Committee of creditors oppose complete liquidation of IPI

The committee of Imperial Pacific International (CNMI) creditors have filed a motion opposing the CNMI government’s request to convert IPI’s Chapter 11 Bankruptcy to a Chapter 7 Bankruptcy (essentially a complete dissolution of assets) stating a conversion does not benefit creditors.

Aram Ordubegian, attorney for the committee of IPI creditors, has filed an opposition to the CNMI government’s motion seeking to convert IPI’s current Chapter 11 Bankruptcy to a Chapter 7 Bankruptcy.

While a Chapter 11 Bankruptcy allows a petitioner to reorganize and restructure, a Chapter 7 Bankruptcy calls for complete liquidation of assets which could lead to a dissolution.

“The Commonwealth’s motion seeks conversion to Chapter 7. The Office of the United States Trustee recognizes conversion does not benefit creditors and is therefore not appropriate but cites its concern over the debtor’s failure to maintain insurance and suggests dismissal of the case as punishment for that failure. Neither conversion nor dismissal is appropriate here,” said Ordubegian.

The committee instead is requesting that the NMI Bankruptcy Court deny the Commonwealth’s motion, and as an alternative, appoint a Chapter 11 trustee if the debtor does not satisfy the sale milestones by the Aug. 14 hearing date.

According to the 16-page motion, Ordubegian argues that conversion virtually assures a fire sale of the debtor’s only asset, leaving creditors empty-handed, and dismissal would punish the creditors and benefit the debtor.

“Instead, the motion should be denied, and the debtor should remain in Chapter 11, closely supervised by the committee. As previewed at the final debtor-in possession financing hearing on June 27, 2024, after numerous rounds of negotiation, the debtor has agreed, subject to written confirmation, to undertake a comprehensive court-supervised marketing process. Before any sale can occur, creditors of this estate must have the assurance that the debtor’s assets and business have been thoroughly marketed and valued by an investment banker, so as to maximize recovery to general unsecured creditors, rather than being sold to insiders at a low-ball price,” said Ordubegian.

To ensure IPI honors its commitment, Ordubegian said the committee will have consultation and approval rights at every step of the entire marketing and sale process, including selecting and retaining an investment banker, establishing bidding procedures, reviewing and selecting bids, and closing a sale.

“The debtor and the committee have begun the process of interviewing investment bankers with proven track records in selling distressed hotel and casino assets and the wherewithal to reach regional and international hotel investors and developers. Since then, the debtor and the committee have been conferring on the various proposals, comparing the compensation terms, and reviewing marketing plans. Before the hearing on the motion, the debtor, with the committee’s approval, will seek to retain an investment banker with the requisite experience and qualifications to run a robust marketing process,” he said.

Ordubegian notes that the committee’s representatives have been led by IPI’s counsel to believe that the casino investor is buying into the proposed marketing and sale process, but there have been no written commitments to date from IPI regarding this process.

“Given IPI’s track record, the committee understands and acknowledges the Commonwealth’s concern regarding the diminution of the estate if an exit is not consummated in the near term. Therefore, the committee proposes a more pragmatic alternative to conversion/dismissal that advances this case toward an exit: unless the debtor satisfies the sale milestones by the Aug. 14 hearing on this motion, the committee will request that a Chapter 11 trustee be appointed under Section 1104(a) of the Bankruptcy Code at the hearing. If the Debtor does not adequately advance towards a sale as prescribed by the sale milestones, an independent fiduciary will stand ready to work with the committee to consummate a sale of the debtor’s assets,” said Ordubegian.

Overall, given the protective measures established by the dommittee, and the availability of debtor-in-possession (DIP) financing to consummate a sale, Ordubegian said the facts and circumstances of this case simply do not warrant conversion or dismissal.

“Indeed, conversion would nullify the progress made thus far by the dommittee, including the crucial negotiation and approval of the DIP credit facility and the progress of the sale process, and would increase administrative expenses. The result would be a fire sale conducted by a Chapter 7 trustee without the oversight of the committee. If conversion to Chapter 7 becomes necessary, it should be a Chapter 11 trustee who makes that decision. Similarly, dismissal would be ruinous for creditors and run counter to the purpose of Chapter 11 of maximizing the estate’s value and protecting creditor interests, as it would leave each creditor to its own devices to chase down the debtor outside of the Bankruptcy Court,” he said.

According to Saipan Tribune archives, last month, the CNMI government, through Office of the Attorney General Chief Solicitor Robert Glass Jr., filed a motion to convert IPI’s Chapter 11 Bankruptcy to a Chapter 7 Bankruptcy.

Glass argues that based on public information available, IPI does not have the financial wherewithal to successfully proceed under Chapter 11 of the Bankruptcy Code.

“The debtor has no business to reorganize, cannot show that there is a reasonable likelihood of rehabilitation, and has failed to maintain insurance. At the same time, the debtor seeks to encumber the bankruptcy estate with $7,000,000 in post-petition financing ($400,000 of which was allowed by this court’s interim order, with the remaining amount to be decided at the final orders for first day motion’s hearing on June 21,) putting the creditor body at a distinct disadvantage in the case. Neither the interests of the debtor’s creditors nor its estate would be served by having the debtor continue to unnecessarily incur the expenses associated with a Chapter 11 reorganization. Accordingly, there is ‘cause’ under section 1112(b) of the Bankruptcy Code for the court to convert [IPI’s case] to a case under Chapter 7 of the Bankruptcy Code,” he said.