31A-27a-610 - Secured creditor's claims.
31A-27a-610. Secured creditor's claims.
(1) The value of a security held by a secured creditor shall be determined in one of thefollowing ways:
(a) by converting the security into money according to the terms of the agreementpursuant to which the security is delivered to the creditor; or
(b) by agreement or litigation between the creditor and the liquidator.
(2) (a) The receiver has the first priority to use collateral to reimburse a prepetition lossor expense if:
(i) a surety pays a loss or loss adjustment expense under its own surety instrument beforeany petition for a delinquency proceeding;
(ii) the principal posts collateral that remains available to reimburse the loss, the lossadjustment expense, or both; and
(iii) at the time of the petition, the collateral posted under this Subsection (2)(a) has notbeen credited against the payments made.
(b) If the principal under a surety bond or a surety undertaking pledges collateral,including a guaranty or a letter of credit, to secure the principal's reimbursement obligation to theinsurer, the claim of an obligee or, subject to the discretion of the receiver, completion contractorunder the surety bond or surety undertaking shall be satisfied first out of the collateral or thecollateral's proceeds.
(c) In making a distribution to an obligee or completion contractor, the receiver shallretain a sufficient reserve for any other potential claim against the collateral under Subsection(2)(b).
(d) If the collateral is insufficient to satisfy in full all potential claims against it underSubsections (2)(b) and (f):
(i) the claims shall be paid on a pro rata basis; and
(ii) the obligees or completion contractor shall have claims, subject to allowancepursuant to Section 31A-27a-603, for any deficiency.
(e) If the time to assert a claim against a surety bond or a surety undertaking expires andall claims have been satisfied in full, any remaining collateral for the surety bond or suretyundertaking shall be returned to the principal.
(f) (i) To the extent that a guaranty association has made a payment relating to a claimagainst a surety bond, the guaranty association shall first be reimbursed for the payment andrelated expenses out of the available collateral or proceeds related to the surety bond.
(ii) To the extent the collateral is sufficient, the guaranty association will be reimbursedfor 100% of the guaranty association's payment.
(iii) If the collateral is insufficient to satisfy in full all potential claims against it underthis Subsection (2)(f) and Subsection (2)(b), the one or more guaranty associations that payclaims on a surety bond:
(A) are entitled to a pro rata share of the available collateral in accordance withSubsection (2)(d); and
(B) have claims against the general assets of the estate in accordance with Section31A-27a-603 for any deficiency.
(iv) A payment made to a guaranty association from the collateral may not be consideredearly access or otherwise considered a distribution out of the general assets or property of theestate.
(v) A guaranty association shall subtract any payment from the collateral from theguaranty association's final claims against the estate.
(3) (a) The amount determined pursuant to Subsection (1) shall be credited upon thesecured claim, and the claimant may file a proof of claim, subject to the other provisions of thischapter, for any deficiency, which shall be treated as an unsecured claim.
(b) If the claimant surrenders the claimant's security to the liquidator, the entire claimshall be treated as if unsecured.
(4) The liquidator may recover from property securing an allowed secured claim thereasonable, necessary costs and expenses of preserving, or disposing of, the property to the extentof any benefit to the holder of the allowed secured claim.
Enacted by Chapter 309, 2007 General Session