MSR Hotels creditor Five Mile eyes conversion or trustee appointment

By Caroline Salls

Pittsburgh, July 2 - MSR Hotels & Resorts, Inc. creditor Five Mile Capital Partners LLC asked the U.S. Bankruptcy Court for the Southern District of New York to convert MSR's Chapter 11 bankruptcy case to Chapter 7 or appoint a Chapter 11 trustee to oversee the case, according to a July 2 court filing.

Unlike the debtors in the previous bankruptcy case filed by MSR Hotels subsidiary MSR Resort Golf Course LLC, Five Mile said MSR Hotels conducted no business on its bankruptcy filing date or seemingly for years before that.

Five Mile said MSR Hotels' directors and proposed advisers testified in the subsidiaries' case that the parent "was an asset-less shell."

"There is no valid reason for such a debtor to accumulate administrative expenses in pointless pursuit of a Chapter 11 plan," Five Mile said.

"The debtor has almost no money and thus has sought $2 million of post-petition financing from insiders just to pay the anticipated professional costs of a Chapter 11 case, most of which appears earmarked to shift insiders' defense costs to the estate and fund the directors' efforts to reduce the value of estate's causes of action against them."

In addition, Five Mile said MSR Hotels' case "is infected with an additional disorder: management that has proven to be incompetent and deeply conflicted."

Five Mile said the company not only failed to obtain compensation for the use of its valuable brands by the owner of its resorts, but it has not moved forward with any opportunities to gain additional revenue by licensing them to other entities for other uses.

According to the motion, there is a high probability that MSR Hotels holds significant claims against its directors "for their abject and continuing failure to manage the debtor's brands properly to generate value and revenue for the debtor," which is why Five Mile filed a derivative action seeking damages from the directors.

Absent conversion to Chapter 7 or the appointment of a trustee, Five Mile said the company remains under the control of lawsuit defendants and cannot, and will not, prosecute claims.

As a result, Five Mile said a non-conflicted estate fiduciary is necessary to evaluate MSR Hotels' claims against its insiders and to maximize their value.

A hearing is scheduled for July 23.

MSR Hotels, a New York-based real estate investment trust, filed for bankruptcy on May 8. Its Chapter 11 case number is 13-11512.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.