Update on Celebrity Resorts Bankruptcy
Special Report by InsideTheGate.com
August 6, 2010 — On Friday, March 5, 2010, Celebrity Resorts, LLC and 35 affiliates voluntarily filed for chapter 11 bankruptcy protection in the United States Bankruptcy Court in Orlando, Florida. The companies have continued operations while the reorganization process is sorted out.
The following is a partial update on the status of that case, which is turning out to be quite fractious as it relates to family affairs.
JUNE FINANCIAL REPORT: On July 29, 2010 a monthly operating report was filed for the month of June, 2010. According to that report, Celebrity Resorts had slightly more than $1 million in receipts during June, with $177,000 coming from cash sales and $401,000 in rental income. The company’s disbursements in June totaled $1.17 million. The largest categories of disbursements were for payroll ($841,000) and insurance ($99,000). Over the course of the bankruptcy cases, Celebrity Resorts has had receipts of almost $6 million and disbursements of slightly less than $5 million. The company ended June with $2.16 million in funds.
MOTIONS: There has been a flurry of motions filed within the last month by various interested parties, but primarily by Neil Meyers and Jared Meyers/Celebrity Resorts, most of those having been withdrawn. Included among those motions:
- a Motion to Dismiss Case or in the Alternative, Convert Case to Chapter 7, filed by Farmington Bank (a scheduling conference on this motion was held on July 21);
- a Motion to Determine if Chapter 11 Bankruptcies were filed without Authority, filed by Neil Meyers (withdrawn);
- Celebrity Resorts’ Motion to Strike Neil Meyers’ Motion to Determine if Chapter 11 Bankruptcies were filed without Authority (withdrawn);
- Celebrity Resorts’ Motion for Court to Reserve Jurisdiction to Levy Sanctions and Shorten Safe Harbor Notice Period (withdrawn);
- Celebrity Resorts’ Motion for an Extension of its Exclusive Periods to File a Plan of Reorganization and Seek Acceptances (The court granted the request for an extension of the exclusive periods, overruling an objection filed by Textron Financial Corporation. Exclusivity was extended to August 6, 2010.)
There was also a motion filed by Celebrity Resorts of Kauai, LLC (one of the debtor companies) seeking to assume an unexpired lease of non-residential real property between itself and the Association of Apartment Owners (Apartment 16-b at the Hanalei Bay Resort). On August 2 the AOAO formally objected, saying that the debtor cannot independently assume that lease because it is part and parcel of the entire settlement agreement.
The settlement agreement between the AOAO and the Developer Incorporated the lease as a “Sales Center” for timeshare resort marketing for a period of three years, with lease payments and various fees to be paid monthly. The AOAO points out that to allow the assumption of the lease, without assumption of the entire settlement agreement, would be to break up an unseverable single contract and would result in a windfall to the debtor compromising the carefully negotiated give-and-take of the agreement.
The AOAO also pointed out that to date the debtor still owes the AOAO $18,132.92 in unpaid rent in addition to other fees, that in fact the debtor has failed to ever pay any of the rent since the inception of the lease. In addition, the AOAO holds that the debtor is in default in other areas as well, including: The failure of the debtor to erect a dividing wall and build out the sales office as required; the failure of the debtor to enter into an agreement with Trading Places International to provide concierge services for guests, thus depriving guests of concierge services as well as depriving the AOAO of fees derived from the sale of such services.
The court will be making a decision about those two motions in the near future.
ADVERSARIAL COMPLAINT: Perhaps the most interesting development in this case so far is an “adversarial complaint” which was filed July 9, 2010 as a separate (but related) case by Neil Meyers against his son Jared Meyers, Celebrity Resorts LLC and all 35 of the other affected entities. This case is Meyers v. Meyers et al. It is a Complaint for Declaratory Judgment and Injunctive Relief, in which Neil Meyers asks the bankruptcy court to (1) enter a declaratory judgment that Neil Meyers is the owner of Celebrity Resorts and the other debtors and (2) issue an injunction prohibiting Jared Meyers from exercising control over the debtors.
In the original bankruptcy pleading three main reasons were given for the bankruptcies. One of those was as follows: “Disagreements between members of the Meyers family who control the debtors regarding the companies’ business model, which resulted in the termination of two family members – Neil Meyers (the father) and Steve Meyers (a son and the debtors’ general counsel) and a lawsuit by Neil Meyers against several of the companies. A second son, Jared Meyers, remains as the chief executive officer of all of the debtors.”
That disagreement continues, on steroids. Here, according to the court documents, is some background on the main participants along with Neil Meyers’ allegations/complaint.
For over thirty years, Neil and his brother Hillel Meyers (commonly called “Hillie” within the timeshare industry) have developed real estate, including some of the first timeshare resorts in the United States.
The oldest of Neil’s three sons, Jared, (born August 13, 1976) graduated from college in 1998 at age 21. At that time, he went to work for Neil and Hillel. Due in large part to disagreements between Jared and Hillel, Neil and Hillel partitioned their businesses in 2003.
That same year, First Continental Corporation, a company owned solely by Neil pursuant to the partition with Hillel, successfully bid on and purchased certain timeshare assets from Leisure Industries, which was in bankruptcy (originally those assets belonged to Mego Financial Corp/Preferred Equities).
Neil structured the purchase so that First Continental Corporation would purchase the assets for certain Celebrity entities that would ultimately acquire the assets. In connection with the purchase, Jared represented to Textron Financial Corp., the company financing the purchase, that the Celebrity Entities were owned solely by First Continental Corporation.
Since then, Jared has been the CEO and President of all of Neil’s companies, including but not limited to First Continental Corporation, the Celebrity Entities, and the Debtors-in-Possession. In that capacity, he ran the day-to-day operations.
Neil Meyers alleges that while running the day-to-day operations of the companies, Jared created a confusing array of business entities and that Jared claims to have transferred certain membership interests and assets to other entities over which he claims to exercise ownership and control.
The complaint maintains that although Jared may have attempted certain transfers of membership interests and assets, those transfers were ineffective for the following reasons, among others:
- corporate records reflecting the alleged changes in membership interests were not maintained as required by law;
- the alleged transfers of membership interests were not memorialized in conveyance documents and/or promissory notes;
- the alleged transfers of membership interests were not consented to in writing by all members as required by law; and
- documents purporting to explain or refer to the alleged transfers of assets, the organizational structure and control of the entities are wholly inconsistent and irreconcilable.
The complaint alleges that more fundamentally, the documents, read in pari materia (A designation applied to statutes or general laws that were enacted at different times but pertain to the same subject or object), simply do not convey ownership or control of the Debtors-in-Possession to Jared as he alleges. Accordingly, Jared cannot establish his right of ownership or control of any of the Debtors-in-Possession as a matter of law. Instead, ownership of the Debtors-in-Possession remains with Neil. As such, Jared must be enjoined from exercising control over the Debtors-in-Possession.
As of press time, a response from Jared Meyers to this motion was not available to this writer, but InsideTheGate.com will keep an eye on the proceedings of the bankruptcies and report on them as the importance of subject matter dictates.
Copyright 2010 InsideTheGate.com and JAM Publishing
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