A bankrupt British Virgin Islands luxury resort owner was assailed by lender FirstBank Puerto Rico for an allegedly “false and misleading” court filing saying a settlement had been reached over the bank’s claims.
The resort owner, Scrub Island Development Group Ltd., filed a restructuring proposal March 19 in U.S. Bankruptcy Court in Tampa, Florida, where it’s based, saying it had an agreement with FirstBank on the treatment of almost $120 million in claims.
The statements in the proposed reorganization plan and an accompanying explanatory disclosure statement are “completely false and misleading” and the bank “never agreed to the terms of this nature,” Lawrence Odell, FirstBank’s general counsel, said in a telephone interview yesterday. FirstBank filed an initial objection to the plan making similar statements.
Charles A. Postler, a lawyer for Scrub Island, didn’t return a phone call or e-mail seeking comment on the bank’s objection.
Under the proposed plan as filed by Scrub Island, the bank would get a new claim of $37.5 million against the reorganized company, which would be reduced to $30 million with an initial cash payment and then paid over five years. FirstBank would get $84.9 million in unsecured deficiency claims that would receive no recovery.
“The disclosure statement unequivocally states that FirstBank has agreed to the treatment of its claims as set forth therein,” the bank said in its objection. “That statement is false.”
FirstBank said in the filing that it’s reviewing the disclosure statement and may raise other objections.
Scrub Island’s resort is the first such development built in the British Virgin Islands in more than 15 years, according to its website. The acrimony between the company and FirstBank began before the resort owner sought bankruptcy protection Nov. 19 and has persisted at just about every step since.
Scrub Island claims that FirstBank initiated a “highly secretive appointment” of a temporary receiver in the British Virgin Islands without prior notice, forcing the resort owner to seek bankruptcy court protection, according to court filings.
FirstBank said in court papers that it was exercising its rights to protect collateral after “serial and ongoing defaults” by Scrub Island and that it was no longer willing to fund the company’s losses.
Scrub Island accused the bank of engaging in unauthorized contact with an executive at an affiliated company, Mainsail Lodging & Development, and obtaining confidential information from that executive, who was later terminated, according to court documents.
Scrub Island sued the lender three days after filing for bankruptcy to keep the bank from taking any action in the British Virgin Islands proceeding, according to court papers. U.S. Bankruptcy Judge Michael G. Williamson made an initial ruling to block the bank from taking any action in December.
FirstBank unsuccessfully tried to have the case thrown out of the Tampa court, arguing that the bankruptcy didn’t belong in the U.S. because the majority of the company’s assets are in the British Virgin Islands.
The bank may revive its request that the court lift the “stay” that protects bankrupt companies from lawsuits and halts those in progress so it can renew efforts to foreclose on Scrub Island’s assets, Odell said.
The bank and the resort owner on Feb. 28 jointly requested an extension of the company’s exclusive right to propose a restructuring plan so negotiations could continue. FirstBank said the talks were based on the assumption that Shaner Sunshine LLC or affiliates, a group with “worldwide expertise in hotel management and deep pockets,” would invest in Scrub Island as part of the plan.
Under the terms of the proposed plan, new investors would inject about $9.1 million into reorganized Scrub Island for a majority equity interest in the company. Current investors would contribute about $6 million for a minority equity interest. The investments would be used to make payments under the plan and fund capital spending.
The case is In re Scrub Island Development Group Ltd., 13-15285, U.S. Bankruptcy Court, Middle District of Florida (Tampa).