kathy bazoian phelps (155564) …upshotservices.s3.amazonaws.com/files/e9e513ad-b7b1-4856... ·...

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KATHY BAZOIAN PHELPS (155564) [email protected] DIAMOND MCCARTHY LLP 1999 Avenue of the Stars, Suite 1100 Los Angeles, California 90067-4402 Telephone: (310) 651-2997 CHRISTOPHER D. SULLIVAN (148083) [email protected] LESLEY ANNE HAWES (117101) [email protected] DIAMOND MCCARTHY LLP 150 California Street, Suite 2200 San Francisco, CA 94111 Phone: (415) 692-5200 Counsel for Bradley D. Sharp, Permanent Receiver

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

WESTERN DIVISION – LOS ANGELES

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff, v. DIRECT LENDING INVESTMENTS LLC,

Defendant.

Case No. 2:19−cv−02188−DSF−MRW Hon. Dale S. Fischer NOTICE OF MOTION AND MOTION OF RECEIVER FOR ORDER (1) APPROVING AND CONFIRMING SALE OF THREE LOAN PORTFOLIOS, AND RELATED BIDDING PROCEDURES AND DEADLINES; (2) PAYMENT OF RAYMOND JAMES & ASSOCIATES, INC. FEES; AND (3) FORM AND/OR LIMITATION OF NOTICE UNDER LOCAL CIVIL RULE 66-7; MEMORANDUM OF POINTS AND AUTHORITIES [DECLARATIONS OF SHARP AND

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NOTICE OF MOTION AND MOTION TO APPROVE AND CONFIRM SALES OF WHOLE LOAN PORTFOLIOS AND OTHER RELIEF

Case 2:19-cv-02188-DSF-MRW Document 105 Filed 08/13/19 of 21 Page ID #:1545

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KAUFFMAN FILED CONCURRENTLY] Date: September 23, 2019 Time: 1:30 PM Dept.: Courtroom 7D Place: United States District Court Western Division

350 West 1st Street, Los Angeles, CA 90012

PLEASE TAKE NOTICE THAT on September 23, 2019, at 1:30 p.m. in

Courtroom 7D of the above-entitled Court, located at 350 West 1st Street, Los

Angeles, CA 92701-4516, Bradley D. Sharp, the Court-appointed permanent

receiver (the “Receiver”), will and hereby does make this Motion for Order (1)

Approving and Confirming Sale of Three Loan Portfolios, and Related Bidding

Procedures and Deadlines; (2) Payment of Raymond James & Associates, Inc. Fees;

and (3) Form and/or Limitation of Notice Under Local Civil Rule 66-7 (the

“Motion”). By this Motion, the Receiver seeks the following relief:

1. An order (a) approving and confirming the sales of each of three loan

portfolios, referred to as the Dealstruck Portfolio, the Biz2Credit Portfolio, and the

LoanHero Portfolio (collectively, “Whole Loan Portfolios”)1 to the Successful

Bidders making the highest and best bids for the Whole Loan Portfolios obtained

through a bidding and auction overbid process set forth in the Bidding Procedures

attached as Exhibit “1” to the Declaration of Adam Kauffman in support of this

Motion, or to the Back Up Bidders for the Whole Loan Portfolios if the Successful

Bidders (as those terms are defined in the Bidding Procedures) fail to perform, and

1 The Whole Loan Portfolios include portfolios of term loans and lines of credit (Dealstruck Portfolio), merchant credit advances/future receivables sales agreements (Biz2Credit Portfolio), and unsecured consumer point-of-sale loans (LoanHero Portfolio). They are referred to for convenience as “loans” and all of the portfolios in question involved ultimate borrowers that may be individuals or small businesses.

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(b) approving the related Bidding Procedures employed by the Receiver and its

investment banker to sell the Whole Loan Portfolios, and the use of modified

private sale procedures, under 28 U.S.C. section 2001(b) and 2004, as reasonable

and appropriate under the circumstances for good cause shown by this Motion and

supporting pleadings;

2. An order authorizing the Receiver to pay his Court-approved

investment banker, Raymond James & Associates, Inc. (“RJA”) for its services in

connection with the sale of the three Whole Loan Portfolios for the fees associated

with the disposition of the three Whole Loan Portfolios pursuant to its previously

approved engagement agreement, approved by the Court’s order entered July 2,

2019 (Doc. No. 87)2 to be paid from the receivership estate’s sale proceeds; and

3. An order authorizing the form of notice on this Motion provided to

interested parties, creditors, and investors, who are potential creditors of the estate,

by the Receiver (a) serving the Motion and related moving papers on all parties to

the action, (b) serving by mail a notice of hearing on the Motion to all known

creditors pursuant to Local Civil Rule 66-7, (c) posting a copy of the Motion on the

Receiver’s website for the case at https://cases.stretto.com/dli; and (d) causing the

Receiver’s Court-approved claims agent, Bankruptcy Management Solutions dba

Stretto, to provide by email a copy of the notice of hearing on the Motion to all

known investors through its email service to investors in Direct Lending Income

Fund, L.P. (“Domestic Feeder Fund”) and Direct Lending Income Feeder Fund,

Ltd. (“Off Shore Feeder Fund”), the receivership entities through which

investments were obtained.

2 The confidential fee schedule setting forth the amount of the RJA fees related to specific assets has been filed under seal as confidential, and based on the detriment to the estate in negotiating and selling the assets if the specific fee information were made public. If requested by the Court, the Receiver can provide a calculation of the fees for in camera inspection when the Successful Bids have been identified through the sale process.

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https://cases.stretto.com/dli

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Pursuant to the authority granted to the Receiver by the Court’s July 2, 2019

Order (Doc. No. 87), beginning on August 1, 2019, the Receiver began offering for

sale the three Whole Loan Portfolios through its Court-approved investment banker,

RJA. Because of the size and nature of the Whole Loan Portfolios, the Receiver, in

the exercise of his business judgment, informed through consultation with RJA,

concluded that time is of the essence in selling the Whole Loan Portfolios and that

in order to maximize value for these portfolios, the Receiver had to offer them for

sale, solicit bids, conduct an auction with an opportunity for overbidding if the

Receiver was able to generate more than one qualified bid for the portfolios, present

the sales for Court approval and confirmation and close the sales within

approximately 60 days. The Receiver therefore implemented the sale and Bidding

Procedures attached as Exhibit “1” to the Declaration of Adam Kauffman and

explained in the Kauffman Declaration and Memorandum of Points and Authorities

filed in support of this Motion.

By this Motion, the Receiver seeks approval of the Bidding Procedures, and

approval and confirmation of the sales produced through the process to obtain

buyers for the Whole Loan Portfolios. The Successful Bidders, and any Backup

Bidders, will be identified in a subsequent filing by the Receiver at least one week

prior to the scheduled hearing on the Motion. In summary, the sale and Bidding

Procedures and request for confirmation of the sale to the Successful Bidders and

Backup Bidders, if any, include the following procedures:

• Receiver through RJA began offering the Whole Loan Portfolios for sale, soliciting bids, and providing an opportunity for potential bidders

to conduct due diligence on August 1, 2019, and subject to written

Bidding Procedures available to all potential bidders on or about

August 13, 2019.

• Qualified Bidders, as defined in the Bidding Procedures, may obtain

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access to due diligence materials through a Virtual Data Room on the

condition that they execute a confidentiality agreement (NDA) to

review the details and documents concerning the loans and extensions

of credit included in the Whole Loan Portfolios. Bidders must execute

a standard Asset Purchase Agreement (“APA”) providing for the sale

of the Whole Loan Portfolios on an “as is, where is” and non-recourse

basis as detailed in the APA.

• Bids for the Whole Loan Portfolios are due on August 29, 2019. The Receiver will accept for review bids for the entirety of each of the

three Whole Loan Portfolios offered for sale, and bidders must bid

separately for each portfolio.

• If multiple Qualified Bids are received for any of the Whole Loan Portfolios or for the three Whole Loan Portfolios collectively, then the

Receiver may conduct an auction on September 5, 2019 at which those

Qualified Bidders may present overbids in increments generally of up

to $50,000 or 5% of the previous highest bid, or such other increments

as the Receiver in his discretion may choose to implement.

• The availability of the Whole Loan Portfolios for sale will be advertised in the Wall Street Journal, West Coast publication, by

August 15, 2019, and the ad will be available in both a print and on-

line edition of that publication; and RJA has issued notices targeted to

a contact list of more than 60 lenders, investors, collection agencies,

loan services companies and other parties who are believed to have

potential interest in purchasing these portfolios, culled from its

extensive contact list, advising that the Whole Loan Portfolios were

being offered for sale, that the due diligence period was open, and that

August 29, 2019 is the deadline for submission of bids for the Whole

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Loan Portfolios. The Motion with the Bidding Procedures will also be

posted on the Receiver’s website for the receivership.

• Bidders have been advised that any objections to the sale under the bidding procedures or the conduct of the auction must be filed by

September 9, 2019.

• By no later than September 16, 2019, one week prior to the scheduled hearing on this Motion, the Receiver will file a Notice and Statement

of Sale Results with the Court. The Notice and Statement of Sale

Results will advise the Court and interested parties of (a) the bids

received as of August 29, 2019, (b) the results of any auction, (c)

whether any objections were received and the Receiver’s response to

those objections, (d) details regarding the Successful Bids, and Backup

Bids, if any, for the sales of the Whole Loan Portfolios, including

confirming to the Court that to the best of the Receiver’s knowledge

and belief the Successful Bidders and Backup Bidders are good faith

purchasers for the highest and best values reasonably realizable for the

sale of the assets in question.

• The Receiver reserves the right to withdraw any or all of the Whole Loan Portfolios at any time, for any reason or for no reason, in the

Receiver’s sole discretion.

The Receiver submits that for the reasons detailed in the declarations and

memorandum filed in support of the Motion, good cause exists to modify the sale

procedures and requirements for confirmation of private sales of property by a

receiver under 28 U.S.C. sections 2001(b) and 2004, that appropriate and reasonable

notice of the sale of the Whole Loan Portfolios and an opportunity for interested

parties to bid for these assets has been provided, and that the sale procedures and

sales to the highest Successful Bidders, and Backup Bidders should be approved and

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confirmed as requested to obtain the best available value for these assets, minimize

expenses associated with the sale or with multiple motions or hearings on the

proposed sales, and maximize the net amounts realized for the receivership estate and

its creditors.

The Motion is made following the Receiver’s communications with counsel

for the Securities and Exchange Commission under Local Rule 7-3, and the Receiver

anticipates that the SEC will not oppose the Motion, subject to review of the Motion

and supporting papers. There are numerous interested parties served with the

Motion, making a pre-filing conference with the other interested parties

impracticable.

This Motion is based upon this Notice, the following Memorandum of Points

and Authorities, the concurrently filed Declaration of Bradley D. Sharp and

Declaration of Adam Kauffman, the separate notice of hearing on the Motion, the

subsequent Statement and Notice regarding the sale results and related pleadings to

be filed on or before September 16, 2019, and upon such further oral argument,

testimony and evidence as may be received at the hearing on this matter.

PLEASE TAKE FURTHER NOTICE that pursuant to Local Rule 7-9, any

party who opposes the Motion must, not later than 21 days before the date of the

hearing on the motion, serve upon all other parties and file with the Clerk either (a)

the evidence upon which the opposing party will rely in opposition to the motion and

a brief but complete memorandum which shall contain a statement of all the reasons

in opposition thereto and the points and authorities upon which the opposing party

will rely, or (b) a written statement that that party will not oppose the motion.

// // // // // //

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Evidence presented in all opposing papers shall comply with the requirements of

L.R. 7-6, 7-7 and 7-8.

DATED: August 13, 2019 DIAMOND McCARTHY LLP

By: /s/ Christopher D. Sullivan

Christopher D. Sullivan Counsel for Bradley D. Sharp, Permanent Receiver

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TABLE OF CONTENTS

I. INTRODUCTION ............................................................................................. 1

II. FACTS SUPPORTING RELIEF ...................................................................... 1

III. THE GOAL OF PRESERVATION OF THE ESTATE AND THE COURT’S BROAD DISCRETION TO APPROVE MODIFIED SALE PROCEDURES FOR SALES OF PERSONAL PROPERTY WARRANT APPROVAL OF THE BIDDING PROCEDURES AND CONFIRMATION OF THE SALES PRODUCED BY THOSE PROCEDURES. ................................................................................................ 6

A. The Court Can Approve Modified Sale Procedures for the Sale of Personal Property. ................................................................................... 6

B. The Modified Sale Procedures Are Appropriate Under the Circumstances and Meet the Goals of Notice, An Opportunity to Bid and An Opportunity to Maximize Value. ......................................... 8

IV. NOTICE OF THE HEARING ON THIS MOTION SHOULD BE DEEMED APPROPRIATE AND SUFFICIENT ........................................... 10

V. CONCLUSION ............................................................................................... 11

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TABLE OF AUTHORITIES Cases

Consumer Financial Protection Bureau v. Pension Funding, LLC, 2017 WL 10562570 (C.D. Cal. May 31, 2017) ........................................................ 7

In re First Alliance Mortgage Co., 269 B.R. 428 (C.D. Cal. 2001) ............................................................................... 11

SEC v. Morriss, 2014 WL 1347528 (E.D. Mo. April 2, 2014) ........................................................... 7

SEC v. Wang, 2015 WL 12656907 (C.D. Cal. Aug. 25, 2015) ....................................................... 7

Securities and Exchange Commission v. Black, 163 F.3d 188 (3rd Cir. 1998) .................................................................................... 7

Securities and Exchange Commission v. Elliot, 953 F.2d 1560 (11th Cir. 1992) ................................................................................ 7

Securities and Exchange Commission v. Hardy, 803 F.2d 1034 (9th Cir. 1986) .................................................................................. 7

Tanzer v. Huffines, 412 F.2d 221 (3d Cir. 1969) ..................................................................................... 6

United States v. Branch Coal Corp., 390 F.2d 7 (3rd Cir. 1968) ........................................................................................ 7

Statutes

11 U.S.C. § 102(1)(A) ................................................................................................ 11

28 U.S.C. § 2001(b) .............................................................................................. 3, 6, 9

28 U.S.C. § 2004 ....................................................................................................... 6, 7

Rules

Fed. R. Civ. P. 5(a) ..................................................................................................... 10

Fed. R. Civ. P. 5(c) ..................................................................................................... 10

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MEMORANDUM OF POINTS AND AUTHORITIES

I. INTRODUCTION

On April 1, 2019, this Court entered the Preliminary Injunction Order and

Order Appointing Permanent Receiver (“Receiver Order”), Doc. No. 10, appointing

Bradley D. Sharp (“Receiver”) as permanent receiver for the estate of defendant

Direct Lending Investments LLC (“DLI”), and Direct Lending Income Fund, L.P.,

Direct Lending Income Feeder Fund, Ltd., DLI Capital, Inc., DLI Lending Agent,

LLC, and DLI Assets Bravo, LLC and their successors, subsidiaries and affiliated

entities (the “Receivership Entity”).

The Receiver has been granted the full powers of an equity receiver over all

funds, property and assets belonging to, being managed by or in the possession of

or control of the Receivership Entity. (Receiver Order, Section VI). In addition,

among other things, the Receiver Order provides that the Receiver has been granted

specific powers to sue, marshal, collect, and take possession of the Receivership

Entity’s property, and to “take such action as is necessary and appropriate to

preserve and take control of and to prevent the dissipation, concealment, or

disposition of any assets of or managed by the Receivership Entity.” (Receiver

Order Section VI.A. and D.) II. FACTS SUPPORTING RELIEF

The entities comprising the Receivership Entity are operating for the current

purpose of monitoring and supervising their primary assets, which consist of

portfolios of loans made by the Receivership Entity to third party borrowers. DLI

obtained investors for its loan portfolios through two “feeder” funds which were

structured as limited partnerships, one covering the United States investors (the

Domestic Feeder Fund) and one located in the Cayman Islands covering

investments made through a related Cayman Islands limited partnership (the

Offshore Feeder Fund).

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In turn, the investments obtained by the feeder funds were transferred to DLI

Capital, Inc., the “master fund” and then to other Receivership Entities, primarily

DLI Assets Bravo, LLC (“DLI Assets Bravo”) which loaned or invested the funds

directly or indirectly to third parties. The third party borrowers were generally

lenders which made loans or extensions of credit to others (the “subsequent loans”).

The subsequent loans generally constitute collateral for the loans by DLI Assets

Bravo or were acquired by DLI Assets Bravo. The Receivership Entities also

purchased loans and extensions of credit made directly to consumers and small

businesses (the “whole loans”) and hold four portfolios of whole loans originated

by third party entities, three of which the Receiver seeks to sell pursuant to this

Motion.

The Receiver has previously reported to the Court in his First Status Report

filed April 12, 2019 (Doc. No. 15) the Receiver’s preliminary findings and

information regarding the assets and investor amounts listed on the Receivership

Entity books and records. The books and records show total combined investments

through February 1, 2019 in DLIF and DLIFF of approximately $791 million and

loans with an aggregate value on the Receivership Entity books and records of

approximately $755 million. The Receiver is still in the process of evaluating and

assessing the accuracy of these figures. The issues concerning the value and

collectability of the Quarterspot and VoIP Guardian Partners I, LLC, totaling over

$200 million on par value on the Receivership Entity books when the Receiver was

appointed, has also been addressed in prior filings.

DLI Assets Bravo holds portfolios of loans originated by three entities,

Dealstruck Funding 3, LLC (the “Dealstruck Portfolio”), Biz2Credit (the

“Biz2Credit Portfolio”), and LoanHero (the “LoanHero Portfolio”) (collectively,

the “Whole Loan Portfolios”). The Whole Loan Portfolios had an aggregate par

amount owed of approximately $29.8 million as of June 30, 2019, which includes

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approximately $7 million in par amount of loans or extensions of credit in

collection in one of the Whole Loan Portfolios. The portfolios all involve small

business or consumer lending, including term loans and lines of credit (Dealstruck

Portfolio), merchant credit advances/future receivables sales agreements

(Biz2Credit Portfolio), and unsecured consumer point-of-sale loans (LoanHero

Portfolio).

Pursuant to the Court’s July 2, 2019 Order granting the Receiver’s motion to

employ RJA and to market and sell assets, the Receiver was authorized by the

Court “to list and market for sale or other disposition the portfolio of loans

comprising the primary assets of the receivership estate by selling the loans

separately, in combination, or in bulk based on the advice of RJA and the

Receiver’s business judgment; to negotiate and document one or more agreements

for the disposition or sale of the portfolio of loans as appropriate; and to execute

such agreements for the disposition or sale disposition of the portfolio of loans,

subject to the Receiver seeking and obtaining Court approval for the specific

agreements for disposition or sale of these assets upon motion and with notice and

an opportunity for hearing by the interested parties.”

The Receiver, with the advice and consultation of the professionals at RJA,

has offered the Whole Loan Portfolios for sale in the manner described in the

Bidding Procedures and in this Motion, and with a timetable for prompt

confirmation of the sale and closing after entry of a sale confirmation order, as the

best means and timetable to maximize value for the estate from these portfolios.

The Whole Loan Portfolios, compared to the remainder of the loan and investment

assets, are relatively small in terms of the size of the portfolios even at par value,

and considering that loans with a par amount of approximately one-quarter of the

outstanding amount for the aggregate value of the three portfolios being in default.

Based on the Receiver’s and RJA’s experience, there is a limited pool of buyers for

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the Whole Loan Portfolios in light of the relatively small size of the portfolios, the

number of loans comprising each of the portfolios, the relatively low-dollar value of

the individual loans, the delinquency rates in one of the portfolios, and other facts

and circumstances. Time as a result is significant in achieving value for these

portfolios as no new loans are being added to these portfolios so each month the

value of the loans in the portfolios declines through scheduled payments,

prepayments, or other factors, including defaults. Prompt disposition of the assets

is thus essential, and any buyers for the Whole Loan Portfolios will want to close

the sale and obtain the assets purchased for their accounts as soon as possible.

By the Court’s prior order, the Receiver has been authorized to enter into sale

contracts for the sales of these assets, subject to Court approval. Further, as set

forth below, the statutes governing the sales of personal property by a receiver

allow the Court flexibility in modifying the sale procedures as appropriate under the

circumstances. Based on the sale and bidding process described in the Motion, the

Bidding Procedures, this memorandum and the supporting declarations, the

Receiver now seeks approval of the specific agreements to sell each of the Whole

Loan Portfolios to the Successful Bidders, or Backup Bidders, if any, based on the

highest and best bids received for each of the Whole Loan Portfolios from the bids

received by August 29, 2019, or if multiple Qualified Bids are received and an

auction is conducted on September 5, 2019, based on the highest and best bids

received at the auction. The Receiver expects to enter into one or more Asset

Purchase Agreements for the “as is, where is” and nonrecourse sale of the Whole

Loan Portfolios based on the outcome of the bidding process and any auction that

may be conducted prior to the sale confirmation hearing on this Motion on

September 23, 2019.

At least one week prior to the hearing on this Motion, the Receiver will

provide the Court and interested parties the identity of the party or parties which

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submit the Successful Bid(s), the amount to be paid for the purchase of the Whole

Loan Portfolios, or the individual portfolios if separate Successful Bids are accepted

for sales of the portfolios individually, and other details in support of the approval

and confirmation of the sale of the Whole Loan Portfolios at the hearing on this

Motion. In the interests of maximizing value for these portfolios and minimizing

expense, and consistent with the Receiver’s authority by the July 2, 2019 Order to

enter into sale contracts, the Receiver has proposed this compressed process of

approving the bidding process/sale procedures and confirming the sales produced

through this process, as time is critical to closing and transferring these portfolios to

the ultimate buyers.

The Receiver has previously advised the Court that the Receivership Entity

has a limited number of personnel, and does not have sufficient trained personnel

necessary to monitor, manage, collect, and enforce the loans comprising the loan

portfolios on an ongoing basis. The value of the loan portfolios may be in jeopardy

until the loans are sold, refinanced, or otherwise disposed of because of the lack of

sufficient trained personnel, issues noted above as to certain the loan portfolios

discovered by the Receiver; and the risks and potential volatility in the value of the

loan portfolios depending on the financial activities of the third party borrowers,

and the borrowers under the subsequent loans, as well as developments in the

broader economy, which may particularly affect the assets in the Whole Loan

Portfolios.

Each of the Whole Loan Portfolios is subject to a Court-approved fee for RJ

upon disposition. The Receiver requests that upon approval of the sales by the

Court and closing by the purchasers, the Court authorize the Receiver to pay RJ the

fees and out of pocket expenses due under the confidential fee schedule.

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III. THE GOAL OF PRESERVATION OF THE ESTATE AND THE COURT’S BROAD DISCRETION TO APPROVE MODIFIED SALE PROCEDURES FOR SALES OF PERSONAL PROPERTY WARRANT APPROVAL OF THE BIDDING PROCEDURES AND CONFIRMATION OF THE SALES PRODUCED BY THOSE PROCEDURES.

The July 2, 2019 Order authorized the Receiver to enter into sale agreements

for the disposition of the loan and investment portfolios, subject to Court approval

of the specific sales. The Receiver seeks approval of the sales of the three Whole

Loan Portfolios and approval of the modified sale procedures for the sales of these

unique and difficult assets as the highest and best value likely to be achieved for

these assets.

A. The Court Can Approve Modified Sale Procedures for the Sale of

Personal Property.

A receiver in a federal receivership is authorized to sell personal property

under the procedures of 28 U.S.C. §§ 2001 and 2004. See Tanzer v. Huffines, 412

F.2d 221, 222 (3d Cir. 1969). Section 2004 provides that: “Any personal property

sold under order or decree of any court of the United States shall be sold in

accordance with Section 2001 of this title, unless the court orders otherwise.” 28

U.S.C. § 2004 (emphasis added).

Section 2001 sets forth the procedures to be followed for the sale of real

property by a receiver which vary depending on whether the sale is by public sale

(section 2001(a)) or by private sale (section 2001(b)). The real property sale

procedures include procedures for publishing notice of the proposed sale, appointing

appraisers in the case of a private sale, providing at least 10 days’ notice of the sale

and an opportunity for overbidding prior to confirmation of a private sale, and a

requirement that a private sale price be not less than 2/3 the amount of the average

value of the property based on three appraisals. See 28 U.S.C. §§ 2001 and 2002.

With respect to personal property sales, the Court has more flexibility, and

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courts often find cause to deviate from the statutory requirements of §§ 2001, 2002,

and 2004. See SEC v. Wang, 2015 WL 12656907 at *3 (C.D. Cal. Aug. 25, 2015)

(court has discretion to waive statutory requirements for personal property sales;

parties may by consent waive requirements for real property sales); Consumer

Financial Protection Bureau v. Pension Funding, LLC, 2017 WL 10562570 at *1

(C.D. Cal. May 31, 2017) (court approves waiver of statutory requirements for sale

of participatory interest in a loan); SEC v. Morriss, 2014 WL 1347528 at *1 (E.D.

Mo. April 2, 2014) (citing limited pool of potential purchasers, nature of the interest

in the private company being sold and other factors, court approves receiver’s sale of

interest in company outside statutory requirements).

The District Court has wide latitude in adopting a procedure for the sale of

personal property and except in cases where abuse is shown, appellate courts will not

disturb the exercise of the District Court’s discretion in setting the terms and

conditions for a judicial sale or the confirmation thereof. See United States v.

Branch Coal Corp., 390 F.2d 7 (3rd Cir. 1968) cert. den. Sun Protection Co. v. U.S.,

391 U.S. 966, 88 S. Ct. 2034, 20 L.Ed. 2d 878 (1968). Except in cases of abuse,

appellate courts will not disturb the exercise of the District Court’s discretion in

setting the terms and conditions for a judicial sale or the confirmation thereof. Id.

The discretion granted in connection with sales of assets is consistent with the

broad discretion accorded to the Court sitting in equity in receivership proceedings to

make orders concerning the administration and supervision of the estate that will

promote equity, efficiency and cost-effectiveness in the estate’s administration. See

generally Securities and Exchange Commission v. Hardy, 803 F.2d 1034, 1037 (9th

Cir. 1986) (“[A] district court’s power to supervise an equity receivership and to

determine the appropriate action to be taken in the administration of the receivership

is extremely broad”). See also Securities and Exchange Commission v. Black, 163

F.3d 188, 199 (3rd Cir. 1998); Securities and Exchange Commission v. Elliot, 953

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F.2d 1560 (11th Cir. 1992).

B. The Modified Sale Procedures Are Appropriate Under the

Circumstances and Meet the Goals of Notice, An Opportunity to

Bid and An Opportunity to Maximize Value.

The Receiver through RJA has provided both broad and targeted notice of the

offer to sell the Whole Loan Portfolios. Since August 1, 2019, RJA has sent

targeted emails to a contact list of more than 60 lenders, investors, collection

agencies, loan services companies and other parties who are believed to have

potential interest in purchasing these portfolios, culled from its extensive contact

list, advising that the Whole Loan Portfolios were being offered for sale, that the

due diligence period was open, and that August 29, 2019 is the deadline for

submission of bids for the Whole Loan Portfolios. By August 15, 2019, the

Receiver will publish notice of the proposed sale of the portfolios and the bidding

deadline of August 29, 2019 in the Wall Street Journal, West Coast edition

newspaper, where the ad will appear in both a print and on-line edition of the paper.

The Motion with the Bidding Procedures will also be posted on the Receiver’s

website for the receivership.

Based on RJA’s extensive experience and expertise as set forth in the

Kauffman Declaration, there are limited numbers of buyers who would have an

interest in acquiring these asset portfolios. The assets do not involve traditional

bank or commercial loans. Individual loan/credit extension amounts are relatively

small and many are unsecured. The broad notice of the opportunity to bid for the

transactions through newspaper and on-line published notice coupled with direct

marketing by RJA to a relevant universe of contacts with the financial ability,

knowledge of the market, and potential interest in acquiring loan and credit assets

of this type is the most efficient, cost-effective and likely means of locating buyers

for these assets. In addition, notice of this Motion and the bidding opportunity is 8



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being broadly disseminated more than 35 days in advance of the hearing on the

Motion to creditors and investors and posted on the Receiver’s website for the case,

providing additional broad and public notice of the chance to purchase these assets

by interested parties.

Notice to likely buyers is also the most reasonable, cost-effective and

efficient way for market forces to test and determine the value of these portfolios.

These assets cannot be readily “appraised”; the value is a function of the

outstanding “par” amount owed on the portfolios coupled with a buyer’s assessment

of the collectability of the underlying credit facilities, after taking into the servicing

costs and the risks associated with small business/consumer loans of this type. The

difficulty in locating any qualified valuation experts for these portfolios as well as

time delay and inordinate expense that would be incurred by the estate while the

value of the portfolios decreases each month make obtaining appraisals impractical

and of little utility in any event. The market will determine the value of the

portfolios, along with the Receiver’s business judgment with the advice of RJA and

their experience to assess the offers made when bids are received, and to reach a

conclusion as to whether the estate will be better off selling the portfolios, or

retaining and administering them based on the bid amounts received.

The bidding procedures also build in an opportunity for overbidding at an

auction for qualified bidders to submit overbids to increase the amounts offered for

the portfolios. All qualified bidders are notified through the bidding procedures

that there will be overbidding if multiple qualified bids are received, and of the

date, time and place for the overbidding/auction session. This is consistent with the

overbidding process contemplated in section 2001(b).

The timing of the auction, and setting of the sale confirmation hearing on this

Motion, are also designed to provide a fair notice and opportunity for hearing on the

proposed sales. They provide the time necessary for the Receiver to file with the

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Court specific and detailed information regarding the results of the bidding and sale

process, while allowing the sale to be confirmed and the sale closed as soon as

possible after the conclusion of any auction, and potentially by the end of

September within roughly 30 days of the bid deadline.

For all the reasons set forth herein and in the declarations in support of this

Motion, the Receiver requests the Court’s approval of the bidding procedures and

confirmation of the specific sales produced by these procedures. IV. NOTICE OF THE HEARING ON THIS MOTION SHOULD BE

DEEMED APPROPRIATE AND SUFFICIENT

The Receiver has served notice of the hearing on this Motion on the parties

and by mail to the known non-investor creditors of the Receivership Entity. The

Receiver has posted the notice of hearing and the Motion on the Receiver’s website

(https://cases.stretto.com/dli). The Receiver has also directed Stretto, his Court-

approved claims agent, to email the notice of hearing to all investors by August 16,

2019, the earliest date possible for Stretto to complete the email service. The

Receiver believes this notice complies with the provisions of Local Civil Rule 66-7

to the extent that notice to investors is required. The Receiver requests that the

Court approve this form of notice as reasonable, appropriate, and the most cost-

effective means of providing notice of the hearing under the circumstances, since

there are approximately 975 investors both in the United States and overseas, and to

the extent necessary, to approve the notice given as reasonable, limited notice

appropriate under the circumstances and in the interests of time and cost. This

Court, as a court of equity supervising the receivership estate, may make

appropriate administrative orders governing the receivership, including limitations

on and changes in notice and other procedures. See F.R. Civ. P. 5(a) and (c)

(authorizing the court to modify service procedures when numerous defendants are

involved in litigation). In addition, pursuant to Local Civil Rule 66-8, a receiver is

directed to administer receivership estates in a manner “as nearly as possible in 10




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accordance with the practice in the administration of estates in bankruptcy.” Orders

limiting notice when the Bankruptcy Code or Rules would otherwise require notice

to all creditors are routinely granted in bankruptcy cases to promote the expeditious

and economical administration of bankruptcy estates. See In re First Alliance

Mortgage Co., 269 B.R. 428, 442 (C.D. Cal. 2001) (referencing in dicta in the

court's recitation of facts the bankruptcy court's order limiting notice issued in that

case); 11 U.S.C. section 102(1)(A) (defining the phrase "after notice and a hearing"

to mean "after such notice as is appropriate in the particular circumstances, and

such opportunity for hearing as is appropriate in the particular circumstances"). V. CONCLUSION

WHEREFORE, the Receiver respectfully requests entry of an order granting

the relief set forth in the Motion and proposed order submitted with the Motion.

DATED: August 13, 2019 DIAMOND McCARTHY LLP

By: /s/ Christopher D. Sullivan Christopher D. Sullivan

Counsel for Bradley D. Sharp Permanent Receiver

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Case 2:19-cv-02188-DSF-MRW Document 105-1 Filed 08/13/19 Page 1 of 11 Page ID #:1566

EXHIBIT 1

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NOTICE OF SALE OF THREE WHOLE LOAN PORTFOLIOS AND OPPORTUNITY TO BID

On March 22, 2019, the Securities and Exchange Commission filed a complaint against

Direct Lending Investments, LLC (“DLI”) in the United States District Court for the Central District of California (“Court”), Case No. 2:19-cv-2188 DSF (MRWx) (the “SEC Action”). On April 1, 2019, the Court in the SEC Action issued a Preliminary Injunction Order and Order Appointing Permanent Receiver (“Receiver Order”), appointing Bradley D. Sharp as permanent receiver (“Receiver”) for the estate of DLI, and for other entities, including but not limited to DLI Assets Bravo, LLC (referred to as the “Company”).

The Company’s assets include, among other assets, (1) a portfolio of loans or other

extensions of credit originated by Dealstruck Funding 3, LLC (the “Dealstruck Portfolio”); (2) a portfolio of loans or other extensions of credit originated by Biz2Credit (the “Biz2Credit Portfolio”); and (3) a portfolio of loans or other extensions of credit originated by LoanHero (the “LoanHero Portfolio”) (collectively, the “Assets”). The aggregate par amount of the Assets in the three Portfolios is ~$29.8 million at June 30, 2019 inclusive of ~$7.0million of loans in collection in one Portfolio.

Subject to Court approval, the Assets are being offered for sale by bid, with all bidders

required to become Qualified Bidders under the terms of the Bidding Procedures and all Qualified Bids due by August 29, 2019 at 5:00 p.m. Pacific Time. If multiple bids are received for any of the portfolios, an auction at which Qualified Bidders can bid will be held on September 5, 2019 at 10:00 a.m. Pacific Time in Los Angeles, California. The sale of the Assets, including the Dealstruck Portfolio, the Biz2Credit Portfolio, and the LoanHero Portfolio, is expressly subject to Court approval in the SEC Action of the Bidding Procedures, and Court approval and confirmation of the sale of the Assets at a hearing currently scheduled for 1:30 p.m. on September 23, 2019 in the SEC Action. The specific loans and extensions of credit included in each of the Dealstruck Portfolio, Biz2Credit Portfolio, and LoanHero Portfolio comprising the Assets being offered for sale are set forth in the Dealstruck Portfolio Schedule, the Biz2Credit Portfolio Schedule and the LoanHero Schedule which will be provided only to interested prospective bidders who execute the confidentiality agreement to become a Qualified Bidder and gain access to the Data Room pursuant to the Bidding Procedures. All Assets will be sold only “as is, where is” without representations or warranties and on a nonrecourse basis. This notice is only a summary of certain terms and conditions of the proposed sale and opportunity to bid for the Assets. Any persons interested in bidding must obtain and comply with the Bidding Procedures by contacting the Receiver’s investment bank, Raymond James & Associates, Inc. as follows: (1) Adam Kauffman, (416) 777-7145, [email protected]; (2) Rory Keenan (212) 885-1807, [email protected]. Additional information is also contained in the Motion for approval of the sale filed in the SEC Action.

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mailto:[email protected]


EXHIBIT 1

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IN THE UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

Case No. 2:19-cv-2188 DSF (MRWx)

BIDDING PROCEDURES FOR SALE OF WHOLE LOAN ASSETS

On March 22, 2019, the Securities and Exchange Commission filed a complaint

commencing an action against Direct Lending Investments, LLC (“DLI”) in the United States District Court for the Central District of California (“Court”), Case No. 2:19-cv-2188 DSF (MRWx) (the “SEC Action”). On April 1, 2019, the Court in the SEC Action issued a Preliminary Injunction Order and Order Appointing Permanent Receiver (“Receiver Order”), appointing Bradley D. Sharp as permanent receiver (“Receiver”) for DLI, and for Direct Lending Income Fund, L.P., Direct Lending Income Feeder Fund, Ltd., DLI Capital, Inc., DLI Lending Agent, LLC, and DLI Assets Bravo, LLC (referred to herein as the “Company”) and their successors, subsidiaries and affiliated entities.

The Company’s assets include, among other assets, (1) a portfolio of loans or other

extensions of credit originated by Dealstruck Funding 3, LLC (the “Dealstruck Portfolio”); (2) a portfolio of loans or other extensions of credit originated by Biz2Credit (the “Biz2Credit Portfolio”); and (3) a portfolio of loans or other extensions of credit originated by LoanHero (the “LoanHero Portfolio”) (collectively, the “Assets”). The aggregate par amount of the Assets in the three Portfolios is ~$29.8 million at June 30th, 2019 inclusive of ~$7.0million of loans in collection in one Portfolio. The specific loans and extensions of credit included in each of the Dealstruck Portfolio, Biz2Credit Portfolio, and LoanHero Portfolio comprising the Assets being offered for sale pursuant to these Bidding Procedures are set forth in the Dealstruck Portfolio Schedule, the Biz2Credit Portfolio Schedule and the LoanHero Schedule which will be provided to interested prospective bidders who execute the confidentiality agreement as set forth below to become a Qualified Bidder and gain access to the Data Room as defined below. All Assets will be sold only “as is, where is” without representations or warranties and on a nonrecourse basis. Subject to Court approval of these procedures and approval of the sale of the Assets at a hearing to be conducted on September 23, 2019, unless adjourned or continued as set forth in these Bidding Procedures, the Company, through the Receiver, is soliciting bids for the Assets and will seek Court approval and confirmation of the sale of the Assets to the Successful Bidder, or the Backup Bidder, as those terms are defined below, in accordance with these Bidding Procedures. Any bidding and sale of the Assets pursuant to the Bidding Procedures shall be referred to as a “Transaction,” regardless of the form it takes.

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. DIRECT LENDING INVESTMENTS, LLC, Defendant.

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Pursuant to an Order of the Court in the SEC Action entered July 2, 2019 (Doc. 87), the Receiver has been authorized to list and market for sale these loan portfolios by selling the loans separately, in combination, or in bulk; to negotiate, document and execute agreements for the sale of the loan portfolios, subject to the Receiver seeking and obtaining Court approval for the specific agreements for disposition or sale of the assets upon motion and with notice and an opportunity for hearing by interested parties. Order (Doc. 87), para. 2.B.

THE SUBMISSION OF A BID IN CONNECTION WITH THE OFFER FOR

SALE OF THESE ASSETS IS DEEMED TO CONSTITUTE CONSENT BY THE BIDDER TO BE BOUND TO ALL TERMS AND CONDITIONS OF THESE BID PROCEDURES.

ANY PARTY INTERESTED IN BIDDING ON THE ASSETS SHOULD

CONTACT THE RECEIVER’S INVESTMENT BANK, RAYMOND JAMES & ASSOCIATES, INC.:

1. Adam Kauffman, (416) 777-7145, [email protected] 2. Rory Keenan (212) 885-1807, [email protected]

Summary of Important Dates

Sale Process commencement August 1, 2019

Motion to Approve Bidding/Auction Procedures and Sale of Assets to Successful Bidder(s), or Backup Bidder(s)

To be filed on or about August 12, 2019

Deadline to object to conduct of Auction and designation of Successful Bidders, and adequate assurance, subject to Court approval

September 9, 2019 (two weeks prior to the date of hearing on the Sale Approval Motion)

Bid Deadline August 29, 2019 at 5:00 p.m. Los Angeles time

Auction September 5, 2019 at 10 a.m. Los Angeles time

Notice and Statement Regarding Successful Bidder(s), or Backup Bidder(s)

To be filed September 16, 2019

Sale Hearing September 23, 2019 at 1:30 p.m. Los Angeles time

Sale Closing [As soon as practicable after Sale Hearing and not later than five business days after Court approval of the sale of Assets]

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1. Assets to Be Sold

The Receiver is offering for sale each Portfolio of Assets. Potential Bidders (as defined below) may bid on any or all of the Portfolios of Assets, however each bid must be for the entirety of each portfolio. Potential Bidders are required to submit a separate bid for each portfolio.

2. Participation Requirements

Any person or entity that wishes to participate in the bidding process for the Assets

(each, a “Potential Bidder”) must first become a “Qualifying Bidder.” To become a Qualifying Bidder (and thus be able to conduct due diligence and gain access to the Company’s confidential electronic data room concerning the Assets (the “Data Room”)), a Potential Bidder must submit to the Receiver and his advisors Raymond James & Associates, Inc. (“Raymond James”):

(a) documentation identifying the interested party, its principals, and the

representatives thereof who are authorized to appear and act on their behalf for all purposes regarding the contemplated Transaction;

(b) an executed confidentiality agreement in form and substance reasonably

satisfactory to the Receiver, which by its terms will inure to the benefit of the Successful Bidder(s);

(c) a statement and other factual support demonstrating to the Receiver’s sole

satisfaction that the interested party has a bona fide interest in consummating a Transaction; and

(d) sufficient information, as determined solely by the Receiver, to allow the

Receiver to determine that the interested party has, or can obtain, the financial wherewithal and any required internal corporate, legal or other authorizations to close a Transaction.

Each Potential Bidder shall comply with all reasonable requests for information and due

diligence by the Receiver, or his advisors regarding the ability of such Potential Bidder, as applicable, to consummate its contemplated Transaction.

3. Court Jurisdiction

Any Potential Bidders and Qualifying Bidders shall: (a) be deemed to have waived any right to a jury trial in connection with, and consented and submitted to the exclusive jurisdiction of the Court over, any actions or proceedings arising from or relating to the Bidding Procedures, the respective Transaction proposed by each such party, the Auction (as defined below) and the construction and enforcement of the contemplated Transaction documents of such parties; (b) bring any such action or proceeding in the Court; and (c) be deemed to have consented to the Court entering a final judgment determining any such action or proceeding and that such final judgment in any such action or proceeding, including all appeals, shall be conclusive and may be enforced in other jurisdictions (including any foreign jurisdictions) by suit on the judgment or in any other manner provided by applicable law.

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4. Form of Agreement

Potential Bidders intending to submit bids must include with their bids an asset purchase agreement (a “Purchase Agreement”). The Purchase Agreement shall be in the form of the Purchase Agreement included in the Data Room and include a redline marked against the form Purchase Agreement that shows all changes to the Purchase Agreement.

5. Due Diligence

The Receiver will provide any Qualifying Bidder with reasonable access to the

Company’s Data Room and any other available additional information that the Receiver believes to be reasonable and appropriate under the circumstances. All additional due diligence requests shall be directed to Raymond James, the Receiver’s investment bank.

The due diligence period shall extend through and including the Bid Deadline. The

Receiver may, but shall not be obligated to, in its reasonable discretion, furnish any due diligence information after the Bid Deadline.

The Receiver reserves the right, in his reasonable discretion, to withhold or limit access

to any due diligence information that the Receiver determines is business-sensitive or otherwise not appropriate for disclosure to a Qualifying Bidder. Notwithstanding any pre-receivership limitations, including, without limitation, any non-disclosure, confidentiality or similar provisions relating to any due diligence information, the Receiver shall be authorized to provide due diligence information to Qualifying Bidders provided that such Qualifying Bidders have delivered an executed confidentiality agreement in form and substance acceptable to the Receiver. The Receiver, the Company and its receivership estate, and Raymond James, are not responsible for, and shall have no liability with respect to, any information obtained by, or provided to, any Qualifying Bidders in connection with the Bidding Procedures and a contemplated Transaction.

6. Bid Requirements

To be deemed a “Qualifying Bid,” a bid must be received from a Qualifying Bidder on or before the Bid Deadline and satisfy each of the following requirements, as determined by the Receiver (each, a “Bid Requirement”):

(a) be in writing;

(b) fully disclose the identity of the Qualifying Bidder (and any other party

participating in the bid) and provide the contact information of the specific person(s) whom the Company or its advisors should contact in the event that the Receiver has any questions or wish to discuss the bid submitted by the Qualifying Bidder;

(c) set forth the purchase price to be paid by such Qualifying Bidder in adequate detail

solely acceptable to the Receiver;

(d) provide for an all cash purchase, paid in full at closing;

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(e) specify the Portfolio(s) of Assets that are included in the bid;

(f) state that such Qualifying Bidder’s offer is formal, binding and unconditional and is irrevocable until fifteen (15) business days after the closing of the sale of the Assets;

(g) state that the Qualifying Bidder is offering to purchase the assets “as is, where is”

without representations or warranties and on a nonrecourse basis. (h) state that such Qualifying Bidder is financially capable of consummating the

Transaction contemplated by the bid, is not subject to any financing contingency(ies) and provide written evidence in support thereof;

(i) contain such financial and other information to allow the Receiver to make a reasonable determination as to the Qualifying Bidder’s financial and other capabilities to close the transactions contemplated by the proposal;

(j) a commitment to close the Transaction within five (5) business days after entry of

an order of the Court approving the sale to the Successful Bidder;

(k) not request or entitle such Qualifying Bidder to any break-up fee, termination fee, expense reimbursement or similar type of fee or payment;

(l) not contain any contingencies of any kind, including, without limitation,

contingencies related to financing, internal approval or due diligence;

(m) contain a written acknowledgement and representation that the Qualifying Bidder (i) has had an opportunity to conduct any and all due diligence regarding the Assets, (ii) has relied solely upon its own independent review, investigation and/or inspection of any documents and other information in making its Qualifying Bid, and (iii) did not rely upon any written or oral statements, representations, promises, warranties or guaranties whatsoever, whether express, implied, by operation of law or otherwise, regarding the Assets, or the completeness of any documents or other information provided in connection with the Bidding Procedures and the proposed Transaction;

(n) provides for the Qualifying Bidder to serve as a backup bidder (the “Back-Up

Bidder”) if the Qualifying Bidder’s bid is the next highest and best bid (the “Back-Up Bid”) after the Successful Bid (as defined below), as determined by the Receiver;

(o) includes written evidence of authorization and approval from the Qualifying

Bidder’s board of directors (or comparable governing body) with respect to the submission, execution, and delivery of the Purchase Agreement;

(p) provides a good faith cash deposit (the “Deposit”) in an amount equal to ten

percent (10%) of the purchase price provided for in the Purchase Agreement (or such additional amount as may be determined by the Company in its reasonable discretion) to be deposited, prior to the Bid Deadline, with an escrow agent

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selected by the Company (the “Escrow Agent”) pursuant to the escrow agreement to be provided by the Company to the Qualifying Bidders (the “Escrow Agreement”); and

(q) provides for liquidated damages in the event of the Qualifying Bidder’s breach of,

or failure to perform under, the modified Purchase Agreement equal to the amount of the Deposit, which modified Purchase Agreement, redlined to show all changes, shall be submitted with the bid as required by Section 4 of these Bidding Procedures.

The Receiver reserves the right to negotiate with any Qualifying Bidder in advance of

the Auction to cure any deficiencies in a bid that is not initially deemed a Qualifying Bid.

Each Qualifying Bidder submitting a bid shall be deemed to: (a) acknowledge and represent that it is bound by all of the terms and conditions of the Bidding Procedures.

7. Bid Deadline

A Qualifying Bidder that desires to make a bid shall deliver a written and electronic

copy of its bid in both PDF and MS-WORD format to the Notice Parties so as to be received on or before August 29, 2019 (the “Bid Deadline”); provided that the Receiver may extend the Bid Deadline without further order of the Court. To the extent that the Bid Deadline is extended for all parties, the Receiver shall file a notice on the docket of these (cases) indicating the same. Any party that does not submit a bid by the Bid Deadline (including as extended in accordance with the prior two sentences) will not be allowed to (a) submit any offer after the Bid Deadline, or (b) participate in the Auction.

8. Evaluation of Qualifying Bids

The Receiver shall make a determination regarding whether a timely submitted bid from

a Qualifying Bidder is a Qualifying Bid. In the event that a bid is determined not to be a Qualifying Bid, the Qualifying Bidder shall be notified by the Receiver and shall have until the commencement of the Auction to modify its bid to increase the purchase price or otherwise improve the terms of the Qualifying Bid; provided that any Qualifying Bid may be improved at the Auction as set forth herein.

Prior to commencing the Auction, the Receiver shall determine, in his sole discretion, which of the Qualifying Bids, at such time, is the highest or best bid for purposes of constituting the opening bid of the Auction (the “Baseline Bid” and the Qualifying Bidder submitting the Baseline Bid, the “Baseline Bidder”), and shall notify all Qualifying Bidders with Qualifying Bids of the Baseline Bid no later than the opening of the Auction.

9. Auction

If the Receiver timely receives one or more Qualifying Bids for any of the Assets, then

the Receiver shall conduct an auction (the “Auction”). Following the Auction, the Receiver will determine, in its sole discretion, which Qualifying Bid is the highest or best bid for the Assets, which will be determined by considering, among other things, the following non-binding factors:

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(a) the terms of the Purchase Agreement requested by each bidder; (b) the extent to which such terms are likely to delay closing of the Sale, the cost to the Company and its receivership estate of such modifications or delay, and any incremental financing being offered to accommodate any delay; the total consideration to be received by the Company and its receivership estate; (d) the Transaction structure and execution risk, including conditions to, timing of and certainty of closing, termination provisions, availability of financing and financial wherewithal to meet all commitments, and required governmental or other approval; (e) the net benefit to the Company’s receivership estate; (f) the impact on employees, creditors, and contract counterparties; and (g) any other factors the Receiver may reasonably deem relevant.

The Auction shall be governed by the following procedures:

(a) the Auction shall commence on September 5, 2019 (the “Auction Date”), at the

Los Angeles offices of Development Specialists, Inc. at 10 a.m. Los Angeles time;

(b) only Qualifying Bidders with Qualifying Bids (collectively, the “Auction

Bidders”) shall be entitled to make any subsequent bids at the Auction;

(c) the Auction Bidders shall appear in person at the Auction, or through a duly authorized representative;

(d) only the Company through its Receiver, the Auction Bidders, together with the

professional advisors to each of the foregoing parties, may attend the Auction;

(e) the Receiver and his professional advisors shall direct and preside over the Auction, which shall be transcribed;

(f) the Auction Bidders shall confirm that they have not engaged in any collusion

with respect to the Bidding Procedures, the Auction or the Sale;

(g) bidding shall commence at the amount of the Baseline Bid, and the Auction Bidders may submit successive bids in increments of up to $50,000 and 5% of the current highest and best bid (or Baseline Bid for the first round) (the “Bid Increment”); provided that: (i) each such successive bid must be a Qualifying Bid. The Receiver reserves the right to modify the Bid Increment during the course of the Auction shall do so on the record at the Auction;

(h) the Auction may include individual negotiations with any of the Auction Bidders,

but all bids shall be made on the record and in the presence of all of the Auction Bidders;

(i) all material terms of the bid that is deemed to be the highest and best bid for each

round of bidding shall be fully disclosed to the Auction Bidders, and the Receiver shall use reasonable efforts to clarify any and all questions that the Auction Bidders may have regarding the Receiver’s announcement of the then-current highest and best bid;

(j) the Receiver and his professional advisors may employ and announce at the

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Auction additional procedural rules that are reasonable under the circumstances (e.g., the amount of time allotted to make subsequent bids) for conducting the Auction, provided that such rules are (i) not inconsistent with any applicable order of the Court entered in connection with these cases, and (ii) disclosed to the Auction Bidders;

(k) each Auction Bidder shall (i) be deemed to have waived any right to a jury trial

in connection with, and consented and submitted to the exclusive jurisdiction of the Court over, any actions or proceedings arising from or relating the Bidding Procedures, the Sale, the Auction and the construction and enforcement of the contemplated transaction documents of the Auction Bidders, (ii) bring any such action or proceeding in the Court, and (iii) be deemed to have consented to the Court entering a final judgment determining any such action or proceeding and that such final judgment in any such action or proceeding, including all appeals, shall be conclusive and may be enforced in other jurisdictions (including any foreign jurisdictions) by suit on the judgment or in any other manner provided by applicable law;

(l) Auction Bidders shall have the right to make additional modifications to their

respective Purchase Agreements in conjunction with each Qualifying Bid submitted in each round of bidding during the Auction, provided that (i) any such modifications on an aggregate basis and viewed in whole, shall not, in the Receiver’s sole discretion be less favorable to the Company and its estates than the terms of the Auction Bidders’ respective Purchase Agreements and (ii) each Qualifying Bid shall constitute an irrevocable offer and shall be binding on the Auction Bidder submitting such bid until such party shall have submitted a subsequent Qualifying Bid at the Auction or the conclusion of the Sale Hearing, whichever occurs sooner, unless such bid is selected as the Successful Bid or the Back-Up Bid, which shall remain binding as provided for herein;

(m) the Receiver shall have the right to request any additional financial information

that will allow the Receiver to make a reasonable determination as to an Auction Bidder’s financial and other capabilities to consummate the transactions contemplated by their proposal, as may be amended during the Auction, and any further information that the Receiver may believe is reasonably necessary to clarify and evaluate any bid made by an Auction Bidder during the Auction;

(n) upon the conclusion of the Auction, the Receiver shall determine, subject to

Court approval, the offer or offers for the Assets that is or are the highest or best from among the Qualifying Bids submitted at the Auction (the “Successful Bid”). In making this decision, the Receiver shall consider among other things, the amount of the purchase price, the likelihood of the bidder’s ability to close a transaction and the timing thereof, the nature and impact of any variances from the form Purchase Agreement requested by each bidder, and the net benefit to the Company’s receivership estate. The bidder submitting such Successful Bid shall become the “Successful Bidder,” and shall have such rights and responsibilities of the purchaser as set forth in the subject Purchase Agreement, as applicable. The Receiver may, in its reasonable discretion, designate Back-Up Bids (and the

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corresponding Back-Up Bidders) to purchase the Assets in the event that the Successful Bidder does not close the Sale; and

(o) prior to the Sale Hearing, the Successful Bidder shall complete and execute all agreements, contracts, instruments and other documents evidencing and containing the terms and conditions upon which the Successful Bid was made.

THE SUBMISSION OF A BID IN CONNECTION WITH THE OFFER FOR

SALE OF THESE ASSETS IS DEEMED TO CONSTITUTE CONSENT BY THE BIDDER TO BE BOUND TO ALL TERMS AND CONDITIONS OF THESE BID PROCEDURES.

THE SUCCESSFUL BID AND ANY BACK-UP BIDS SHALL CONSTITUTE AN

IRREVOCABLE OFFER AND BE BINDING ON THE SUCCESSFUL BIDDER AND THE BACK-UP BIDDER, RESPECTIVELY, FROM THE TIME THE BID IS SUBMITTED UNTIL TWO (2) BUSINESS DAYS AFTER THE SALE HAS CLOSED. EACH QUALIFYING BID THAT IS NOT THE SUCCESSFUL BID OR BACK-UP BID SHALL BE DEEMED WITHDRAWN AND TERMINATED AT THE CONCLUSION OF THE SALE HEARING.

10. Sale Hearing

The Successful Bid and any Back-Up Bid will be subject to approval by the Court. The

hearing to approve such Successful Bid and any Back-Up Bid (the “Sale Hearing”) shall take place, subject to the Court’s availability, on September 23, 2019. The Sale Hearing may be adjourned by the Receiver or the Court from time to time without further notice to creditors or other parties in interest other than by announcement of the adjournment in open court on the date scheduled for the Sale Hearing, by filing a notice of the continuance with the Court, or by posting a notice on the receivership website for the Company’s receivership case at https://cases.stretto.com/dli. For the avoidance of doubt, by no later than the time of announcement of the Baseline Bid for the Auction, the Receiver may determine to withdraw the Assets or any subset thereof, from the Auction and sale process, and adjourn the Sale Hearing with respect to these Assets on the terms set forth herein.

At the Sale Hearing, the Receiver on behalf of the Company will seek entry of an order

that, among other things: (i) authorizes and approves the Sale to the Successful Bidder (and, if applicable the Back-Up Bidder), pursuant to the terms and conditions set forth in the applicable Purchase Agreement executed by the Successful Bidder (and, if applicable the Back-Up Bidder), and that the Assets being transferred in such transaction shall be transferred; (ii) unless otherwise ordered by the Court, directing that all Encumbrances on the Assets that are sold shall attach to the cash proceeds generated from the sale of such Assets in the same order of priority as they existed prior to the consummation of such sale; and (iii) finding that the Successful Bidder, as applicable, is a good faith purchaser..

11. Back-Up Bidder

Notwithstanding any of the foregoing, in the event that the Successful Bidder fails to

close the Sale no later than five (5) business days following the approval of the sale by the Court (or such date as may be extended by the Receiver and with the agreement of the Back-Up

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Bidder), the Back-Up Bid will be deemed to be the Successful Bid, the Back-Up Bidder will be deemed to be the Successful Bidder, and the Receiver on behalf of the Company will be authorized, but not directed, to close the Sale to the Back-Up Bidder subject to the terms of the Back-Up Bid without the need for further order of the Court and without the need for further notice to any interested parties, as soon as practicable, but not later than ten (10) business days following the approval of the sale by the Court .

12. Return of Deposits

All Deposits shall be returned to each bidder not selected by the Receiver as the

Successful Bidder or the Back-Up Bidder no later than three (3) business days following the conclusion of the Sale Hearing. The deposit of the Successful Bidder or, if the Sale is closed with the Back-Up Bidder, the deposit of the Back-Up Bidder, shall be applied to the purchase price for the Sale. If the Successful Bidder (or, if the Sale is to be closed with the Back-Up Bidder, then the Back-Up Bidder) fails to consummate the Sale because of a breach or failure to perform on the part of such bidder, then, subject to the terms of the Purchase Agreement the Company and its receivership estate shall be entitled to retain the Deposit of the Successful Bidder (or, if the Sale is to be closed with the Back-Up Bidder, then the Back-Up Bidder) as part of the damages resulting to the Company and its receivership estate for such breach or failure to perform.

13. Notice Parties

The term “Notice Parties” as used in these Bidding Procedures shall mean: (i) the

Company through its permanent receiver Bradley D. Sharp (“Receiver”), [email protected]; (ii) counsel to the Receiver for the Company, Christopher D. Sullivan of Diamond McCarthy LLP, [email protected], (415) 692-5200, (iii) investment banking advisor to the Company, Raymond James & Associates, Inc. (Attn: Adam Kauffman, [email protected], (416) 777-7145 and Rory Keenan [email protected], (212) 885-1807)

14. Reservation of Rights

Notwithstanding any of the foregoing, the Receiver reserves Company the right to

modify these Bidding Procedures at or prior to the Auction, including, without limitation, to extend the deadlines set forth herein, modify bidding increments, waive terms and conditions set forth herein with respect to any or all potential bidders (including, without limitation, the Bid Requirements), impose additional terms and conditions with respect to any or all Potential Bidders, adjourn or cancel the Auction at or prior to the Auction, and adjourn the Sale Hearing.

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Defendant.

Case No. 2:19−cv−02188−DSF−MRW Hon. Dale S. Fischer [PROPOSED] ORDER GRANTING MOTION OF RECEIVER FOR ORDER (1) APPROVING AND CONFIRMING SALE OF THREE LOAN PORTFOLIOS, AND RELATED BIDDING PROCEDURES AND DEADLINES; (2) PAYMENT OF RAYMOND JAMES & ASSOCIATES, INC. FEES; AND (3) FORM AND/OR LIMITATION OF NOTICE UNDER LOCAL CIVIL RULE 66-7 Date: September 23, 2019 Time: 1:30 PM Dept.: Courtroom 7D Place: United States District Court Western Division

350 West 1st Street, Los Angeles, CA 90012

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[PROPOSED] ORDER GRANTING MOTION TO APPROVE AND CONFIRM SALES OF WHOLE LOAN PORTFOLIOS AND OTHER RELIEF


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The Motion for Order (1) Approving and Confirming Sale of Three Loan

Portfolios, and Related Bidding Procedures and Deadlines; (2) Payment of

Raymond James & Associates, Inc. Fees; and (3) Form and/or Limitation of Notice

Under Local Civil Rule 66-7 (the “Motion”) filed by Bradley D. Sharp, the Court-

appointed permanent receiver (the “Receiver”), came on regularly for hearing at the

above-referenced date, time, and place before the Honorable Dale S. Fischer,

United States District Judge presiding. Appearances were made as noted on the

record. The Court, having read and considered the Motion and all pleadings and

papers filed in support therefore, including supplemental pleadings filed by the

Receiver relating to the results of the bidding and auction, if any, and having read

and considered responses or opposition, if any, to the Motion, and having heard the

arguments of counsel, good cause appearing therefor,

IT IS ORDERED that:

1. The Motion and the relief sought therein is granted;

2. Without limiting the generality of the foregoing:

A. The Bidding Procedures attached as Exhibit “1” to the Declaration of

Adam Kauffman in support of this Motion that were employed by the Receiver and

its investment banker Raymond James & Associates, Inc. (“RJ”) to sell each of

three loan portfolios, referred to as the Dealstruck Portfolio (a portfolio of term

loans and lines of credit), the Biz2Credit Portfolio (a portfolio of merchant credit

advances/future receivables sales agreements), and the LoanHero Portfolio (a

portfolio of unsecured consumer point-of-sale loans) referred to for convenience as

“loans” (collectively, “Whole Loan Portfolios”), are hereby approved, and the sale

procedures under 28 U.S.C. section 2001(b) and 2004 are hereby modified and

approved as reasonable and appropriate under the circumstances for good cause

shown by this Motion and supporting pleadings;

B. The sales of each of the Whole Loan Portfolios, specifically the

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Dealstruck Portfolio, the Biz2Credit Portfolio, and the LoanHero Portfolio, to the

Successful Bidders making the highest and best bids for the Whole Loan Portfolios

obtained through the Bidding Procedures, or to the Back Up Bidders for the Whole

Loan Portfolios if the Successful Bidders (as those terms are defined in the Bidding

Procedures) fail to perform, are hereby approved and confirmed;

C. The Receiver is authorized to pay from the receivership estate’s sale

proceeds his Court-approved investment banker, RJ, for its services in connection

with the sale of the Whole Loan Portfolios the fees associated with the disposition

of the three Whole Loan Portfolios pursuant to its previously approved engagement

agreement, approved by the Court’s order entered July 2, 2019 (Doc. No. 87); and

D. The Court hereby approves as sufficient under the circumstances the

notice and opportunity for hearing provided by the Receiver on the Motion and

form and manner of notice of the Motion and the proposed sales of the Whole Loan

Portfolios by the Receiver (a) serving the Motion and related moving papers on all

parties to the action, (b) serving by mail a notice of hearing on the Motion to all

known creditors pursuant to Local Civil Rule 66-7, (c) posting a copy of the Motion

on the Receiver’s website for the case at https://cases.stretto.com/dli; and (d)

causing the Receiver’s Court-approved claims agent, Bankruptcy Management

Solutions dba Stretto, to provide by email a copy of the notice of hearing on the

Motion to all known investors through its email service to investors in Direct

Lending Income Fund, L.P. (“Domestic Feeder Fund”) and Direct Lending Income

Feeder Fund, Ltd. (“Off Shore Feeder Fund”).

IT IS SO ORDERED.

DATED: ____________________________________ DALE S. FISCHER United States District Judge

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KATHY BAZOIAN PHELPS (155564) [email protected] DIAMOND MCCARTHY LLP 1999 Avenue of the Stars, Suite 1100 Los Angeles, California 90067-4402 Telephone: (310) 651-2997 CHRISTOPHER D. SULLIVAN (148083) [email protected] LESLEY ANNE HAWES (117101) [email protected] DIAMOND MCCARTHY LLP 150 California Street, Suite 2200 San Francisco, CA 94111 Phone: (415) 692-5200 Counsel for Bradley D. Sharp, Permanent Receiver






Defendant.

Case No. 2:19−cv−02188−DSF−MRW Hon. Dale K. Fischer PROOF OF SERVICE

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PROOF OF SERVICE


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PROOF OF SERVICE

I hereby declare under penalty of perjury pursuant to the laws of the state of

California that I am a citizen of the United States, over the age of eighteen years and

not a party to the within-entitled action. My business address is 150 California

Street, Suite 2200, San Francisco, CA 94111. On August 13, 2019, I served a copy

of the within document(s):

• NOTICE OF MOTION AND MOTION OF RECEIVER FOR ORDER (1) APPROVING AND CONFIRMING SALE OF THREE LOAN PORTFOLIOS, AND RELATED BIDDING PROCEDURES AND DEADLINES; (2) PAYMENT OF RAYMOND JAMES & ASSOCIATES, INC. FEES; AND (3) FORM AND/OR LIMITATION OF NOTICE UNDER LOCAL CIVIL RULE 66-7; MEMORANDUM OF POINTS AND AUTHORITIES

• DECLARATION OF BRADLEY D. SHARP IN SUPPORT OF MOTION OF RECEIVER FOR ORDER (1) APPROVING AND CONFIRMING SALE OF THREE LOAN PORTFOLIOS, AND RELATED BIDDING PROCEDURES AND DEADLINES; (2) PAYMENT OF RAYMOND JAMES & ASSOCIATES, INC. FEES; AND (3) FORM AND/OR LIMITATION OF NOTICE UNDER LOCAL CIVIL RULE 66-7

• DECLARATION OF ADAM KAUFFMAN IN SUPPORT OF MOTION OF RECEIVER FOR ORDER (1) APPROVING AND CONFIRMING SALE OF THREE LOAN PORTFOLIOS, AND RELATED BIDDING PROCEDURES AND DEADLINES; (2) PAYMENT OF RAYMOND JAMES & ASSOCIATES, INC. FEES; AND (3) FORM AND/OR LIMITATION OF NOTICE UNDER LOCAL CIVIL RULE 66-7

• [PROPOSED] ORDER GRANTING MOTION OF RECEIVER FOR ORDER (1) APPROVING AND CONFIRMING SALE OF THREE LOAN PORTFOLIOS, AND RELATED BIDDING PROCEDURES AND DEADLINES; (2) PAYMENT OF RAYMOND JAMES & ASSOCIATES, INC. FEES; AND (3) FORM AND/OR LIMITATION OF NOTICE UNDER LOCAL CIVIL RULE 66-7

X SERVED BY UNITED STATES MAIL: On August 13, 2019, I

served the following persons and/or entities at the last known addresses by placing a true and correct copy thereof in a sealed envelope in the United States mail, first class, postage prepaid, and addressed as follows.

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PROOF OF SERVICE


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Nicolas Morgan Paul Hastings LLP 515 South Flower Street 25th Floor Los Angeles, CA 90071

Matthew Dor, Esq. Rocco Cecere, Esq. Rupert Stanning, Esq. Collas Crill Floor 2, Willow House Cricket Square P.O. Box 709 Grand Cayman KY1-1107 Cayman Islands

Christopher D. Johnson Graham Robinson Chris Johnson Associates Ltd. Elizabethan Square P.O. Box 2499, 80 Shedden Road, George Town Grand Cayman KY1-1104 Cayman Islands

X SERVED VIA ELECTRONIC TRANSMISSION/EMAIL: On August 13, 2019, I served the following persons and/or entities at the by transmitting via electronic mail the document(s) listed above to the addresses set forth below: Nicolas Morgan [email protected] Matthew Dor, Esq., [email protected] Rocco Cecere, Esq., [email protected] Rupert Stanning, Esq., [email protected] Christopher D. Johnson, [email protected] Graham Robinson, [email protected]

X TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF): On August 13, 2019, Pursuant to L.R. 5-3.2.1, the document listed above will be served by the court via NEF and hyperlink to the document which effects electronic service on counsel who are registered with the CM/ECF system.

I am readily familiar with the firm's practice of collection and processing

correspondence for mailing. Under that practice it would be deposited with the U.S.

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PROOF OF SERVICE


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Postal Service on that same day with postage thereon fully prepaid in the ordinary

course of business. I am aware that on motion of the party served, service is

presumed invalid if postal cancellation date or postage meter date is more than one

day after date of deposit for mailing in affidavit.

I declare under penalty of perjury under the laws of the state of California that

the above is true and correct. Executed on August 13, 2019, at San Francisco,

California.

/s/ Philip John Dobbs Philip John Dobbs

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PROOF OF SERVICE


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