If a Grading Service Goes Bankrupt, What Happens to Your Coins?

Pushkin

Just a hypothetical question: if you have submitted coins to a grading service and the service goes belly-up, what is the likelihood you will get your coins back; and if you do, how long will it take?

coinguy1

Pushkin,

The first question, on a legal basis, at least, is easy to answer - yes, you will get your coins back. PCGS is not some dealer in the business of selling coins where you might have a legitimate concern that your property would be misappropriated.

The second question - I don't think anyone could answer that one for you. But hopefully, it wouldn't be too long.

gmarguli

A better question would be: What Happens to the Value of Your Coins?

Pushkin

Gmarguli,
I deliberately left out the value issue in the question (that would make for an interesting thread). As we all know, both public and private entities can file various forms of bankruptcy for various reasons (stay in business seeking protection from creditors; just plain broke - bye, bye; deliberate fraud; etc.). I imagine the worst case scenario would be a complete shutdown. Then there would be no employees and the bankruptcy court would take over all assets (including property of others held by the company), distribute those assets and return the property. My question is, does anybody have experience with the various scenarios - I assume the time to get the property back could vary considerably?

I've read about cases where computer hardware manufacturers went out of business, and the property sent in for repair ended up in a judicial limbo that took a long time to sort out and a long time for the owners to get it back. I wonder if there are any special protections for property like coins - or is it just trust in the grading services and the efficiency of the bankruptcy court?

Russ

HMM...interesting question. I wonder where the submitter falls on the lien ladder?

Russ, NCNE

coinguy1

Russ,

The submitter (or the actual owner of the coin, if the submitter is submitting on someone else's behalf) would be at the very top of the ladder, all by himself. This wouldn't be an unclear situation where comingled funds or inventory was involved. Each coin should be able to be traced to each owner via the submission invoice records.

Russ

Mark,

That makes perfect sense and, assuming adequate record keeping, should pan out fine for most submitters who pay in advance.

But, what about submitters who maintain accounts with the grading service? The attendant accounts receivables are a co-mingled asset. What happens under those circumstances? I don't think it's quite as clear cut in that case.

Russ, NCNE

coinguy1

Russ,

Now you're talking about the return of money, rather than coins. THAT would be a much more complicated matter. The good news for submitters is, that typically, more money is probably owed by them to PCGS, rather than the other way around.

Russ

Mark,

That's what I was referring to. The money owed by the submitter to the grading service is an asset listed on the books. It seems to me that this would muddy up the waters a bit when discussing the return of the coins during a proceeding.

Russ, NCNE

Pushkin

Nightmare Scenario: You submit a large quantity of coins to the service that you pay for in advance, after setting up a big auction. Money paid, coins in possession of grading service - bang!, bankruptcy. Out money, coins in possession of bankruptcy court with the service's doors closed and locked, you can't make your auction commitments - ouch!

Any kind of insurance available for situations like this?

coinguy1

Russ,

I do not believe that monies owed to PCGS by submitters would have any bearing on the actual ownership of the coins. Creditors would certainly have claims on those funds, however. Where is Adrian when we need him??

Hopefully, none of this will ever need to be addressed!

Russ

Mark,

Wouldn't the money owed by the submitter be considered by the court to be a lien against the coins? I honestly don't know, just trying to look at the possibilities.

Russ, NCNE

jom

<< <i>A better question would be: What Happens to the Value of Your Coins? >>



That's the important question. The coins "should" be of the same value in or out of the holder. If not, you paid too much.

jom

coinguy1

Russ,

I'm not sure about the answer to your last question, though I think you would be correct. But, even if that were the case, the submitter would/should be able to pay the fees owed and get the coins back. Of course it would be even more difficult if the submitter were not the owner of the coins but I'm giving myself a headcahe, as it is, so will not go there!

dragon

Now THIS would be a cool scenario................ACG files for bankruptcy and keeps all the coins submitted that were to them from all the scummy dealers that made money selling their ACG coins on Ebay.

Dragon

lathmach

The submitters of the coins would certainly have a secured interest.
That doesn't mean they'll get their coins back or if they do that they'll get them right away.
Once a bankruptcy action in initiated, nothing leaves the debtor without approval of the bankruptcy court or a lifting of the stay by the court.
I'm not a lawyer, I'm an 8th grade dropout by the way, so I'm not offering legal advise; but I'm currently a secured creditor in a bankrupty action, as well as an unsecured creditor.
Although I had perfected leins, and provided copies of the UCC filings to almost everyone involved, I did not get the equipment back that I had sold to the persons filing bankrupty, until the day of the bankrupty auction. I told the auctioneer I owned several of the machines he was going to sell, and that I was going to sue him and the bank that ordered the sale if he proceeded with the auction.
He and the lawyer representing the bank decided they had no further interest in my property and I was allowed to remove my equipment. I'm still out more than $137,000.

Ray

presleyh

uh, do yall know something we dont know? like, who is the hypothetical grading company?

jamesfsm

As a lawyer who has done alot of Chapter 11 work, it would be a nightmare. Lathmath is basically correct. You'll eventually get your coins back but you may have to go through the court to get them. If the debtor is allowed to operate, you could get them back a bit sooner.

Pushkin

If the coins are submitted through a dealer (agent) would that complicate the issue, since another step would be involved in proving ownership? Any information about how to reduce the risk (time it takes to get the coins back) if a bankruptcy is filed?

CalGold

And there's always the risk that a bankrucptcy trustee will need change for a parking meter.

Pushkin

CalGold,

ROFL

Placid

The employees loot your stuff before they leave.
They would probably just send all the coins back to the owners graded or not.

Bear

Now you know why instead of grading my coins , I just
bury them under a tree. Its just that all the trees look so similar,
I cant always remember which tree. Bear

RGL

I think we are missing something here ... PCGS may be in possession of our coins, but it does not own them. There is no transfer of title. They merely are in temporary possession of our coins to render a service. Our property cannot be seized to apply against any debts. It's no different that if your car is in a garage for service and the garage files bankruptcy. You do not lose your car!

Pushkin

RGL,
You are correct.
The problem is getting your property back and that can, I've been told, be very difficult.

gemseeker

When a company goes belly up, you become a creditor to the company and have to wait for the bankruptcy proceedings to settle the matter. Assets of the company are then divided between the creditors. This reminds of a bridal store that suddenly closed their doors and left all of the brides to be out in cold in regards to the wedding apparel that they had ordered. Their money was tied up in bankruptcy court and of course, they didn't get their wedding dress. So some had to make other arrangements to get a wedding dress. It may seem cold for the store to do that, but the customers could do nothing about it. I think this situation would be similar.
In regards to the value of the coins in a "defunct" slab, that is one of the question posed in my signature line.

gemseeker

RGL is correct about the coins not being part of the assets of the bankrupt grading service. So they would not sell off your coins in that situation. But I think they might be put in cold storage until the bankruptcy proceedings are over though.

wayneherndon

Most likely, the bankruptcy would be a reorganization (as opposed to a liquidation) in which case the business would continue to operate as usual (from a customer's perspective) as the company uses the bankruptcy laws to get some relief from creditors. The last thing a grading company (and the creditors and bankruptcy judge) would want to do in this situation is drive away business (critical to the success of the reorganization) by not timely returning coins. In the case of a CU bankruptcy, one would expect that the leading coin grading service would be a key part of the restructuring. Perhaps even as an asset that would be sold off on the way to a smaller organization.

WH