Hawaii Administrative Rules
Title 11 - DEPARTMENT OF HEALTH
Subtitle 1 - GENERAL DEPARTMENTAL PROVISIONS
Chapter 280.1 - UNDERGROUND STORAGE TANKS
Subchapter 9 - LENDER LIABILITY
Section 11-280.1-210 - Participation in management
Universal Citation: HI Admin Rules 11-280.1-210
Current through February, 2024
(a) The term "participating in the management of an UST or UST system" means that the holder is engaging in decisionmaking control of, or activities related to, operation of the UST or UST system, as defined in this section. Actions that are participation in management:
(1)
Participation in the management of an UST or UST system means, for purposes of
this subchapter, actual participation by the holder in the management or
control of decisionmaking related to the operation of an UST or UST system.
Participation in management does not include the mere capacity or ability to
influence or the unexercised right to control UST or UST system operations. A
holder is participating in the management of the UST or UST system only if the
holder either:
(A) Exercises decisionmaking
control over the operational (as opposed to financial or administrative)
aspects of the UST or UST system, such that the holder has undertaken
responsibility for all or substantially all of the management of the UST or UST
system; or
(B) Exercises control at
a level comparable to that of a manager of the borrower's enterprise, such that
the holder has assumed or manifested responsibility for the overall management
of the enterprise encompassing the day-to-day decisionmaking of the enterprise
with respect to all, or substantially all, of the operational (as opposed to
financial or administrative) aspects of the enterprise.
(2) Operational aspects of the enterprise
relate to the use, storage, filling, or dispensing of petroleum contained in an
UST or UST system, and include functions such as that of a facility or plant
manager, operations manager, chief operating officer, or chief executive
officer. Financial or administrative aspects include functions such as that of
a credit manager, accounts payable/receivable manager, personnel manager,
controller, chief financial officer, or similar functions. Operational aspects
of the enterprise do not include the financial or administrative aspects of the
enterprise, or actions associated with environmental compliance, or actions
undertaken voluntarily to protect the environment in accordance with applicable
requirements in this chapter.
(b) Actions that are not participation in management pre-foreclosure:
(1) Actions at the
inception of the loan or other transaction. No act or omission prior to the
time that indicia of ownership are held primarily to protect a security
interest constitutes evidence of participation in management within the meaning
of this subchapter. A prospective holder who undertakes or requires an
environmental investigation (which could include a site assessment, inspection,
and/or audit) of the UST or UST system or facility or property on which the UST
or UST system is located (in which indicia of ownership are to be held), or
requires a prospective borrower to clean up contamination from the UST or UST
system or to comply or come into compliance (whether prior or subsequent to the
time that indicia of ownership are held primarily to protect a security
interest) with any applicable law or regulation, is not by such action
considered to be participating in the management of the UST or UST system or
facility or property on which the UST or UST system is located.
(2) Loan policing and work out. Actions that
are consistent with holding ownership indicia primarily to protect a security
interest do not constitute participation in management for purposes of this
subchapter. The authority for the holder to take such actions may, but need
not, be contained in contractual or other documents specifying requirements for
financial, environmental, and other warranties, covenants, conditions,
representations or promises from the borrower. Loan policing and work out
activities cover and include all such activities up to foreclosure, exclusive
of any activities that constitute participation in management.
(A) Policing the security interest or loan.
(i) A holder who engages in policing
activities prior to foreclosure will remain within the exemption provided that
the holder does not together with other actions participate in the management
of the UST or UST system as provided in section 11-280.1-210(a). Such policing
actions include, but are not limited to, requiring the borrower to clean up
contamination from the UST or UST system during the term of the security
interest; requiring the borrower to comply or come into compliance with
applicable federal, state, and local environmental and other laws, rules, and
regulations during the term of the security interest; securing or exercising
authority to monitor or inspect the UST or UST system or facility or property
on which the UST or UST system is located (including on-site inspections) in
which indicia of ownership are maintained, or the borrower's business or
financial condition during the term of the security interest; or taking other
actions to adequately police the loan or security interest (such as requiring a
borrower to comply with any warranties, covenants, conditions, representations,
or promises from the borrower).
(ii) Policing activities also include
undertaking by the holder of UST environmental compliance actions and voluntary
environmental actions taken in compliance with this chapter, provided that the
holder does not otherwise participate in the management or daily operation of
the UST or UST system as provided in sections 11-280.1-210(a) and 11-280.1-230.
Such allowable actions include, but are not limited to, release detection and
release reporting, release response and corrective action, temporary or
permanent closure of an UST or UST system, UST upgrading or replacement, and
maintenance of corrosion protection. A holder who undertakes these actions must
do so in compliance with the applicable requirements in this chapter. A holder
may directly oversee these environmental compliance actions and voluntary
environmental actions, and directly hire contractors to perform the work, and
is not by such action considered to be participating in the management of the
UST or UST system.
(B)
Loan work out. A holder who engages in work out activities prior to foreclosure
will remain within the exemption provided that the holder does not together
with other actions participate in the management of the UST or UST system as
provided in section 11-280.1-210(a). For purposes of this rule, "work out"
refers to those actions by which a holder, at any time prior to foreclosure,
seeks to prevent, cure, or mitigate a default by the borrower or obligor; or to
preserve, or prevent the diminution of, the value of the security. Work out
activities include, but are not limited to, restructuring or renegotiating the
terms of the security interest; requiring payment of additional rent or
interest; exercising forbearance; requiring or exercising rights pursuant to an
assignment of accounts or other amounts owing to an obligor; requiring or
exercising rights pursuant to an escrow agreement pertaining to amounts owing
to an obligor; providing specific or general financial or other advice,
suggestions, counseling, or guidance; and exercising any right or remedy the
holder is entitled to by law or under any warranties, covenants, conditions,
representations, or promises from the borrower.
(c) Foreclosure on an UST or UST system or facility or property on which an UST or UST system is located, and participation in management activities post-foreclosure.
(1) Foreclosure.
(A) Indicia of ownership that are held
primarily to protect a security interest include legal or equitable title or
deed to real or personal property acquired through or incident to foreclosure.
For purposes of this subchapter, the term "foreclosure" means that legal,
marketable or equitable title or deed has been issued, approved, and recorded,
and that the holder has obtained access to the UST, UST system, UST facility,
and property on which the UST or UST system is located, provided that the
holder acted diligently to acquire marketable title or deed and to gain access
to the UST, UST system, UST facility, and property on which the UST or UST
system is located. The indicia of ownership held after foreclosure continue to
be maintained primarily as protection for a security interest provided that the
holder undertakes to sell, re-lease an UST or UST system or facility or
property on which the UST or UST system is located, held pursuant to a lease
financing transaction (whether by a new lease financing transaction or
substitution of the lessee), or otherwise divest itself of the UST or UST
system or facility or property on which the UST or UST system is located, in a
reasonably expeditious manner, using whatever commercially reasonable means are
relevant or appropriate with respect to the UST or UST system or facility or
property on which the UST or UST system is located, taking all facts and
circumstances into consideration, and provided that the holder does not
participate in management (as defined in section 11-280.1-210(a)) prior to or
after foreclosure.
(B) For purposes
of establishing that a holder is seeking to sell, re-lease pursuant to a lease
financing transaction (whether by a new lease financing transaction or
substitution of the lessee), or divest in a reasonably expeditious manner an
UST or UST system or facility or property on which the UST or UST system is
located, the holder may use whatever commercially reasonable means as are
relevant or appropriate with respect to the UST or UST system or facility or
property on which the UST or UST system is located, or may employ the means
specified in section 11-280.1-210(c)(2). A holder that outbids, rejects, or
fails to act upon a written, bona fide, firm offer of fair consideration for
the UST or UST system or facility or property on which the UST or UST system is
located, as provided in section 11-280.1-210(c)(2), is not considered to hold
indicia of ownership primarily to protect a security
interest.
(2) Holding
foreclosed property for disposition and liquidation. A holder, who does not
participate in management prior to or after foreclosure, may sell, re-lease,
pursuant to a lease financing transaction (whether by a new lease financing
transaction or substitution of the lessee), an UST or UST system or facility or
property on which the UST or UST system is located, liquidate, wind up
operations, and take measures, prior to sale or other disposition, to preserve,
protect, or prepare the secured UST or UST system or facility or property on
which the UST or UST system is located. A holder may also arrange for an
existing or new operator to continue or initiate operation of the UST or UST
system. The holder may conduct these activities without voiding the security
interest exemption, subject to the requirements of this subchapter.
(A) A holder establishes that the ownership
indicia maintained after foreclosure continue to be held primarily to protect a
security interest by, within twelve months following foreclosure, listing the
UST or UST system or the facility or property on which the UST or UST system is
located, with a broker, dealer, or agent who deals with the type of property in
question, or by advertising the UST or UST system or facility or property on
which the UST or UST system is located, as being for sale or disposition on at
least a monthly basis in either a real estate publication or a trade or other
publication suitable for the UST or UST system or facility or property on which
the UST or UST system is located, or a newspaper of general circulation
(defined as one with a circulation over 10,000, or one suitable under any
applicable federal, state, or local rules of court for publication required by
court order or rules of civil procedure) covering the location of the UST or
UST system or facility or property on which the UST or UST system is located.
For purposes of this provision, the twelve-month period begins to run from the
date that the marketable title or deed has been issued, approved and recorded,
and the holder has obtained access to the UST, UST system, UST facility and
property on which the UST or UST system is located, provided that the holder
acted diligently to acquire marketable title or deed and to obtain access to
the UST, UST system, UST facility and property on which the UST or UST system
is located. If the holder fails to act diligently to acquire marketable title
or deed or to gain access to the UST or UST system, the twelve-month period
begins to run from the date on which the holder first acquires either title to
or possession of the secured UST or UST system, or facility or property on
which the UST or UST system is located, whichever is later.
(B) A holder that outbids, rejects, or fails
to act upon an offer of fair consideration for the UST or UST system or the
facility or property on which the UST or UST system is located, establishes by
such outbidding, rejection, or failure to act, that the ownership indicia in
the secured UST or UST system or facility or property on which the UST or UST
system is located are not held primarily to protect the security interest,
unless the holder is required, in order to avoid liability under federal or
state law, to make a higher bid, to obtain a higher offer, or to seek or obtain
an offer in a different manner.
(i) Fair
consideration, in the case of a holder maintaining indicia of ownership
primarily to protect a senior security interest in the UST or UST system or
facility or property on which the UST or UST system is located, is the value of
the security interest as defined in this section. The value of the security
interest includes all debt and costs incurred by the security interest holder,
and is calculated as an amount equal to or in excess of the sum of the
outstanding principal (or comparable amount in the case of a lease that
constitutes a security interest) owed to the holder immediately preceding the
acquisition of full title (or possession in the case of a lease financing
transaction) pursuant to foreclosure, plus any unpaid interest, rent, or
penalties (whether arising before or after foreclosure). The value of the
security interest also includes all reasonable and necessary costs, fees, or
other charges incurred by the holder incident to work out, foreclosure,
retention, preserving, protecting, and preparing, prior to sale, the UST or UST
system or facility or property on which the UST or UST system is located,
re-lease, pursuant to a lease financing transaction (whether by a new lease
financing transaction or substitution of the lessee), of an UST or UST system
or facility or property on which the UST or UST system is located, or other
disposition. The value of the security interest also includes environmental
investigation costs (which could include a site assessment, inspection, and/or
audit of the UST or UST system or facility or property on which the UST or UST
system is located), and release response and corrective action costs incurred
under sections 11-280.1-51 to 11-280.1-67 or any other costs incurred as a
result of reasonable efforts to comply with any other applicable federal, state
or local law or regulation; less any amounts received by the holder in
connection with any partial disposition of the property and any amounts paid by
the borrower (if not already applied to the borrower's obligations) subsequent
to the acquisition of full title (or possession in the case of a lease
financing transaction) pursuant to foreclosure. In the case of a holder
maintaining indicia of ownership primarily to protect a junior security
interest, fair consideration is the value of all outstanding higher priority
security interests plus the value of the security interest held by the junior
holder, each calculated as set forth in this subsection,
(ii) Outbids, rejects, or fails to act upon
an offer of fair consideration means that the holder outbids, rejects, or fails
to act upon within ninety days of receipt, a written, bona fide, firm offer of
fair consideration for the UST or UST system or facility or property on which
the UST or UST system is located received at any time after six months
following foreclosure, as defined in section 11-280.1-210(c). A "written, bona
fide, firm offer" means a legally enforceable, commercially reasonable, cash
offer solely for the foreclosed UST or UST system or facility or property on
which the UST or UST system is located, including all material terms of the
transaction, from a ready, willing, and able purchaser who demonstrates to the
holder's satisfaction the ability to perform. For purposes of this provision,
the six-month period begins to run from the date that marketable title or deed
has been issued, approved and recorded to the holder, and the holder has
obtained access to the UST, UST system, UST facility and property on which the
UST or UST system is located, provided that the holder was acting diligently to
acquire marketable title or deed and to obtain access to the UST or UST system,
UST facility and property on which the UST or UST system is located. If the
holder fails to act diligently to acquire marketable title or deed or to gain
access to the UST or UST system, the six-month period begins to run from the
date on which the holder first acquires either title to or possession of the
secured UST or UST system, or facility or property on which the UST or UST
system is located, whichever is later.
(3) Actions that are not participation in
management post-foreclosure. A holder is not considered to be participating in
the management of an UST or UST system or facility or property on which the UST
or UST system is located when undertaking actions under this chapter, provided
that the holder does not otherwise participate in the management or daily
operation of the UST or UST system as provided in sections 11- 280.1-210(a) and
11-280.1-230. Such allowable actions include, but are not limited to, release
detection and release reporting, release response and corrective action,
temporary or permanent closure of an UST or UST system, UST upgrading or
replacement, and maintenance of corrosion protection. A holder who undertakes
these actions must do so in compliance with the applicable requirements in this
chapter. A holder may directly oversee these environmental compliance actions
and voluntary environmental actions, and directly hire contractors to perform
the work, and is not by such action considered to be participating in the
management of the UST or UST system.
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