A bankruptcy judge ruled last week that the foreclosure action pending against The Hotel Hot Springs & Spa can proceed in concurrence with the owner's bankruptcy petition.
Judge Ben Barry ruled Summit Investment Management can continue to pursue the complaint for foreclosure it filed last month in Garland County Circuit Court. The Denver private equity firm acquired the hotel's debt at an auction after the Federal Deposit Insurance Corp. put original creditor, First NBC Bank of New Orleans, into receivership last year.
Summit is seeking a $23,374,719 judgment against the 305 Malvern Ave. hotel property owned by Gary R. Gibbs, whose petition for bankruptcy protection listed liabilities of $1 million to $10 million against assets of $50,000 or fewer.
Barry's ruling also keeps the hotel in possession of KPartners Hotel Management of San Antonio pending the foreclosure action. It has been running the hotel since Division 3 Circuit Judge Lynn Williams appointed it as receiver last month. Summit asked the bankruptcy court to keep the property in possession of KPartners, arguing that its security interest would be jeopardized if the hotel were transferred to Gibbs or a court-appointed trustee during the bankruptcy proceedings.
"The best interests of creditors are served by allowing the receiver to remain in possession of property of the debtor's estate, including the collateral, and continue to manage and operate the property of the debtor's estate, including the collateral," Barry ruled, adding that Gibbs will not be allowed access to operating revenue he pledged toward the repayment of the debt.
His order said Gibbs has no equity in the property as a result of the debt it is securing, and that Gibbs is unlikely to successfully restructure his debt. Under those circumstances, the federal bankruptcy allows creditors to collect debts even if the debtor has petitioned for bankruptcy protection.
"A successful reorganization is not a reasonable prospect and is highly unlikely," the order said.
Summit said in its motion to keep the property in possession of the receiver that the hotel, hotel's personal property and adjacent parking garage are securing $35 million in debt owed by Gibbs and other entities with an ownership stake in the hotel.
Gibbs' bankruptcy petition listed 20 unsecured creditors he owes more than $1.6 million, including the county tax collector, $105,313 in unpaid real estate taxes; Hot Springs Advertising and Promotion Commission, $36,160 in unpaid hospitality taxes; and the city of Hot Springs, $23,425 in unpaid rent on the vacant lot adjacent to the hotel.
The hotel's liquidity problems stem from Gibbs appropriating more than $1.6 million of 2017 operating revenue for his personal use, according to Summit's motion, leaving operating accounts in the red despite the hotel grossing more than $7.6 million last year.
Barry's order did not weigh in on the pending motion for contempt Gibbs is facing in Garland County Circuit Court. The motion alleges Gibbs violated a court order by withdrawing more than $30,000 from a hotel bank account after KPartners had taken possession of the property.
The circuit court granted Summit's request for more time to respond to Gibbs' motion to dismiss the foreclosure, giving it until Tuesday to file an answer.
Local on 11/14/2018