Question

use irac method to solve this please

ACME Corporation makes shoes. On January 15, 2010, ACME borrows $2,000,000 from First Bank, securing the loan by signing a security agreement giving First Banka security interest in all of its assets, presently owned and future acquired. On January 18, 2010, First Bank files a financing statement listing all equipment, intellectual property and inventory as collateral On July 10, 2010, ACME borrows $200,000 from LeatherCo, its supplier of leather, securing the loan by signing a security agreement giving LeatherCo a security interest in its equipment and inventory. On July 19, 2010, LeatherCo files a financing statement listing the equipment and inventory as collateral. Both the above loans are term loans, with interest only being paid monthly, and the full principal to be paid in January 2015. On January 25, 2013, ACME buys a new piece of equipment from EquipCo. The purchase price is $500,000. ACME pays $100,000 on delivery, and arranges to pay $25,000 per month for 8 months, securing the payment by signing a security agreement giving EquipCo a security interest in the new piece of equipment. On January 30, 2013, EquipCo files a financing statement listing the new piece of equipment as collateral securing the balance of the payment it is owed. Later in 2013, ACME suffers severe financial setbacks. On August 26, 2013, ACME files a voluntary petition in bankruptey. Which creditors have priority over the different items of collateral?

Answer 1

At the time of liquidation priority should be given to secured creditors. Creditors may be secured to an asset partially or fully. After paying off secured creditors assets can be used to pay off unsecured creditors and other liabilities.

-Firstly all assets are secured against the loan of First Bank

-Inventory and equipments are secured against the loan from LeatherCo

-The new equipment is secured against the amount due to EquipCo

Primarily First Bank have priority over all assets as it have security interest in all assets. First Bank can claim an amount upto 20,00,000 plus interest amount.

Inventory and equipment are specifically secured to the loan from LeatherCo for an amount of 2,00,000. The balance in realisation of inventory and equipment after paying off the primary creditor First Bank can be claimed by LeatherCo.

After paying off First Bank and LeatherCo the balance amount in realisation of equipment can be paid to EquipCo.