Hospitality Staffing's $22.9 million asset sale OK'd over objection

By Jim Witters

Wilmington, Del., Dec. 12 - Hospitality Staffing Solutions Group, LLC received approval for the sale of substantially all of its assets to lender HS Solutions Corp. for a $22.9 million credit bid.

However, closing on the sale likely will be postponed until Jan. 8, the debtors attorney said.

Judge Brendan L. Shannon granted the approval during a Dec. 12 hearing in the U.S. Bankruptcy Court for the District of Delaware over the objection of National Union Fire Insurance Co.

David Carickhoff, representing the insurer, argued strenuously and at length that HS Solutions should not receive the proceeds of any avoidance actions as part of its credit bid.

The purchaser should have been required to provide cash value, he said.

Debtors attorney Mark Minuti said the purchaser was providing additional value by agreeing to assume some liabilities, which require cash payments.

Under the asset purchase agreement, the debtors' estate retains the avoidance actions, but HS Solutions gains the right to any proceeds if the actions are pursued.

The debtor received no other bids for its assets, he said.

Carickhoff said HS Solutions ran the case as the pre-petition lender, the lender for the debtor-in-possession financing facility and the stalking horse bidder. HS Solutions was trying to "wash its assets" through the bankruptcy process and tried to get the avoidance action proceeds "through the back door."

Even though negotiations between the lender and the debtor were conducted at arms length, there was a "fundamental difference in leverage" because of the multiple roles HS Solutions played, Carickhoff said.

Judge Shannon overruled the insurer's objection, saying that the debtors had few, if any, alternatives.

The sale process provides a way to preserve the business and the jobs of a company that was in "severe financial distress," Shannon said.

No matter which path the debtors chose in the bankruptcy case, unsecured creditors would receive no recovery, the judge said.

Closing delay

The closing of the transaction may be delayed until Jan. 8 or later, because the deadline for challenging the validity of HS Solutions' liens on the debtors' assets is Jan. 7.

Should any liens be determined to be invalid, the buyer's credit bid could be questioned.

Shannon made clear during the hearing that he would not waive or shorten the challenge period.

If the buyer decides to move forward with the closing before the end of the challenge period, the buyer assumes all the risk, the judge said.

Minuti said the buyer and debtor will confer and decide whether to move forward with the closing and its associated risk. But he said it is more likely that the closing will occur after the deadline passes for challenging the liens.

Hospitality Staffing, an Atlanta-based provider of hospitality staffing services to hotels, resorts and casinos, filed for bankruptcy on Oct. 23. The Chapter 11 case number is 13-12740.

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