‘Proposed sale of IPI assets does not benefit creditors’

The CNMI government has filed an opposition to Imperial Pacific International (CNMI) LLC’s motion to approve bid procedures for sale of substantially all its assets stating that the proposed sale of IPI’s properties does not benefit creditors.

Previously, IPI and a committee of its creditors reached an agreement to pursue the liquidation route in its Chapter 11 Bankruptcy proceedings instead of reorganization.

IPI has brought the agreement before the NMI District Court’s attention and asked Chief Judge Ramona V. Manglona to approve bid procedures for sale of substantially all of its assets.

However, the CNMI government, through Office of the Attorney General Chief Solicitor Robert Glass Jr., has filed a motion in opposition to IPI’s request arguing that it does not benefit all creditors, rather only the proposed “stalking horse” purchaser Loi Lam Sit.

“The court should reject the bid procedures for the simple reason that the bid procedures do not benefit the creditors. The entire procedure is designed to benefit the insider, Loi Lam Sit, who originally proposed to loan $7 million to finance the bankruptcy proceeding, but ultimately only loaned approximately $1.5 million for purposes of a Chapter 11 liquidation. Loi Lam Sit was originally approached by debtor. This was later amended to be a ‘friend of the debtor.’ This change at the very least makes it questionable that Sit is an arms-length buyer as opposed to an insider,” said Glass.

Glass further argues that the bidding process proposed by IPI ignores applicable lease provisions which governs transfer of the lease and is therefore deficient.

“Land in the CNMI is sacred and tied directly to the cultural history of peoples of Northern Marianas Descent. Article 13 of the Lease Agreement requires advance written approval by Department of Public Lands for any transfer or assignment. Further, Article 13 also requires a 15% payment as an assignment fee based on the capital gain of the leased land. The bidding procedure provides for neither of these requirements or any of the other requirements of Article 13 and thus must be rejected by the Court,” said Glass.

Glass adds that the bidding process IPI has proposed allows the “stalking horse” purchaser to “win” without making any showing that they could complete the building project or that they have sufficient capacity and capital to comply with the terms of the lease which require the hotel to be completed.

“In this way, the stalking horse bidder could win without any requisite showing they could comply with the terms of the lease which is a violation of 11 USC §365(b)(1)(C) which requires adequate assurance of future performance. This is also deficient and grounds to reject the bidding procedure,” he said.

Glass argues that it is clear that Sit has a close relationship with IPI after financing the casino investor for $1.5 million, and the low bid for essentially every significant asset of the debtor at only $10 million raises substantial questions regarding whether the transaction is at arms- length.

“At the very least, the court should require evidence from the debtor and Mr. Sit that shows this is an arms-length transaction,” he said.

Furthermore, Glass says IPI cannot be attempting to get the best price in a sale because debtor is not even aware of what they are selling.

“The mere fact that there are ‘90 containers of unknown value’ shows that IPI is not doing their due diligence to ensure the highest price for the assets. Debtor is not even aware if the 90 containers are full of gold bullion to be melted down to cover the gold-plated statues is has outside its building. Debtor has not even taken the smallest of steps to open the containers to figure out and price what is inside. This shows debtor is not pursuing the best price to repay its debts, and this alone is grounds for rejection of the plan. Further, debtor does not even list all the cars it is selling or their various conditions. Again, debtor is not aware if valuable cars are to be sold and the approximate pricing for the vehicles,” he said.

“At the very least this court should require debtor to do the job that is required to be done in bankruptcy or it should reconsider its decision on Chapter 7 liquidation or dismissal,” Glass adds.

Earlier this month, IPI filed a motion asking the court to approve bid procedures for sale of substantially all of IPI’s assets.

According to the motion, IPI and a committee of IPI creditors have finalized the terms of a proposed sale of essentially all of IPI’s assets to a “stalking horse purchaser.”

A “stalking horse purchaser” essentially agrees to buy all of a debtor’s assets subject to higher and better bids and subject to approval by a bankruptcy court.

The motion named Sit as the proposed “stalking horse purchaser,” the same individual who agreed to loan IPI $1.4 million in debtor-in-possession financing.

The motion further states that the “stalking horse purchaser” has agreed upon a purchase price of $10 million for all of IPI’s assets.

The assets to be acquired includes all tangible property, accounts, machinery, equipment, inventories, tenant improvements, goodwill, software and computer programs, hardware, intellectual property, company names, product names, trade names, prepaid expenses, and more.