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Bankruptcy Keyed to Levitan, 3rd Ed.
In re Kingston Square Associates
Citation:
214 B.R. 713 (1997)Facts
The eleven Debtors were real estate entities controlled by Morton Ginsberg that owned apartment complexes in Florida, the Bronx, and metropolitan New York. They became indebted to Chase Manhattan Bank and REFG Investor Two through two loan transactions known as MLG I and MLG II. The loan transactions included “bankruptcy remote” provisions in the corporate charters requiring unanimous consent of the board of directors, including an “independent director” named Laurence Richardson (who was effectively controlled by the lenders), to file for bankruptcy.
When the Debtors defaulted, the lenders commenced foreclosure proceedings and had receivers installed at all properties. Believing that the properties had value above the encumbrances and that the “independent director” would never approve bankruptcy filings, Ginsberg paid a law firm to solicit creditors to file involuntary bankruptcy petitions. Ginsberg provided information to the petitioning creditors’ counsel, coordinated the timing of filings to stay foreclosures, and arranged for payment of the attorneys’ fees. Most petitioning creditors were professionals who had worked for the Debtors, with only two trade creditors joining.
The boards of directors had not held meetings for years, and the “independent director” Richardson admitted he was unaware of his fiduciary duties to creditors and limited partners. After the involuntary petitions were filed, Richardson abstained from voting to ratify the filings, effectively vetoing them.
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