The future of Ada’s Inc. was dealt what may well be the knock out punch by a federal judge.
Robert J. Feris U.S. bankruptcy judge in Honolulu passed down several important rulings in a lengthy video-conferencing hearing held Aug. 27 at the U.S. District Court of Guam.
He lifted the stay on the sale of property that includes the lucrative Dededo Pay-Less property and ruled that the default rate of interest on over $7 million in loan notes held by First Hawaiian Bank is applicable on loans that became delinquent in 2002.
The Ada’s Inc. Chapter 11 bankruptcy and reorganization has been ongoing since it was filed on June 3 2002.
Prior to granting a motion brought before the court by George M. Butler a principal partner of the law-firm of Butler Telford-Butler and Ada’s Inc. bankruptcy trustee Feris said the case has continued for far too long without substantial progress being made.
Butler who was appointed by the court as the Chapter 11 trustee on Nov. 20 2003 maintained a position that Ada’s Inc. cannot be reorganized and must sell real properties to satisfy lenders and unsecured creditors. He has not filed a reorganization plan with the court.
Thomas Moody attorney with the law firm of Klemm Blair Sterling and Johnson LLC represents First Hawaiian Bank. He stated it was his clients position that First Hawaiian wished to be paid on four loans totaling $7.45 million.
Joyce C.H. Tang partner in the law firm of Civille & Tang PLLC represents Citizens Security Bank and has opposed Butler’s liquidation of assets. She filed a reorganization plan that centers on payment of debts from lease money from PayLess Markets Inc. for the property belonging to Ada’s. PayLess has leased the prime property for the past 20 years court documents indicated.
Tang filed a motion with the court on Aug. 26 — a day prior to the hearing — to have Butler removed from the case. She stated in court documents and then verbally before the court “Butler has not performed his duties in the best interest of Ada’s Inc by not filing a reorganization plan which should be his primary function before completely liquidating the estate to pay creditors.”
To add to the complicated litigation Citizens Security Bank submitted a third-party plan on July 20 to reorganize Ada’s on behalf of Equatorial Manufacturing Inc. an unsecured creditor that is owed $320. Citizens Security Bank was successful in having a stay lifted in January on the Dededo Paradise Fitness Center which secured a loan with it. The bank immediately foreclosed on the property and promptly sold it to a new corporation — Fitness Solutions Inc. which court records stated belongs to Anthony P. Sgro.
Tang filed with the court on Aug. 21 a reply to Butlers opposition to Citizens Security Bank’s plan to reorganize.
Cesar C. Cabot attorney for Agnes A. Sgro and the Agnes A. Sgro Trust told the court that his client totally opposed the liquidation of assets. “Mrs. Sgro — who is very sick — opposes the sale of the Dededo Pay-Less property because it is inappropriate unjustified untimely ” and laid blame with Butler for not making what he said his client believed to be all appropriate efforts toward compromising and settling legitimate claims before liquidating further estate assets. “It cannot be overemphasized that the Dededo Pay-Less property is the bankruptcy estate’s most valuable and lucrative asset ” Cabot said. He also informed the court that should the Dededo Pay-Less property be sold; the needs of his ailing client might not be met.
Cabot called the Dededo Pay-Less property “The cash cow that brings money into the estate. If it should be sold that will be gone effectively killing any hopes of reorganizing.” He also proposed a lock box wherein the lease money of the Dededo Pay-Less property would be deposited to pay debts. However the court rejected the idea.
Tang told the court that Butler had done little to negotiate to reduce the claims of creditors and that it was her client that approached unsecured creditors and was able to negotiate a 50¢-on-the-dollar reduction and in many cases more than that.
Butler told the Journal the purpose of Chapter 11 reorganization was to allow a company or persons unable to pay its bills an option to try to find a way to pay debts. He also said it was not his duty to protect the assets of the Ada estate but to satisfy injured parties (lenders and secured and unsecured creditors) with monies from the sale of assets belonging to the estate.
Another issue at the heart of the Citizens Security Bank reorganization proposal was what rate of interest was applicable to the First Hawaiian bank notes. At issue is also whether proper notification of delinquency and a proper notice to cure was delivered.
Feris ruled that the default rate of 4% was applicable to the First Hawaiian notes. This is the amount that will be added to the current interest rate of each of four notes. Court filings throughout the case indicated all parties agreed that if the higher rate was charged then reorganization could not move forward without the sale of major assets.
Sale of Ada’s property prior to the Aug. 27 hearing had been limited to a six-acre parcel of land in Tamuning that was not encumbered by any lien except a tax lien filed by the government of Guam. The property sold in June for $835 000 with the approval of the bankruptcy court. After the government took money owed for gross receipt taxes and other unpaid Ada’s Inc. taxes $475 939 was deposited into the Ada’s Inc. account.
Following arguments Feris said it was time to have something of substance happen on the matter and granted the motion to lift the stay on all properties. This included the Ada’s Professional Center buildings A B C D and F encumbered by three of the four First Hawaiian mortgages amounting to $7 453 452 97. As of June 30 accrued pre- and post-petition interest was $1 109 082.72.
The lifting means that First Hawaiian Bank can foreclose on those properties as the loans are in default.
Waiting in the wings is Payless Markets Inc. which executed a purchase agreement with Butler on May 24 for $1.6 million. However Payless will not automatically win the right to purchase the property as other buyers are bidding on it.
Pedro M. and Maria P. Ada founded Ada’s Inc. in 1958. They began with $500 and purchased a small grocery store in Hagatna which was opened in 1938 before World War II. In 1945 the Ada’s opened a general merchandise store again in central Guam and expanded over the next 25 to 30 years. The estate grew to incorporate supermarkets shopping centers commercial buildings and other real estate and ventures.
In late 1995 Agnes Sgro and Anthony Sgro assumed control of Ada’s Inc. removing Pete Ada Jr. then president and Peter “Sonny” Ada manager. In 1996 the Ada’s relinquished their holdings in Ada’s Inc. through a tax-free reorganization plan. MBJ