## Facts

- CBGB Holdings, LLC acquired trademarks and other assets associated with the CBGB music venue from the Estate of Hilly Kristal, financing part of the purchase with a promissory note secured by the acquired assets.
- The Kristal Estate perfected its security interest by filing UCC financing statements.
- CBGB Holdings defaulted on the note in February 2010.
- After default, the parties entered a March 24, 2010 agreement granting a compliance period through May 18, 2010 during which CBGB Holdings could redeem the collateral or sell it and pay the debt.
- The agreement stated that if CBGB Holdings failed to perform by the end of the compliance period, the Estate could accept the collateral in satisfaction of the debt, and CBGB Holdings purported to waive further notice.
- The parties placed executed transfer documents (including trademark assignments) in escrow to be released to the Estate upon CBGB Holdings’ nonperformance and the Estate’s direction to release.
- CBGB Holdings did not redeem or sell the collateral by May 18, 2010.
- On May 27, 2010, the Estate directed the escrow agent to release the documents and recorded trademark assignments thereafter.
- CBGB Holdings filed a Chapter 11 petition on June 10, 2010.
- The Estate moved to dismiss the Chapter 11 case under 11 U.S.C. § 1112(b), arguing the debtor no longer owned the assets due to a completed strict foreclosure under UCC Article 9.

## Issues

1. Whether the Kristal Estate completed a valid UCC Article 9 strict foreclosure (acceptance of collateral in satisfaction of debt) before the Chapter 11 filing.
2. Whether the March 24, 2010 agreement supplied the debtor’s effective post-default consent for the later acceptance of collateral after the compliance period expired.
3. Whether Article 9’s notice and objection requirements could be satisfied (or avoided) through the agreement’s waiver language and the escrow release mechanism.

## Decision

- The court held the Kristal Estate did not complete a valid strict foreclosure under UCC Article 9 before the petition date.
- The assets therefore remained owned by the debtor and became property of the bankruptcy estate upon filing.
- The court denied the Kristal Estate’s motion to dismiss under 11 U.S.C. § 1112(b).

## Legal Principles

- UCC Article 9 permits acceptance of collateral in satisfaction of an obligation only by strict compliance with statutory consent and notice/objection requirements.
- A debtor’s consent must satisfy Article 9’s timing and form requirements and must correspond to the secured party’s actual acceptance of collateral, not merely a forward-looking contractual remedy tied to future nonperformance.
- Contractual waivers and private arrangements cannot displace Article 9’s protections requiring a meaningful opportunity for required parties to receive notice and object when strict foreclosure is pursued.
- An escrow structure that mechanically transfers documents does not substitute for compliance with Article 9 prerequisites for a legally effective acceptance of collateral.

## Conclusion

Because the creditor did not follow Article 9’s statutory route for strict foreclosure, the prepetition escrow release and recordation did not divest the debtor of ownership; the debtor still held the assets at filing, so dismissal for lack of assets was unwarranted.


In re CBGB Holdings, LLC, 439 B.R. 551 (Bankr. S.D.N.Y. 2010)