April 14 (Bloomberg) -- The owner of the Viceroy Anguilla Resort & Residences on the British West Indies island of Anguilla should be stripped of control over its bankruptcy case, creditors said in seeking the appointment of a trustee.
Barnes Bay Development Ltd. entered bankruptcy to benefit its secured lender, an affiliate of Starwood Capital Group LLC, and to shield manager Bradford Korzen and others from liability, lawyers for the official committee of unsecured creditors said in papers filed yesterday in U.S. Bankruptcy Court in Wilmington, Delaware.
Barnes Bay has been “paid off to assist Starwood in using these proceedings to implement a transfer of ownership” while leaving unsecured creditors “holding an empty bag,” the creditors’ attorney wrote.
An affiliate of Greenwich, Connecticut-based Starwood bought Barnes Bay’s $370 million in secured loans in October, according to court documents. Starwood has declined to say how much it paid.
Starwood “still supports the debtor’s Chapter 11 bankruptcy plan and believes that the plan offers the best outcome for all stakeholders,” Ellis Rinaldi, general counsel for Starwood, said in an e-mailed statement.
Charles R. Gibbs and Paul N. Heath, lawyers for Beverly Hills, California-based Barnes Bay, didn’t immediately respond to phone calls and e-mail messages seeking comment.
Barnes Bay already has replaced its chief restructuring officer, Deborah Branch, after creditors said she was uncooperative and they weren’t sure how involved she was in daily operations. Kevin Nystrom of Zolfo Cooper LLC will take over that role.
“Starwood has the utmost confidence in Kevin Nystrom and supports the debtor’s decision to hire a professional chief restructuring officer,” Rinaldi said.
The creditors argue the company is giving up valuable claims against Korzen, founder and chief executive officer of Viceroy Hotel Group, stemming from his personal guarantee of $150 million of the Starwood debt.
“In one fell swoop, the plan would release potentially hundreds of millions of dollars of claims held by third parties against insiders for no consideration,” creditors’ lawyers wrote in court documents.
Carran Auwerter, a spokeswoman for Viceroy Hotel Group, wasn’t immediately available to respond to an e-mail seeking comment.
Under the company’s restructuring proposal the Starwood affiliate would act as the so-called stalking-horse bidder at an auction for virtually all of the assets. The lender would be allowed to bid its debt at the auction, which Barnes Bay wants to hold on May 24 in Anguilla, court papers show.
The company listed about $531 million in assets and about $462 million in debt as of Dec. 31.
The project was expected to take two years to complete when construction began in 2005, at an estimated cost of about $144 million. Expense projections more than doubled by January 2007 to $327 million, according to court documents. Labor disputes and Hurricane Omar further delayed construction on the resort, which opened in October.
The company collected $49 million in deposits on 97 residences with a total sale price of $220 million, according to court filings. Some buyers, who are also unsecured creditors, have sued to terminate the purchase agreements.
“Barnes Bay’s free-wheeling spending, including substantial sums of money apparently paid to Korzen’s wife, Kelly Wearstler, and its gross mismanagement caused the projects costs to swell” beyond estimates, creditors claim.
Wearstler, an interior designer with products selling at Bergdorf Goodman who appears as a judge on Bravo network’s “Top Design” reality television show, has worked on at least seven of her husband’s project, according to her website. The former Playboy Playmate has a $7,000 unsecured claim against Barnes Bay.
The Anguillan resort covers 35 acres, with 3,200 feet of beach frontage featuring 166 “beachfront and blufftop villas,” townhouses, four restaurants and a water-purification plant. As of October, the company had buyers lined up for 70 percent of the residences, which sell for as much as $6.5 million, according to court papers.
The creditors want their request heard on or before May 3, when a hearing is set for Barnes Bay to seek court approval of its disclosure statement, a description of the plan used by creditors to decide whether to support or reject it.
The case is In re Barnes Bay Development Ltd., 11-10792, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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