PHOENIX (BP)–A disagreement over the secured versus unsecured status of Baptist Foundation of Arizona investors has been resolved, subject to court approval, according to a proposed agreement filed in U.S. Bankruptcy Court Sept. 5.
The disagreement had been “the single remaining impediment” to the BFA bankruptcy case proceeding rapidly, according to a status report filed by the BFA in July.
Under the terms of the settlement — which has been agreed to by the foundation, the Unsecured Creditors’ Committee and the Collateralized Investors’ Committee — creditors holding what were offered as secured investments will receive a premium of $13.2 million in addition to the funds all investors will receive on a pro rata basis. If the assets sell for the $240 million that has been estimated, secured investors will recover about 44 cents for every dollar they invested, while unsecured investors will receive about 31 cents for every dollar invested.
About 7,000 of the 12,000 investors hold secured investments, totaling 76.5 percent of all investor claims.
From the beginning of the bankruptcy case, BFA had maintained that all investors should be treated equally because of the way the foundation actually dealt with investors, handled the collateral pools and otherwise conducted business.
To speed the settlement process along, on July 14, BFA filed an “adversary proceeding” – a class-action suit against the approximately 7,000 allegedly secured investors — seeking a resolution to the secured versus unsecured question. The suit seeks no monetary damages, simply a resolution to the question of investors’ status.
A proposed schedule called for fairness hearings for the court to approve the settlement during the week of Oct. 30. The court’s decision will be binding on all parties.
In addition, the schedule proposes holding hearings concerning approval of BFA’s disclosure statement during the week of Sept. 11. Following the court’s approval of the disclosure statement — which describes the liquidating plan, explains what caused BFA’s failure, identifies potentially responsible third parties and provides estimates of recoveries for creditors — investors will be asked to cast ballots for or against the plan.
After the vote, the court will conduct a hearing to consider confirmation of the plan. The proposed schedule calls for the hearing to be held during the week of Nov. 6.
If the schedule is met, it may be possible to distribute some funds to investors before the end of the year, said Mark Dickerson, general counsel to the BFA Management Committee.
Meanwhile, the foundation has filed a lawsuit against its former auditors, Arthur Andersen LLP, charging the firm with negligence in conducting its annual audits for 15 years, beginning in 1984.
The suit alleges that Arthur Andersen ignored “red flags” and failed to investigate “highly suspicious, non-arms’ length transactions.” Arthur Andersen’s actions allowed the foundation’s undisclosed losses to escalate to hundreds of millions of dollars and ultimately resulted in the foundation’s demise, according to the suit.
In other news, BFA is proceeding with the sale of key assets. A sale of BFA’s interest in Chaparral Pines in Payson, Ariz., closed for $9.6 million.
With a bid by a major homebuilder and real estate developer in hand, BFA has filed a motion for the auction and sale of Pleasant Point, BFA’s largest real estate asset, located north of Phoenix. In addition, BFA is preparing contracts for bankruptcy court approval and auction of its Kilohana Waikaloa property in Hawaii.
BFA reported to investors in July that it had signed an agreement with the Internal Revenue Service that grants relief to BFA IRA account holders who are required to receive minimum required distributions or who elected to receive equal annual distributions.
BFA also reported that the two investors’ committees and the BFA Restructuring Committee had selected Clifton R. Jessup Jr. as liquidating trustee, subject to court approval when the liquidating plan is confirmed. In the meantime, the court has approved the hiring of Jessup as a consultant to BFA and the two committees.
As liquidating trustee, Jessup will manage the day-to-day operations of the liquidating trust. He is a partner and head of the bankruptcy and insolvency group of Patton Boggs, LLP, and has represented secured and unsecured creditors, committees, equity holders, debtors and trustees in bankruptcy cases in more than 37 states.
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