This article was published in Law360 on February 13, 2014. © Copyright 2014, Portfolio Media, Inc., publisher of Law360.
In In re Scimeca Foundation Inc., 497 B.R. 783 (Bankr. E.D. Pa. 2013), a Chapter 7 trustee sought court approval for a sale of the debtor’s property and resolution of related issues over the objections of the debtor. In granting the trustee’s request, the court reviewed various issues that commonly come up in connection with bankruptcy sales, including the standard for review of the trustee’s proposed sale, bases for selling property “free and clear,” and the effect of a sale on leases.
The debtor owned a property in Philadelphia known as the Foremost Building. It was a mixed-use project with commercial tenants on two floors, office space on two floors, and apparently, an apartment on the fifth floor. The property was subject to a mortgage. The debtor filed for bankruptcy in order to stay a sheriff’s sale scheduled by the mortgagee. The debtor scheduled the property with a value of $9 million while the debt was approximately $3.2 million.
The case involved a long history of failed efforts on the debtor’s part. Although the debtor obtained confirmation of a plan of reorganization, it failed to make payments required under the plan. A motion to convert or dismiss the case was conditionally denied based on the debtor’s commitment to sell the property.
A couple of months later, the debtor filed a motion to approve a sale to a buyer for $6.1 million, but withdrew its motion without any explanation. A couple of months after that, the debtor filed a motion seeking approval of a refinancing, but was not successful in closing the loan. Eventually the case was converted and a Chapter 7 trustee was appointed.
In opposing the trustee’s request to retain a broker, the principle of the debtor (DeSeo) contended that a broker was not necessary since he had already negotiated a sale agreement. However, the court found a number of objectionable features in the proposed offer, including:
- the fact that DeSeo had an interest in the buyer and would receive rent-free space
- several conditions could result in a reduction of the $6.1 million purported sale price or allow the buyer to walk away
- seller financing was required, and
- a supposed cash capital contribution by the buyer was to be funded out of proceeds of the sale of the property.
So, the court rejected the proposed agreement and approved the trustee’s retention of a...
