. e. Taxes, assessments and debts due the United States, this state or any county, district or municipality. f. Other debts entitled to priority. g. Debts due to creditors generally, in proportion to the amount of their claims, as allowed. h. After payment of the foregoing, the surplus, if any, shall be returned to the debtor. ¶115 Paragraph unsecured creditors. (1)(g) addresses the distribution to It requires that the payment of unsecured creditors must be a proportionate payment. Compliance with the statute requires an aggregation of the amount of all unsecured claims that are allowed and then payment of each claim in an amount proportional to the total amount of all unsecured outstanding claims from whatever assets are available to satisfy these claims. ¶116 Because the record before us does not permit us to know the priority in which Paribas's security attached to assets that were sold, we cannot determine the amount of Paribas's unsecured claim in the assets that were sold to OMAC. However, with a payment of $9 million, which was not due for six months after closing on the sale, against a debt of $58 million and Paribas having only a second mortgage on the real estate sold, some significant portion of Olsen's Mill's debt to Paribas must have been unsecured. 14 No. 2009AP1007.pdr ¶117 The purpose of a ch. 128 proceeding is to provide an orderly distribution of the insolvent debtor's property, which is not encumbered by liens, to all unsecured creditors. As we explained in Linton v. Schmidt, 88 Wis. 2d 183, 277 N.W.2d 136 (1979), "The object and purpose of assignment law is to afford an equal distribution of the assignor's estate to all creditors in proportion to their claims." Linton, 88 Wis. 2d at 198. ¶118 The circuit court did not even consider by what amount the $58 million that Olsen's Mill owed to Paribas was unsecured. The circuit court was not free to order a sale that did not treat all creditors equally in proportion to their unsecured claims. Id. Accordingly, in regard to Paribas's interests, the sale to OMAC contravened Wis. Stat. § 128.17(1)(g). III. ¶119 I conclude that CONCLUSION the circuit court violated the provisions of ch. 128 and exceeded its authority in regard to the sale to OMAC in two major respects: (1) it approved the sale of assets in which Paribas held a security interest free and clear of all liens, without either Paribas's consent or the completion of a statutory determination of the value of Paribas's security in the assets sold and payment for the value of its security; and (2) it approved the sale to OMAC that paid Paribas nothing on its unsecured claims while other unsecured claimants were paid. ¶120 With these conclusions established, I would remand to the circuit court to determine an appropriate remedy consistent with ch. 128. Accordingly, I respectfully concur. 15 No. ¶121 I KINGSLAND am authorized ZIEGLER and to MICHAEL concurrence. 16 2009AP1007.pdr state that Justices J. GABLEMAN join ANNETTE in this No. 1 2009AP1007.pdr
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