Charlotte Observer: Bankruptcy Judge Disbands
Thu January 26, 2012
Charlotte Observer: Bankruptcy Judge Disbands EpiCentre Creditors Group
EpiCenter. Photo: Jason E. Miczek
A judge in the EpiCentre bankruptcy case has disbanded the committee of unsecured creditors, the latest twist in the long-running, contentious case, and a move legal experts say is unprecedented and could hurt the voices of the smallest companies owed money by the entertainment giant.
The decision by U.S. Bankruptcy Court Judge George Hodges comes as the uptown complex's developers, lenders and bankruptcy trustee argue over whether millions of dollars in parking revenues and other money was wrongfully diverted from the project so they wouldn't have to be paid out to creditors.
At stake is the future of the prominent, 302,000-square-foot retail and entertainment complex, which has been mired in court battles since filing for Chapter 11 bankruptcy protection in 2010. Home to restaurants, bars, an art gallery, movie theater and offices, the complex at Trade and College streets sits across from Time Warner Cable Arena, site of the upcoming Democratic National Convention, which will attract tens of thousands of visitors.
Attorney Dennis O'Dea of Matthews, who represented the unsecured creditors, said he plans to appeal.
When the EpiCentre's owners and operators, Pacific Avenue I and Pacific Avenue II, filed for Chapter 11, they listed between 100 and 199 creditors, liabilities of as much as $100 million and assets of less than $50,000.
The project's bankruptcy trustee, Elaine Rudisill, managing director of The Finley Group, is investigating the EpiCentre's finances, looking for money and property that should be recovered to pay off the project's debts.
She has sued developers Afshin Ghazi and George Cornelson III, contending that the men "fraudulently, intentionally and knowingly caused the Debtors to transfer millions of dollars in parking revenues to affiliated entities for the benefit of Ghazi and Cornelson personally." The court filings allege the men used shell companies to hide the revenues, and that they did not disclose the companies or the transfer to the bankruptcy court.
Rudisill also asked the court earlier this month to disband the unsecured creditors committee, saying the trustee is capable of adequately representing the interests of unsecured creditors and that the committee will create "substantial unnecessary administrative expenses." Court filings also claim the committee "has purported to interfere with the Trustee's investigation" into the bankruptcy case.
"It can be an irritant," O'Dea said of the committee. Unsecured creditor committees are authorized by Congress in the U.S. Bankruptcy Code. "If there's something everyone thinks is a good idea but we don't think it's good for the little creditors, we'll object to it."
Rudisill's attorney, Tom Moon, declined to comment.
Unsecured creditors are among the last to be repaid in a bankruptcy case, with secured creditors and administrative expense claims being paid first.
Alan Capps, account executive with SignArt in Charlotte, said his company is owed $55,000 for work it did installing signs in the EpiCentre's parking deck and Braille lettering on the complex's doors.
"I think most everyone on the unsecured debtors committee would rather have some representation," Capps said.
"It was a hardship. We didn't make a profit on the job," he said of the debt incurred. "We've got a healthy company. But that doesn't minimize the fact we had a contract with Mr. Ghazi and he didn't live up to it."
James Markus, president-elect of the American Bankruptcy Institute, said he's never heard of a judge disbanding a creditor's committee.
"It's an important part of the bankruptcy process," said Markus, a business bankruptcy attorney with Markus Williams Young & Zimmermann LLP in Denver, Colo.
"A trustee is a fiduciary for all creditors," said Markus, who has served as the trustee in large bankruptcy cases. "So, while the trustee is mindful of the interests of unsecured creditors, the trustee has duties for other constituents. And those duties might not all be the same."
The EpiCentre's owners filed for bankruptcy protection shortly after Regions Bank started to foreclose on the bank after a $93.9 million loan came due. Regions Bank then filed documents questioning how Ghazi and Cornelson spent their loan money and kept records. "The integrity of the Debtors' financial records, and the earning power of the EpiCentre itself, must be established," Regions Bank wrote. Ghazi and Cornelson denied claims of self-dealing.
That case was dropped after Regions in November sold the construction note to Blue Air, a limited liability company. Since then, a new company has been hired to manage and operate the complex at Trade and College.
Staff writer Maria David