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Homes, executed the Collateral Pool Agreement, wherein the Estes
companies agreed to make payments toward specified fixed amounts
owed those creditors relating to defaulted loans. The amount
specified for the plan was $1,878,026, representing the remaining
principal balance of $1,750,000 plus accrued interest through
September 30, 1989. In furtherance of the Collateral Pool
Agreement, on July 30, 1990, Mr. Estes executed a nonnegotiable
promissory note (new note), on behalf of Estes Homes, payable to
the plan in the amount of $1,878,026. The new note was payable
on demand, but no later than December 31, 1998, and bore interest
on the unpaid principal at a rate of 18 percent.
For plan year ended September 19, 1990, the plan recognized
as an asset on its balance sheet the new note, at a value of
$809,000. As of the time of trial, the plan had received
payments pursuant to the Collateral Pool Agreement in an amount
somewhat in excess of $200,000. As of the time of trial,
approximately $1.8 million, including principal and accrued
interest, remained unpaid on the loan.
Estes Co. filed for protection under the Bankruptcy Code
during late 1994 or 1995. The bankruptcy court ultimately
awarded petitioner $1 for its interest in Estes Co.
Revocation of Qualified Status of the Plan
During 1991, respondent began an audit of the plan for plan
year ended September 19, 1989. The examination subsequently was
expanded to cover plan years ended September 19, 1985 through
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