You're viewing Docket Item 1706 from the case The 1031 Tax Group, LLC. View the full docket and case details.

Download this document:




The 1031 Tax Group, LLC, et al.,

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------------X
:
In re:
:
:
:
:
:
---------------------------------------------------------------X
:
In re:
:
:
:
:
:
---------------------------------------------------------------X

IPofA Shreveport Industrial Park, LLC,

Debtors.1

Debtor.

Chapter 11
Case No. 07-B-11448(MG)
Jointly Administered

Chapter 11
Case No. 07-13624(MG)

SECOND AMENDED DISCLOSURE STATEMENT PURSUANT TO SECTION 1125

OF THE BANKRUPTCY CODE WITH RESPECT TO

THE SECOND AMENDED JOINT PLAN OF REORGANIZATION OF GERARD A.
McHALE, JR., AS CHAPTER 11 TRUSTEE FOR EACH OF THE 1031 DEBTORS,

AND IPofA SHREVEPORT INDUSTRIAL PARK, LLC

DATED AS OF AUGUST 11, 2009

Jonathan L. Flaxer, Esq.
Dallas L. Albaugh, Esq.
GOLENBOCK EISEMAN ASSOR BELL & PESKOE LLP
437 Madison Avenue
New York, New York 10022
(212) 907-7300

Counsel to Gerard A. McHale, Jr., Chapter 11 Trustee
of The 1031 Tax Group, LLC, et al., and IPofA
Shreveport Industrial Park, LLC

1The 1031 Debtors are: The 1031 Tax Group, LLC; 1031 Advance 132 LLC; 1031 Advance, Inc.; 1031 TG Oak
Harbor LLC; Atlantic Exchange Company, Inc.; Atlantic Exchange Company LLC; Investment Exchange Group,
LLC; National Exchange Accommodators, LLC; National Exchange Services QI, Ltd.; NRC 1031, LLC; Real
Estate Exchange Services, Inc.; Rutherford Investment LLC; Security 1031 Services, LLC; Shamrock Holdings
Group, LLC; and AEC Exchange Company LLC (collectively, the “1031 Debtors”).

468467.1

TABLE OF CONTENTS

I. DISCLAIMER.........................................................................................................................2

II. INTRODUCTION TO THE DISCLOSURE STATEMENT...................................................3

III. SUMMARY OF THE PLAN.................................................................................................5

A. Classification and Treatment of Claims Under the Plan..............................................6

IV. VOTING PROCEDURES...................................................................................................11

A. Parties Entitled to Vote. ...........................................................................................11

B. Vote Required for Plan Acceptance..........................................................................12

V. CONFIRMATION OF THE PLAN......................................................................................12

A. Confirmation Hearing. .............................................................................................12

B. Requirements for Confirmation of the Plan. .............................................................13

VI. GENERAL BACKGROUND CONCERNING THE DEBTORS AND EVENTS

PRECEDING THE CHAPTER 11 FILING...................................................................13

A. Okun’s Acquisition of the 1031 Debtors and the 1031 Debtors’ Pre-petition

Operations ...............................................................................................................13

B. Okun’s Indictment and Conviction...........................................................................16

VII. EVENTS IN THE 1031 DEBTORS’ CHAPTER 11 CASES .............................................17

A. Bankruptcy Proceedings Prior to the Appointment of the Chapter 11 Trustee...........17
1. Summary ...........................................................................................................17
2. Certain First Day Orders ....................................................................................18
3. Retention of 1031 Debtors’ Professionals and Post-petition Management

Prior to the Appointment of the Chapter 11 Trustee............................................18
4. The Committee ..................................................................................................19
5. Claims Bar Date Applicable to the 1031 Debtors................................................19
6. Initial Motions for Appointment of Chapter 11 Trustee or for Conversion

to Chapter 7 .......................................................................................................19

7. The 1031 Debtors’ and the Committee’s Pursuit of a Plan of

Reorganization Funded by Okun or JPS .............................................................21
8. Colorado Capital Bank Litigation and Related Settlements.................................22
9. Appointment of the Chapter 11 Trustee and the Asset Transfer Agreement ........26

468467.1

i

B. Bankruptcy Proceedings After the Appointment of the Chapter 11 Trustee ..............27
1. The Transfer Agreement and the Okun Entities..................................................27

VIII. PLAN FUNDING PARTY SETTLEMENT AGREEMENTS/CLASS ACTION

AGREEMENT ..............................................................................................................35

A. Overview of Plan Funding Party Settlement Agreements .........................................36

B. Class Action Agreement ..........................................................................................37

C. Plan Funding Party Settlement Agreements..............................................................39
1. Settlements with E&O Carriers and Former Owners...........................................40
2. 1031 Debtors’ Crime Coverage and Settlements.................................................44
3. Settlement with KPKB.......................................................................................45
4. Settlement with Michael Rosen..........................................................................46
5. Settlement with Wachovia..................................................................................46

D. Other Pending and Potential Litigation Claims and Settlements ...............................47
1. JPS.....................................................................................................................47
2. Boulder Capital..................................................................................................48
3. Hialeah ..............................................................................................................48
4. Citibank .............................................................................................................48
5. Other Claims and Avoidance Actions.................................................................49
6. Professional Fees Incurred Prior to the Appointment of the Chapter 11

Trustee...............................................................................................................49

IX. SUMMARY AND DESCRIPTION OF THE PLAN ...........................................................50

A. Classification of Claims and Interests; General Provisions .......................................50
1. General Rules of Classification ..........................................................................50
2. Holder of Claims Entitled to Vote ......................................................................50
3. Acceptances by Impaired Classes.......................................................................50
4. Non-Consensual Confirmation ...........................................................................50
5. Administrative Claims, Priority Tax Claims, and Fee Claims .............................51

B. Treatment of Unclassified Claims ............................................................................51
1. Administrative Claims. ......................................................................................51
2. Priority Tax Claims............................................................................................51
3. Fee Claims. ........................................................................................................51
4. Subordinated Fee Claims....................................................................................52

C. Designation of Classes of Claims and Equity Interests .............................................52

D. Treatment of Classified Claims................................................................................52
1. Class 1: Secured Claims.....................................................................................52
2. Class 2: Priority Non-Tax Claims.......................................................................53

468467.1

ii

3. Class 3: General Unsecured Claims....................................................................53
4. Class 4: Interests. ..............................................................................................54

E. Conditions to Confirmation and Effective Date........................................................54
1. Conditions to Confirmation................................................................................54
2. Conditions to Effective Date ..............................................................................55
3. Waiver of Conditions .........................................................................................55

F. Means for Implementation .......................................................................................56
1. Substantive Consolidation..................................................................................56
2. The Liquidation Trust. .......................................................................................56
3. Liquidation Trustee............................................................................................56
4. Transfer of Property to Liquidation Trust. ..........................................................57
5. Powers of the Liquidation Trustee......................................................................58
6. Withholding and Reporting Requirements..........................................................58
7. Resignation, Death, or Removal of Liquidation Trustee. ....................................58
8. Resignation, Death, or Removal of Manager ......................................................59
9. Ratification ........................................................................................................59
10. Termination of Liquidation Trust. ......................................................................59
11. Liquidation Trust Oversight Board.....................................................................59

G. Purposes of Reorganized IPofA Shreveport; Powers of the Manager........................60

H. Liability, Indemnification. .......................................................................................61

I. Compensation and Expenses of the Liquidation Trustee...........................................63

J. Provisions Governing Distributions .........................................................................63
1. Distributions of Available Cash; Liquidation Trust Accounts .............................63
2. Provisions Concerning Disputed Claims Reserves..............................................63
3. Transfers of Claims and Liquidation Trust Interests ...........................................65

K. Disputed, Contingent and Unliquidated Claims and Interests ...................................65
1. Objections to Claims and Interests. ....................................................................65
2. Estimation of Claims..........................................................................................66
3. Amendments to Claims ......................................................................................66
4. Authority To Settle Disputed Claims..................................................................66
5. No Recourse ......................................................................................................66

L. Executory Contracts and Leases...............................................................................67
1. Assumption of Insurance Policies; Assignment of Rights ...................................67
2. Rejection of Contracts and Leases......................................................................67
3. Rejection of Indemnification Obligations. ..........................................................67
4. Disallowance of Contribution Claims.................................................................68
5. Bar Date For Rejection Damages .......................................................................68

468467.1

iii

M. Effects of Confirmation ...........................................................................................68
1. Retention of Estate Causes of Action/Reservation of Rights...............................68
2. Compromise of Controversies ............................................................................68
3. Preservation of Insurance ...................................................................................68
4. Term of Injunctions or Stays ..............................................................................68
5. Releases.............................................................................................................69
6. Injunction...........................................................................................................69
7. Exculpation........................................................................................................70
8. Reliance on Counsel...........................................................................................70

N. Retention of Jurisdiction ..........................................................................................70
1. Retention of Exclusive Jurisdiction by the Bankruptcy Court .............................70
2. Retention of Non-Exclusive Jurisdiction by the Bankruptcy Court .....................72

O. Miscellaneous Provisions.........................................................................................72
1. Amendments......................................................................................................72
2. Plan Supplements...............................................................................................73
3. Successors and Assigns......................................................................................73
4. Governing Law ..................................................................................................73
5. Effectuating Documents and Further Transactions .............................................73
6. Extinguishment of Liens ....................................................................................73
7. Confirmation Order and Plan Control.................................................................73
8. Payment of Statutory Fees..................................................................................73
9. Withdrawal of Plan ............................................................................................73
10. Notices...............................................................................................................74
11. Cancellation of Documents ................................................................................74
12. Termination of Official Creditors’ Committee and Chapter 11 Trustee...............74
13. Post-Confirmation Reporting. ............................................................................74

X. CERTAIN RISK FACTORS ................................................................................................75

A. Risk of Decreased Distributions to Holders of Allowed Class 3 Claims. ..................75
1. Higher Actual Amounts of Other Kinds of Allowed Claims. ..............................75
2. Material Disputed Claims...................................................................................75
3. Uncertainty of Potential Recoveries by Liquidation Trust...................................75

B. Uncertainty of Liquidation Analysis.........................................................................76

C. Certain Risks of Non-Confirmation..........................................................................76

D. Potential Liabilities Could Arise from Ownership of the Mineral Servitude. ............77

XI. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.......................78

A. Consequences to Holders of Allowed Class 3 Claims...............................................79
1. Treatment of Transfers to the Liquidation Trust .................................................79

468467.1

iv

2. Gain or Loss – Generally....................................................................................79
3. Distributions in Discharge of Accrued but Unpaid Interest.................................80
4. Tax Treatment of the Liquidation Trust and Holders of Beneficial Interests .......81

B. Other Creditors or Interest Holders ..........................................................................83

C. Information Reporting and Withholding...................................................................83

XII. LIQUIDATION ANALYSIS AND BEST INTERESTS TEST..........................................84

468467.1

v

The 1031 Tax Group, LLC, et al.,

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------------X
:
In re:
:
:
:
:
:
---------------------------------------------------------------X
:
In re:
:
:
:
:
:
---------------------------------------------------------------X

IPofA Shreveport Industrial Park, LLC,

Debtors.2

Debtor.

Chapter 11
Case No. 07-B-11448(MG)
Jointly Administered

Chapter 11
Case No. 07-13624(MG)

SECOND AMENDED DISCLOSURE STATEMENT PURSUANT TO SECTION 1125

OF THE BANKRUPTCY CODE WITH RESPECT TO

THE SECOND AMENDED JOINT PLAN OF REORGANIZATION OF GERARD A.
McHALE, JR., AS CHAPTER 11 TRUSTEE FOR EACH OF THE 1031 DEBTORS,

AND IPofA SHREVEPORT INDUSTRIAL PARK, LLC

DATED AS OF AUGUST 11, 2009

Gerard A. McHale, Jr., the Chapter 11 Trustee (the “Chapter 11 Trustee” and together

with IPofA Shreveport Industrial Park, LLC, the “Proponents”) for the estates of the 1031
Debtors (the “1031 Estates” and, collectively with the chapter 11 estate of IPofA Shreveport, the
“Estates ”), and IPofA Shreveport Industrial Park, LLC (“IPofA Shreveport” and, collectively
with the 1031 Debtors, the “Debtors”) respectfully submit this Second Amended Disclosure
Statement (the “Disclosure Statement”) pursuant to section 1125 of title 11, United States Code,
11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”), to accompany the Second Amended Joint
Plan of Reorganization of the Chapter 11 Trustee and IPofA Shreveport dated August 11, 2009
(the “Plan”), which has been filed with the United States Bankruptcy Court for the Southern
District of New York (the “Bankruptcy Court”) in the Debtors’ chapter 11 cases. Capitalized
terms contained in this Disclosure Statement shall have the same meaning as stated in the Plan,
unless otherwise defined herein. A copy of the Plan is annexed hereto as Exhibit A.

2 The 1031 Debtors are: The 1031 Tax Group, LLC; 1031 Advance 132 LLC; 1031 Advance, Inc.; 1031 TG Oak
Harbor LLC; Atlantic Exchange Company, Inc.; Atlantic Exchange Company LLC; Investment Exchange Group,
LLC; National Exchange Accommodators, LLC; National Exchange Services QI, Ltd.; NRC 1031, LLC; Real
Estate Exchange Services, Inc.; Rutherford Investment LLC; Security 1031 Services, LLC; Shamrock Holdings
Group, LLC; and AEC Exchange Company LLC (collectively, the “1031 Debtors”).

468467.1

I.

DISCLAIMER

THIS DISCLOSURE STATEMENT IS NOT INTENDED TO REPLACE A

CAREFUL AND DETAILED REVIEW AND ANALYSIS OF THE PLAN BY EACH
HOLDER OF A CLAIM OR INTEREST. THE DESCRIPTION OF THE PLAN HEREIN
IS A SUMMARY ONLY. HOLDERS OF CLAIMS AND INTERESTS AND OTHER
PARTIES IN INTEREST ARE CAUTIONED TO REVIEW THE PLAN AND ANY
RELATED ATTACHMENTS FOR A FULL UNDERSTANDING OF THE PLAN’S
PROVISIONS. THE INFORMATION CONTAINED IN THE DISCLOSURE
STATEMENT HAS NOT BEEN SUBJECT TO AUDIT. THE PROPONENTS ARE
UNABLE TO WARRANT AND REPRESENT THE ACCURACY OF THE
INFORMATION CONTAINED HEREIN, ALTHOUGH GREAT EFFORT HAS BEEN
MADE TO ENSURE ITS ACCURACY. IF ANY INCONSISTENCY EXISTS BETWEEN
THE TERMS AND PROVISIONS OF THE PLAN AND THIS DISCLOSURE
STATEMENT, THE TERMS AND PROVISIONS OF THE PLAN SHALL CONTROL.

THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE

MADE AS OF THE DATE HEREOF UNLESS ANOTHER TIME IS SPECIFIED IN
THIS DISCLOSURE STATEMENT. THE DELIVERY OF THIS DISCLOSURE
STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCE, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH
IN THIS DISCLOSURE STATEMENT SINCE THE DATE OF THIS DISCLOSURE
STATEMENT.

CERTAIN INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT

IS BY ITS NATURE FORWARD-LOOKING AND CONTAINS ESTIMATES,
ASSUMPTIONS, AND PROJECTIONS THAT MAY BE MATERIALLY DIFFERENT
FROM ACTUAL FUTURE RESULTS. THE WORDS “BELIEVE”, “MAY”, “WILL”,
“ESTIMATE”, “CONTINUE”, “ANTICIPATE”, “INTEND”, “EXPECT”, AND
SIMILAR EXPRESSIONS IDENTIFY THESE FORWARD-LOOKING STATEMENTS.
ALL FORWARD-LOOKING STATEMENTS ARE SUBJECT TO A NUMBER OF
RISKS, UNCERTAINTIES, AND ASSUMPTIONS, INCLUDING THOSE DESCRIBED
IN SECTION X “CERTAIN RISK FACTORS.” IN LIGHT OF THESE RISKS AND
UNCERTAINTIES, THE FORWARD-LOOKING EVENTS AND CIRCUMSTANCES
DISCUSSED IN THIS DISCLOSURE STATEMENT MAY NOT OCCUR, AND
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THE FORWARD-LOOKING STATEMENTS. THE PROPONENTS DO NOT
UNDERTAKE ANY OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE.

THIS DISCLOSURE STATEMENT MAY NOT BE RELIED ON FOR ANY

PURPOSE OTHER THAN TO DETERMINE WHETHER TO VOTE TO ACCEPT OR
REJECT THE PLAN, AND NOTHING STATED HEREIN SHALL CONSTITUTE AN
ADMISSION OF ANY FACT OR LIABILITY BY ANY PERSON OR ENTITY, OR BE

468467.1

2

DEEMED EVIDENCE OF THE TAX OR OTHER LEGAL EFFECTS OF THE PLAN
ON THE DEBTORS OR HOLDERS OF CLAIMS OR INTERESTS. AS TO
CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND OTHER ACTIONS OR
THREATENED ACTIONS, THIS DISCLOSURE STATEMENT AND THE
STATEMENTS MADE HEREIN SHALL NEITHER CONSTITUTE NOR BE
CONSTRUED AS AN ADMISSION, STIPULATION, WAIVER, EVIDENCE OR
FINDING OF FACT.

II.

INTRODUCTION TO THE DISCLOSURE STATEMENT

The purpose of this Disclosure Statement is to provide creditors of the Debtors with

adequate information to enable them to make an informed judgment in determining whether to
vote to accept or reject the Plan. The Plan is the document that contains the exclusive and final
statement of the rights of the Creditors, Interest holders and interested parties, including what
they will receive and how they are to receive it. It is strongly recommended that the Plan be read
in its entirety. The statements in the Disclosure Statement are merely explanations of the Plan.
If the Plan is confirmed by the Bankruptcy Court, it will become binding on the Debtors, all of
the Debtors’ Creditors and Interest holders, and other interested parties.

Creditors whose Claims are impaired and will receive a distribution under the Plan have
the right to vote to accept or reject the Plan. Generally speaking, a Claim or Interest is impaired
if the Plan alters the legal, equitable or contractual rights to which the holder of the Claim or
Interest would otherwise be entitled. A class of Creditors accepts the Plan when Creditors in that
class, holding two-thirds in dollar amount and more than one-half in number of the Claims in
such class, have cast their ballots to accept the Plan. The class of Interests shall not receive any
distribution on account of such Interests, which shall be cancelled upon the Effective Date of the
Plan.

The purpose of this Disclosure Statement is to enable Creditors entitled to vote to make

an informed decision as to whether to accept or reject the Plan. The Plan is organized into
twelve (12) articles. Article III of the Plan provides for (3) classes of Claims and one (1) class of
Interests. Class 1, Secured Claims, is impaired and the holders of such Claims are entitled to
vote to accept or reject the Plan, and will receive a ballot for purposes of voting to accept or
reject the Plan. Class 2, Priority Claims, is not impaired and the holders of such Claims are not
entitled to vote to accept or reject the Plan. Class 3, General Unsecured Claims, is impaired and
the holders of such Claims are entitled to vote to accept or reject the Plan and will receive a
ballot for purposes of voting to accept or reject the Plan. Class 4, Interests, is impaired. Holders
of Interests shall not receive any distribution on account of such Interests, which shall be
cancelled upon the Effective Date of the Plan. Accordingly, holders of Class 4 Interests are not
entitled to vote to accept or reject the Plan.

Accompanying this Disclosure Statement are the following materials:

1.

A copy of the Plan;

468467.1

3

2.

3.

Ballots for Class 1 and Class 3 for accepting or rejecting the Plan;

An envelope in which each ballot may be returned; and

4.

A copy of a notice which states: (a) the date by which ballots must be received in
order to be counted; (b) the date by which objections to confirmation of the Plan must be served
and filed; (c) the date, time and location of the Confirmation Hearing in the Bankruptcy Court to
consider the confirmation of the Plan; and (d) other relevant information.

As stated in the accompanying notice, the Bankruptcy Court has scheduled a

Confirmation Hearing on whether to confirm the Plan for October 7, 2009 at 11:00 A.M. All
parties in interest may attend the Confirmation Hearing. This Disclosure Statement has been
approved by order of the Bankruptcy Court dated August 18, 2009, after notice and a hearing
pursuant to section 1125 of the Bankruptcy Code. The Bankruptcy Court found that the
information contained herein is of the kind, and is sufficiently detailed, to enable a hypothetical,
reasonable investor typical of the Class being solicited to make an informed judgment whether to
vote to accept or reject the Plan.

APPROVAL OF THIS DISCLOSURE STATEMENT BY THE BANKRUPTCY
COURT DOES NOT CONSTITUTE A DETERMINATION BY THE BANKRUPTCY
COURT CONCERNING THE FAIRNESS OR THE MERITS OF THE PLAN.

No solicitation of votes for the Plan may be made except pursuant to this Disclosure

Statement and in accordance with § 1125 of the Bankruptcy Code. No person has been
authorized to use or provide any information pertaining to the Debtors or the Plan other than
information contained in this Disclosure Statement. Creditors should not rely on any information
other than that contained in this Disclosure Statement and the accompanying exhibits.

THE PROPONENTS BELIEVE THAT THE PLAN OFFERS THE BEST
POSSIBLE RECOVERIES TO HOLDERS OF CLAIMS COMPARED TO ALL
REASONABLY AVAILABLE ALTERNATIVES UNDER THE CIRCUMSTANCES OF
THESE CHAPTER 11 CASES. THE PROPONENTS, THEREFORE, BELIEVE THAT
ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF CREDITORS AND
STRONGLY RECOMMEND THAT YOU VOTE TO ACCEPT THE PLAN.

468467.1

4

III.

SUMMARY OF THE PLAN

THE PLAN DOES NOT GOVERN DISTRIBUTIONS THAT MAY BE MADE

THROUGH THE PENDING CLASS ACTION LITIGATION OR THE RESTITUTION
PROCEEDINGS PENDING IN RICHMOND, VIRGINIA. THE CLASS ACTION AND
RESTITUTION PROCEEDING ARE NOT COVERED BY THE PLAN. CREDITORS

MUST FOLLOW AND COMPLY WITH THE SEPARATE CLAIM SUBMISSION
REQUIREMENTS, IF ANY, IN THE CLASS ACTION LITIGATION AND THE
RESTITUTION PROCEEDINGS IN ORDER TO SHARE IN ANY RECOVERY

GENERATED THROUGH THOSE PROCEEDINGS.

The following is a summary of the Plan. This summary is qualified in its entirety by

reference to the Plan, attached as Exhibit A to this Disclosure Statement.

The Plan is proposed by the Chapter 11 Trustee and IPofA Shreveport. The Plan
provides for the liquidation and distribution to creditors of all Assets of the 1031 Estates,
including the approval and implementation of settlement agreements with the Plan Funding
Parties, and the continued investigation and prosecution of Estate Causes of Action by a
Liquidation Trust to be formed pursuant to the Plan and a Liquidation Trust Agreement. The
Liquidation Trust is to be managed by the Liquidation Trustee, with certain input by a
Liquidation Trust Oversight Board selected by the Chapter 11 Trustee with input from the
Committee. The Liquidation Trust shall be responsible for making distributions to holders of
Claims, as well as all other administrative tasks necessary for ultimate resolution of the
Chapter 11 cases, in accordance with the terms of the Plan and the Liquidation Trust Agreement.
The Plan also provides for the reorganization of IPofA Shreveport, which owns the Mineral
Servitude. The Liquidation Trust will be the sole member of Reorganized IPofA Shreveport, and
the Liquidation Trustee will serve as the Manager of Reorganized IPofA Shreveport.
Reorganized IPofA Shreveport’s activities will relate solely to maximizing any revenues that
may be potentially generated or derived from the Mineral Servitude.

The Plan Funding Party Settlement Agreements and the Class Action Agreement are an
integral part of the Plan because they facilitate confirmation of the Plan, provide sufficient funds
to pay Administrative Expenses and Priority Claims, and will provide for an initial distribution to
general unsecured creditors as soon as practicable after the Effective Date. These proceeds will
also provide the initial funding for the Liquidation Trust, which will, among other things, pursue
litigation claims which have not been settled, which claims, if favorably resolved, could
potentially provide substantial additional consideration to Creditors. The Class Action
Agreement provides the structure for litigation against Lockton, Citibank and other parties in a
collaborative manner between the Class Action Representative and the Chapter 11 Trustee,
which the Chapter 11 Trustee believes will optimize the value of these claims for the benefit of
the Exchangers and other Creditors of the 1031 Estates. The Plan Funding Party Settlement
Agreements and Class Action Agreement are discussed in greater detail in Section VIII below.

Set forth below is a chart describing the classification and treatment of Claims under the

Plan, as well as the estimated amount of aggregate allowed claims in each class and the

468467.1

5

estimated recovery of such class expressed as a percentage of its aggregate allowed Claims.
Each class has an estimated recovery of 100%, except that the Initial Distribution for General
Unsecured Claims is estimated to result in a recovery of 35% (44% for Exchangers after giving
effect to the Class Action Agreement). As discussed below, this estimate relates only to the
Initial Distribution, and further distributions to Class 3 General Unsecured Claims by the
Liquidation Trust are contemplated.

Following the chart below is a statement of the projected cash balance of the Liquidation

Trust as of the Effective Date, together with a summary of the amounts payable under the
respective Plan Funding Settlement Agreements that will fund and be included in such cash
balance.

A.

Classification and Treatment of Claims Under the Plan

Summary of Classification and Treatment of Claims Under the Plan

Class
Number
N/A

Description of Class
Administrative Claims

Estimated Amount of
Allowed Claims in Class

$670,0003

Treatment Under the Plan/Estimated

Recovery Under the Plan

Estimated Recovery: 100%

Each holder of an Allowed Administrative
Claim shall be paid by the Chapter 11
Trustee or the Liquidation Trust, as
applicable, 100% of the unpaid amount of
such Allowed Administrative Claim in Cash
on the date, or as soon thereafter as is
reasonably practicable, that is the later of
(i) the Effective Date or (ii) the date such
Claims become Allowed Claims or
otherwise become payable under the Plan;
except, that sums owed the United States
Trustee for fees pursuant to Section
1930(a)(6) of title 28 of the United States
Code shall be paid on the Effective Date
(and thereafter, as such fees may thereafter
accrue and be due and payable).

3 Includes Claims against IPofA Shreveport.

468467.1

6

Summary of Classification and Treatment of Claims Under the Plan

Class
Number
N/A

Description of Class
Priority Tax Claims

Estimated Amount of
Allowed Claims in Class

Treatment Under the Plan/Estimated

Recovery Under the Plan

$32,600

Estimated Recovery: 100%

Each holder of an Allowed Priority Tax
Claim shall be paid by the Chapter 11
Trustee or the Liquidation Trust, as
applicable, 100% of the unpaid amount of
such Allowed Priority Tax Claim in Cash
on the date, or as soon thereafter as is
reasonably practicable, that is the later of
(i) the Effective Date or (ii) the date such
Claims become Allowed Claims or
otherwise become payable under the Plan.
Any Claim or demand for penalty relating
to any Priority Tax Claim (other than a
penalty of the type specified in Bankruptcy
Code Section 507(a)(8)(G)) shall be
Disallowed, and the holder of an Allowed
Priority Tax Claim shall not assess or
attempt to collect such penalty from the
Estates, the Liquidation Trust, Reorganized
IPofA Shreveport or any of their respective
assets or property.
Estimated Recovery: 100%

Each holder of an Allowed Fee Claim shall
be paid by the Chapter 11 Trustee or the
Liquidation Trust, as applicable, 100% of
the unpaid amount of such Allowed Fee
Claim in Cash on the date, or as soon
thereafter as is reasonably practicable, that
such Claim is Allowed.
Estimated Recovery: N/A

Impaired and Entitled to Vote.

Pursuant to the CCB Settlement Agreement,
CCB holds an Allowed contingent
unliquidated secured Claim (the “CCB
Secured Claim”) for certain CCB Covered
Fees and Expenses, if any, secured by (and
capped at) the balance of the funds

N/A

Fee Claims

$19,800,0004

Class 1

Secured Claims

-0-

4 In the event that the Chapter 11 Trustee is unable to reach settlements with the professionals retained prior to his
appointment, the Chapter 11 Trustee intends to object to the fees, in the amount of approximately $11 million, of
those professionals (“Pre-Trustee Fees”), and for purposes of this analysis, has estimated the Pre-Trustee Fees at
zero and is thus not included in the amount reflected above. This $19,800,000 figure represents the Chapter 11
Trustee’s estimate of claims for unpaid fees and reimbursement of expenses at confirmation assuming estimated
ongoing fees and expenses at $600,000 per month for four months (that is, through the estimated time of the
Effective Date). Approximately $5,400,000 in fees, and $775,000 in reimbursement of expenses, has previously
been paid to Professional Persons in these cases. For purposes of this analysis, the Chapter 11 Trustee’s
compensation is based on anticipated hourly rate compensation, rather than the commission formula of Section 326
of the Bankruptcy Code. The Trustee reserves the right to seek compensation based on that formula, or some figure
in excess of hourly rate compensation but less than the commission formula.

468467.1

7

Summary of Classification and Treatment of Claims Under the Plan

Class
Number

Description of Class

Estimated Amount of
Allowed Claims in Class

Class 2

Priority Non-Tax
Claims

$346,000

Class 3

General Unsecured
Claims

$150,000,0005

Treatment Under the Plan/Estimated

Recovery Under the Plan

(currently approximately $375,000) held in
a segregated bank account at J.P. Morgan
Chase Bank (the “CCB Reserve”). The
CCB Secured Claim shall be deemed
satisfied by either (i) entry of a final, non-
appealable Confirmation Order granting the
CCB Release; or (ii) maintenance of the
CCB Reserve until October 23, 2009.
Estimated Recovery: 100%

Unimpaired and Not Entitled to Vote.

Each holder of an Allowed Priority Non-
Tax Claim shall be paid by the Chapter 11
Trustee or the Liquidation Trust, as
applicable, 100% of the unpaid amount of
such Allowed Priority Non-Tax Claim in
Cash on the date, or as soon thereafter as is
reasonably practicable, that is the later of
(i) the Effective Date or (ii) the date such
Claim becomes an Allowed Claim or
otherwise becomes payable under the Plan.
Estimated Effective Date Distribution:
35%6

Impaired and Entitled to Vote.

(A) Each holder of an Allowed General
Unsecured Claim that constitutes a Basic
Exchanger Claim shall receive First
Tranche Beneficial Interests in the
Liquidation Trust with respect to such Basic
Exchanger Claim in a percentage Ratable to
other holders of Basic Exchanger Claims.
“Basic Exchanger Claims” are the principal
amount deposited by an Exchanger with a

5 General Unsecured Claims fall into one of two groups, Exchanger Claims (including claims of reverse exchangers)
and non-Exchanger Claims. Based on the Chapter 11 Trustee’s analysis of the schedules, claims docket and other
materials, there are approximately 530 Exchanger Claims in the aggregate amount of approximately $149 million.
In performing this analysis, the Chapter 11 Trustee has attempted to eliminate duplicate Claims and imputed Claim
amounts to Exchangers who filed Claims but did not provide a dollar amount. The Chapter 11 Trustee has also
taken into account the Colorado Exchangers Settlement Payment (defined below) and the Enterprises Settlement
(defined below). In addition, this figure only includes the Basic Exchanger Claim amounts. The Chapter 11
Trustee’s analysis to date is that there are approximately 175 non-Exchanger Claims in the aggregate amount of
approximately $960,000.
6 This represents the estimated distribution to be made on, or as soon as is practicable after, the Effective Date.
Based upon the results of post-Effective Date litigation, as described below at pages 36-39 and 47-49, plus the
revenues, if any, from the Mineral Servitude and/or the sale of the New Hampshire Property, this figure could be
increased by subsequent distributions made from the Liquidation Trust. In addition, after giving effect to the Class
Action Agreement, Exchangers will have an estimated aggregate Effective Date Distribution of 44%. See Note 11
below.

468467.1

8

Class
Number

Description of Class

Estimated Amount of
Allowed Claims in Class

Summary of Classification and Treatment of Claims Under the Plan

Treatment Under the Plan/Estimated

Recovery Under the Plan

1031 Debtor under an Exchange Agreement
plus accrued interest under such Exchange
Agreement, if any, up to the Petition Date
on such principal amount.

(B) Each holder of an Allowed General
Unsecured Claim that constitutes in whole
or part an Excess Exchanger Claim shall
receive Second Tranche Beneficial Interests
in the Liquidation Trust with respect to such
Excess Exchanger Claim in a percentage
Ratable to other holders of Excess
Exchanger Claims. “Excess Exchanger
Claims” are limited to the amount of such
holder’s Claims in excess of such holder’s
Basic Exchanger Claim (for example,
damage claims of Exchangers for attorneys’
fees, consequential, compensatory, punitive,
treble, exemplary, multiple or other
damages other than Basic Exchanger
Claims). No distributions will be made on
account of Excess Exchanger Claims until
Basic Exchanger Claims are paid in full.

Class 4

Interests

N/A

Recovery: 0%

Impaired and Not Entitled to Vote.

Holders of Interests shall neither receive
nor retain any property under the Plan.

The projected cash balance of the Liquidation Trust as of the Effective Date is

$78,970,000 (the “Projected Effective Date Cash Balance”). The Projected Effective Date Cash
Balance will be applied first to fund an aggregate of $25,848,600 of estimated Effective Date
distributions in respect of Allowed Administrative Claims ($670,000), Allowed Priority Tax
Claims ($32,600), Allowed Fee Claims ($19.8 million), Allowed Priority Non-Tax Claims
($346,000) and a reserve of $5 million to permit the Liquidation Trust fund ongoing litigation
and other expenses. The balance of $53,121,400 remaining after payment of such amounts will
be used to fund Estimated Effective Date Distributions for Class 3 General Unsecured Claims.7

7 Under the Plan and the Liquidation Trust, distributions to holders of Allowed Unsecured Claims held by
Exchangers will first be made on account of Allowed Basic Exchanger Claims, which consist of the lost Exchange
Deposit, plus any interest thereon up to the Petition Date (but only to the extent that the applicable Exchange
Agreement provides for interest). A schedule of all Basic Exchanger Claims showing the amount of each Basic
Exchanger Claim is set forth in Schedule 1 to the Plan. If Allowed Basic Exchanger Claims and other Allowed
Unsecured Claims are paid in full, then the Liquidation Trust will begin making distributions on account of Allowed
Excess Exchanger Claims, which essentially consist of all other components of Claims of Exchangers, including
attorneys’ fees, consequential, compensatory, punitive, treble, exemplary, multiple or other damages, to the extent
Allowed. The Chapter 11 Trustee believes that the foregoing is fair, practical, and will avoid extensive cost and
delay in making distributions to Exchangers. The Basic Exchanger Claims are relatively easily verifiable, and

468467.1

9

A vote to accept the Plan does not constitute acceptance of or consent to any Fee

Claims. Professional Persons must file requests with the Bankruptcy Court for allowance
and payment of all Fee Claims, and all Creditors have the right to object.

The Projected Effective Date Cash Balance will be funded by the amounts payable under
the respective Plan Funding Settlement Agreements set forth below (assuming the satisfaction of
all conditions contained in the respective Plan Funding Party Settlement Agreements and
payment of all sums due thereunder) plus cash and an anticipated tax refund:

Settlement Agreement
KPKB
E&O
Crime Insurance Coverage
Former Owners
Rosen
Wachovia

Cash
Tax Refund

$12,380,0008
4,600,000
23,250,0009
2,112,50010
925,000
27,000,00011
$70,277,500

5,897,000
2,800,000
$78,974,500

SUB TOTAL:

TOTAL:

represent the same type of damage for each Exchanger. By contrast, Excess Exchanger Claims include widely
disparate elements and thus vary among the Exchangers. Absent this proposed distribution protocol, the Liquidation
Trust would be required to undertake an extensive and expensive Claims objection and estimation process to justify
or eliminate the numerous and disparate components of the Excess Exchanger Claims. This process would likely
cause lengthy delays in distributions. In the event that Allowed Basic Exchanger Claims are not paid in full, the
difficult and expensive process of adjusting Excess Exchanger Claims will be avoided.

8 The maximum amount to be paid by KPKB pursuant to the KPKB Settlement Agreement is $15,380,000.
However, $3 million of this amount was to be paid from a contingency fee that KPKB had hoped to earn from a
certain pending litigation. That litigation has since been dismissed. As a consequence, the Plan Proponents do not
expect to obtain such $3 million.
9 Including payments by the following parties thereto: Continental Casualty Company ($13 million); Federal
Insurance Company ($7 million); Twin City Fire Insurance Company ($3.25 million).

10 Including payments by the following parties pursuant to their respective Plan Funding Party Settlement
Agreements: Daniel E. McCabe, Shirley L. McCabe, Andrew C. McCabe, Chad J. Greenberg and J. Peter McCann
($1.250 million); William D. Bennett ($400,000); William A. Hazel, Patrick Dowdall, James F. Livesey, Charles D.
Subrt ($107,500); David B. Shefman and Marga R. Shefman ($10,000); Janet Dashiell ($75,000); Todd Pajonas
($20,000); and Steven Allred ($250,000). The Pajonas Settlement Agreement, in addition to the $20,000 payment
upon approval, also provides for additional payments of $180,000 over a three year period. These funds will be
distributed by the Liquidation Trust.

11 The settlement amount with Wachovia is $45,000,000. Pursuant to the Class Action Agreement, however, this is
allocated 60% to the Estates and 40% to the Class. Thus, $18 million of the proceeds of the Wachovia Settlement
Agreement will be paid to the Class. After payment of the fees and expenses of Class counsel, the balance will be
distributed to the Class members, which consists of Exchangers. As a result, the actual recoveries realized by
Exchangers will be greater. Assuming, for example, that Class counsel receives the maximum permissible fee under
the Class Action Agreement, i.e. 25%, then Exchangers will receive an additional $13.5 million. This would, in
turn, raise the distribution percentage for Exchangers (but not for other General Unsecured Claim holders) to 43%.

468467.1

10

IV.

VOTING PROCEDURES

After carefully reviewing this Disclosure Statement and the Plan, each Creditor entitled

to vote should do so on the enclosed ballot.

TO BE COUNTED, YOUR COMPLETED BALLOT MUST BE RECEIVED BY

4:00 P.M. (Eastern Time) ON SEPTEMBER 25, 2009 AT THE FOLLOWING ADDRESS:

Golenbock Eiseman Assor Bell & Peskoe LLP
Counsel to the Chapter 11 Trustee and IPofA Shreveport
437 Madison Avenue
New York, New York 10022
Attn: Michael S. Weinstein, Esq.

ANY BALLOTS WHICH ARE RETURNED BUT WHICH DO NOT INDICATE

ACCEPTANCE OR REJECTION OF THE PLAN, SHALL BE DEEMED TO
CONSTITUTE AN ACCEPTANCE OF THE PLAN.

You must provide all of the information requested by the ballot. Failure to do so may

result in disqualification of your vote.

The Bankruptcy Court has scheduled a hearing to consider confirmation of the Plan on

October 7, 2009 at 11:00 A.M.

A.

Parties Entitled to Vote.

Under the Plan, only holders of Claims in Classes 1 and 3 are entitled to vote.

A vote may be disregarded if the Bankruptcy Court determines after notice and a hearing
that the Creditor’s acceptance or rejection of the Plan was not in good faith or was not solicited
or procured in good faith in accordance with section 1126(e) of the Bankruptcy Code.

CREDITORS WHOSE CLAIMS ARE SUBJECT TO A PENDING OBJECTION
ARE NOT ELIGIBLE TO VOTE UNLESS SUCH OBJECTION OR OBJECTIONS ARE
RESOLVED IN THEIR FAVOR, OR AFTER NOTICE AND A HEARING PURSUANT
TO BANKRUPTCY RULE 3018(a), THE BANKRUPTCY COURT ALLOWS THE
CLAIM TEMPORARILY OR ESTIMATES THE AMOUNT OF THE CLAIM FOR THE
PURPOSE OF VOTING TO ACCEPT OR REJECT THE PLAN. ANY CREDITOR
THAT WANTS ITS CLAIM TO BE ALLOWED TEMPORARILY OR ESTIMATED
FOR THE PURPOSE OF VOTING MUST TAKE THE STEPS NECESSARY TO
ARRANGE AN APPROPRIATE HEARING WITH THE BANKRUPTCY COURT
UNDER BANKRUPTCY RULE 3018(a).

Accordingly, only Creditors who are entitled to vote on the Plan will receive a ballot with

the Disclosure Statement.

468467.1

11

B.

Vote Required for Plan Acceptance.

Under the Bankruptcy Code, an impaired Class of Claims is deemed to have accepted the
Plan if the Plan is accepted by holders of two-thirds in dollar amount and a majority in number of
the Claims in that Class who actually cast ballots.

V.

CONFIRMATION OF THE PLAN

A.

Confirmation Hearing.

Section 1128 of the Bankruptcy Code requires the Bankruptcy Court to hold a

Confirmation Hearing to consider confirmation of the Plan. At the Confirmation Hearing, any
party in interest may object to confirmation of the Plan. By order dated August 18, 2009, the
Bankruptcy Court has scheduled October 7, 2009 at 11:00 A.M. as the Confirmation Hearing.
The Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court without
further notice except for an announcement made at the Confirmation Hearing or at any
adjournment thereof.

Objections to confirmation of the Plan, if any, must be in writing and filed with the

Bankruptcy Court and served, so as to be received no later than 4:00 p.m. (Eastern Time) on
September 25, 2009, upon:

Golenbock Eiseman Assor Bell & Peskoe LLP
437 Madison Avenue
New York, New York 10022
Attn:
Counsel to the Chapter 11 Trustee and IPofA Shreveport

Jonathan L. Flaxer, Esq.

– and –

Cozen O’Connor
1201 N. Market Street – Ste. 1400
Wilmington, DE 19801
Attn: Mark E. Felger, Esq.
Counsel to the Committee

– and –

Office of the United States Trustee
Southern District of New York
33 Whitehall Street, 21st Floor
New York, New York 10004
Attn: Andrew D. Velez-Rivera, Esq.

468467.1

12

B.

Requirements for Confirmation of the Plan.

At the Confirmation Hearing, the Bankruptcy Court must find that the Plan satisfies the

requirements of section 1129 of the Bankruptcy Code to enter an order confirming the Plan. One
criterion, which is applicable unless every holder of an impaired Claim against the Debtors has
voted to accept the Plan, is that the amount to be received under the Plan by each holder of a
Claim is not less than the amount such holder would have received had the Estates been
liquidated under chapter 7 of the Bankruptcy Code. As discussed in Section XII below, the
Proponents believe that the Plan is in the best interest of creditors because recoveries under the
Plan are greater than the likely recovery in the event of a liquidation under a chapter 7
proceeding. The Proponents believe that this criterion is satisfied. Another criterion which the
Bankruptcy Court must find has been satisfied is that the Plan is feasible; that is, confirmation is
not likely to be followed by liquidation or the need for further financial reorganization. As
discussed in Section XII below, the Proponents believe that no “liquidation” or “further financial
reorganization” is likely to be required.

VI.

GENERAL BACKGROUND CONCERNING THE DEBTORS
AND EVENTS PRECEDING THE CHAPTER 11 FILING12

A.

Okun’s Acquisition of the 1031 Debtors and
the 1031 Debtors’ Pre-petition Operations

On May 14, 2007 (the “Initial Petition Date”), The 1031 Tax Group, LLC (the “1031 Tax
Group”), and the other 1031 Debtors13 filed voluntary petitions for relief under chapter 11 of the
Bankruptcy Code in the Bankruptcy Court. On June 11, 2007 (the “AEC Petition Date” and
together with the Initial Petition Date, the “Petition Date”), AEC Exchange Company, LLC filed
its own voluntary petition for relief under chapter 11 of the Bankruptcy Code in the Bankruptcy
Court. As of the Petition Date, the 1031 Debtors continued in possession of their properties and
managed their businesses as debtors-in-possession pursuant to sections 1107(a) and 1108 of the
Bankruptcy Code.

12 The following background is based on the Chapter 11 Trustee’s investigation to date into the affairs of the
Debtors. His investigation has consisted of, among other things, a review of the Debtors’ books and records,
examinations of witnesses pursuant to Bankruptcy Rule 2004, informal interviews of witnesses, the review of
pleadings and other court papers filed by the Debtors in these bankruptcy proceedings and the review of pleadings
and other court papers filed in related, non-bankruptcy litigation. The Chapter 11 Trustee’s investigation is ongoing.
The following description is not a report of the Chapter 11 Trustee’s findings based on his investigation. Rather, it
is what the Chapter 11 Trustee, based on the information known to him, believes to be an accurate description of
certain backgrounds facts and events included for the sole purpose of providing disclosure to creditors for the
purpose of evaluating the Plan.
13 Consisting of 1031 Advance 132 LLC, 1031 Advance, Inc., 1031 TG Oak Harbor LLC, Atlantic Exchange
Company, Inc., Atlantic Exchange Company LLC, Investment Exchange Group, LLC, National Exchange
Accommodators, LLC, National Exchange Services QI, Ltd., NRC 1031, LLC, Real Estate Exchange Services, Inc.,
Rutherford Investments LLC, Security 1031 Services, LLC, and Shamrock Holdings Group, LLC.

468467.1

13

Edward H. Okun (“Okun”) is the sole member of the 1031 Tax Group. Between August

2005 and December 2006, Okun, Lara D. Coleman (“Coleman”), and other individuals acting
with them (collectively, the “Okun Parties”), through the 1031 Tax Group or Okun, acquired or
assisted in the acquisition of six regional businesses that were in the business of acting as
“qualified intermediaries” or “QIs” to facilitate “1031 Exchanges.”14 Most or all of the 1031
Debtors are wholly-owned direct or indirect subsidiaries of the 1031 Tax Group and are the QIs
acquired by the Okun Parties. On occasion, the 1031 Tax Group was utilized as a QI for certain
transactions.15 The Okun Parties acquired the regional QI businesses as follows: (i) Atlantic
Exchange Co., LLC and affiliates (collectively, “AEC”) on or about August 25, 2005; (ii)
Security 1031 Services, LLC and affiliates (collectively, “SOS”) on or about November 15,
2005; (iii) Real Estate Exchange Services, LLC and affiliates (collectively, “REES”) on or about
June 9, 2006; (iv) National Exchange Services QI, Ltd. and affiliates (collectively, “NES”) on or
about June 22, 2006; (v) Investment Exchange Group, LLC and affiliates (collectively, “IXG”)
on or about August 1, 2006; and (vi) 1031 Advance, Inc. and affiliates (collectively, “1031
Advance”) on or about December 19, 2006. The 1031 Tax Group was headquartered in
Richmond, Virginia, where certain other entities owned or controlled by Okun were
headquartered, including Investment Properties of America, LLC (“IPofA”) and Okun Holdings,
Inc. (“Okun Holdings”). Okun was the sole member of IPofA and the sole shareholder of Okun
Holdings, and Coleman served as IPofA’s chief operating officer. IPofA is the sole member of
many of the Okun-controlled entities, including IPofA Shreveport.

Section 1031 of the Internal Revenue Code permits owners of investment property to

defer the capital gains tax that would otherwise be due and owing upon sale, conditioned upon
timely application of the sale proceeds to the purchase of an identified replacement investment
property (a “1031 Exchange”). In a typical 1031 Exchange, an exchanger (the “Exchanger”)
sells a parcel of real estate (the “relinquished property”) and has 45 days from the date of the sale
to identify a replacement property and 180 days from the date of the sale to close on the purchase
of the replacement property. To preserve the tax benefit of avoiding capital gains taxes on the
sale of the property, the Exchangers may not take possession of the sale proceeds. Under the
regulations that apply to Section 1031, the use of a qualified intermediary (“QI”) in connection
with a 1031 Exchange is a “safe harbor” that will result in a determination that the taxpayer is
not in actual or constructive receipt of money or other property for purposes of Section 1031.
The responsibilities and obligations that a QI owes to the Exchanger regarding the use of funds
deposited with the QI (the “Exchange Deposit”) are typically set forth in a contract between the
QI and the Exchanger referred to as an exchange agreement (“Exchange Agreement”). It is the
Chapter 11 Trustee’s position that, pursuant to the terms of the respective Exchange Agreements

14 It is not clear whether the Okun Parties ultimately made each of the 1031 Debtors subsidiaries of the 1031 Tax
Group.
15 Based upon the Chapter 11 Trustee’s investigation, in 2007, the 1031 Debtors’ CEO planned to integrate the 1031
Debtors’ operations under one trade name, “The 1031 Group, LLC,” and formed a limited liability company entity
with that name. However, no operating agreement was ever signed, no member(s) and/or manager(s) were named,
and little was done to effectuate the integration prior to the Petition Date. A few open exchange transactions were
executed pursuant to Exchange Agreements using The 1031 Group, LLC name. The 1031 Debtors treated The 1031
Group, LLC as a d/b/a of the 1031 Tax Group and scheduled the Creditors of The 1031 Group, LLC as Creditors of
the 1031 Debtors. The Chapter 11 Trustee agrees with such treatment. Accordingly, the Chapter 11 Trustee treats
The 1031 Group, LLC Creditors as Creditors of the 1031 Debtors, and does not intend to object to otherwise valid
Exchanger claims whose Exchange Agreements were nominally with The 1031 Group, LLC..

468467.1

14

and applicable law, the Exchange Deposits are property of the QI once the money is received by
the QI, and that the Exchangers bargained for this in order to obtain the benefits of Section 1031,
which would be unavailable to them if this were not the case.

Prior to the Petition Date, certain of the 1031 Debtors also acted as QIs for “reverse

exchanges.” Generally, in a reverse exchange (“Reverse Exchange”), the Exchanger identifies
and contracts for the purchase of the replacement property prior to selling the relinquished
property. The Exchanger lends funds or guarantees a bank loan, which is made directly to the
QI. The QI uses the funds to purchase and take title to the replacement property. The
replacement property is leased back to the Exchanger at a rent equal to the QI’s carrying costs,
including debt service. The Exchanger agrees to acquire the replacement property within 180
days. The Exchanger then signs a contract to sell th