ADVICE NEEDED / CHALLENGING DETECTIVE WORK. We’re seeking to capture a missing “Asset” (an After-Payout working interest or “WI”) and establish supportable chain of title. It’s dropped off everyone’s radar and is effectively invisible, but it DOES exist. Here’s the brief (oversimplified) scenario. In the mid 2000’s, a publicly-traded company in another state acquires a WI in a Texas drilling project. Initial drilling is unsuccessful, but before the leases expire, all WI owners in the Texas project farm-out the leases to a private operator and reserve a reversionary interest (back-in after payout WI). Ten years later, the pubco merges with another company. The focus of the new merged company (“Pubco X”) is on their producing wells in other states, but the Texas Asset drops off the books of Pubco X, evidently written-off as worthless (but they still own title). Pubco X converts to a holding company and creates subsidiaries into which it vests title to its producing wells. It assigns all assets “by specific name” into its subsidiaries, but the missing Texas Asset is never named or assigned in any deed records anywhere. Two years later, all assets of Pubco X and its subsidiaries are pledged as collateral under a loan agreement. At this point, the missing Asset is not shown in the books of Pubco X, no one at Pubco X even knows it exists, but this Asset does exist and is theoretically invisibly owned by the parent Pubco X. A few years later, the lender calls the loan and Pubco X files Chapter 7. The bankruptcy (B/K) Trustee is unsuccessful in selling the assets of Pubco X and the Trustee later sues the lender and management for collusion and self-dealing. The lender originally held the assets of Pubco X as collateral, but it never receives title to those assets, because of the collusion suit, and all of the former assets of Pubco X are (apparently) effectively abandoned.
Why are we looking? Fifteen years after the Texas project was first launched, the Texas leases are approaching payout status, so the missing Asset could hold value in the future as an After Payout WI.
Summary Considerations:
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INVISIBLE ASSET. Nothing in the books of Pubco X, its SEC filings, or the B/K proceedings even mentions the Asset. It does exist, but to all concerned, it is invisible. Where does it reside?
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B/K COURT. The B/K Trustee now says the case is closed. Prevailing B/K law suggests that (1) if an unknown asset surfaces after a B/K case is closed, the case must be re-opened and (2) the asset would either go to the debtor, Pubco X (it can’t, since it doesn’t exist anymore) or go to the creditor, the lender (it can’t, since the collusion case settlement precludes the Asset going to the lender).
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COUNTY JUDGE. Can the County Judge award title to this (now orphaned) WI? We hold a valid old debt owed by Pubco X, but no lien was filed and it wasn’t disclosed in the B/K case. Could that old debt give basis to make the claim against the Asset and compel the Judge to award title ?
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STATE OF TEXAS. Orphaned wells become State property, but not orphaned WI. If the Operator can’t identify the owner of the Asset, it will escheat to the State of Texas any funds payable on this WI and the Texas SOS won’t know why. The Texas SOS has no idea what to say about any of this.
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CAPTURING TITLE BY ANOTHER MEANS. Does anyone have any ideas as to whether there is case law regarding how one would claim a previously unknown asset of a bankrupt company that appeared AFTER the B/K was dismissed, when there’s no other party to award title to?
This is a true Sherlock Holmes mystery. Any comments would be appreciated!