In Litigation, News & Updates

As refundable membership deposit structure has tumbled in popularity, many membership deposit clubs find themselves filing for bankruptcy in an effort to restructure their liabilities. Before the economic downturn, refundable membership deposit structures were the preferred method of financing for clubs. A club would charge a membership deposit to join the club, which would be repaid in thirty years or after the member’s resignation from the club or death. In order for the structure to work, new members would have to join so that resigning members could receive their repayments. However, as resigning members began to outnumber new members, many outgoing members had to wait longer for their refunds. In 2007, membership market prices fell further, affecting the market for club properties.

On example of a successful reorganization is the case of Dominion Club. The club’s members received full satisfaction of their claims, and distributions were made from an account containing monies from new membership sales and cash deposits from a club affiliate. In creating a reorganization plan, clubs must restructure membership deposits so that members can vote in favor of the reorganization plan, or the bankruptcy court determines that the plan is fair and equitable.

WSH’s Bankruptcy and Creditors’ Rights Group handles bankruptcy matters for a number of creditors in all stages of litigation. Chaired by Aleida Martinez Molina, the Group works closely with our Litigation Division and Real Estate Group to provide thorough counsel to creditors with respect to contractual rights and liens, collection of judgments, and in rem proceedings.

Author(s): Brooke P. Dolara

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