Ultimate Escapes creditors object to disclosure statement, exclusivity

By Jim Witters

Wilmington, Del., Aug. 17 - Ultimate Escapes Holdings LLC's official committee of unsecured creditors objected to the company's disclosure statement and its request for an extension of the exclusive period for filing a liquidating plan and soliciting votes on that plan, according to documents filed Wednesday in the U.S. Bankruptcy Court for the District of Delaware.

The committee argued that "the court should not approve the disclosure statement because the proposed Chapter 11 liquidating plan hinges on a settlement with CapitalSource that essentially funnels substantial value to CapitalSource, leaving behind the unsecured creditors."

"The committee spent months negotiating with the debtors and CapitalSource to reach terms for a mutual settlement that would result in a consensual plan. Nevertheless, the debtors have filed a plan that hinges on a settlement that hampers the rights of unsecured creditors. Moreover, the approval of the CapitalSource settlement should be rejected by the court in light of the committee's pending adversary complaint, which challenges the underpinnings upon which the settlement is based," the objection stated.

The committee also stated that the disclosure statement lacks adequate information regarding five issues:

• The committee believes the disclosure statement should be modified to include the more detailed allegations made available to the debtors through a Notice of Circumstances letter dated Dec. 23, 2010 and sent on behalf of the committee to National Union Fire Insurance Co. and Chartis Insurance regarding potential causes of action against the former officers and directors;

• The committee believes the disclosure statement should be modified to include information regarding the adversary action filed by the committee against CapitalSource on July 1;

• There is no information in the disclosure statement concerning the debtors' analysis regarding whether the one-time membership fee paid by debtors' members constitutes a deposit entitled to priority under section 507(a)(7) of the Bankruptcy Code. A substantial number of members have filed priority claims asserting that their paid membership fee, or a portion of the fee, constitutes a deposit and entitles them to priority status up to the statutory cap of $2,425;

• The plan contains no justification for the debtors being granted the right to select the liquidating trustee. The committee believes it should select the liquidating trustee; and

• The plan exculpates and limits the liability of certain parties, but not the committee, its members and its professionals.

Regarding the extension of the exclusive period, the creditors committee argued that because "the disclosure statement lacks adequate information and the debtors' plan is wholly premised on a questionable settlement with the secured lender ... exclusivity should not be extended so that the committee, if it is decided to be in the best interests of the creditors, may file and pursue a plan of liquidation as modified by the relief sought through the above-mentioned adversary action."

Ultimate Escapes, a Kissimmee, Fla.-based destination club operator, filed for bankruptcy on Sept. 20, 2010. The Chapter 11 case number is 10-12915.

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