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HomeMy WebLinkAbout09921RESOLUTION NO. 9921 A RESOLUTION ACCEPTING THE SECOND AMENDED JOINT PLAN OF REORGANIZATION AS FILED IN THE CHAPTER 11 BANKRUPTCY PROCEEDING, UNITED STATES BANKRUPTCY COURT, DISTRICT OF MASSACHUSETTS, CASE NO. 02-14938, CAPTIONED "IN RE STEVE KIPUROS" WHEREAS, on July 3, 2003, the Second Amended Joint Plan of Reorganization (the "Plan") was filed in the Chapter 11 Bankruptcy Proceeding, United States District Court, District of Massachusetts, Case No. 02-14938, captioned "In re Steve Kipuros" (the "Kipuros Bankruptcy"), and WHEREAS, based upon practical and economic considerations, it is in the best interest of the City to accept the Plan as filed in the Kipuros Bankruptcy, BE IT RESOLVED BY THE CITY COUNCIL OF PUEBLO, that: SECTION 1. The City does accept the Plan as filed in the Kipuros Bankruptcy. The City Attorney is authorized to execute in the name of the City any and all documents required to be executed by the City with respect to the approval, performance and implementation of the Plan. INTRODUCED July 28, 2003 BY Al Gurule/Councilperson APPROVED: Bill Sova/President of City Council ATTEST: Gina Dutcher/City Clerk Background Paper for Proposed RESOLUTION AGENDA ITEM DATE: July 28, 2003 DEPARTMENT: Law Department TITLE A RESOLUTION ACCEPTING THE SECOND AMENDED JOINT PLAN OF REORGANIZATION AS FILED IN THE CHAPTER 11 BANKRUPTCY PROCEEDING, UNITED STATES BANKRUPTCY COURT, DISTRICT OF MASSACHUSETI'S, CASE NO. 02-14938, CAPTIONED "IN RE STEVE KIPUROS" ISSUE Whether Council should approve and accept the Second Amended Joint Plan of Reorganization (the "Plan") as filed in the Chapter 11 Bankruptcy Proceeding, United States District Court, District of Massachusetts, Case No. 02-14938, captioned "In re Steve Kipuros" (the "Kipuros Bankruptcy")? Approve and accept the Plan. The Pueblo Economic Development Corporation ("PEDCO") made application with the City for one-half cent sales and use tax funds in the amount of $852,000 for Countrywide Telecommunications, LLC ("Countrywide") to locate its business at the airport industrial park. PEDCO represented to the City Council that Countrywide would be a viable enterprise employing 550 employees, had strong financial backing from Steve Kipuros ("Kipuros"), and recommended that City Council approve the application. In reliance upon PEDCO's representations and recommendations, City Council on June 14, 1999 approved an agreement with Countrywide to advance $857,000 to Countrywide. Kipuros guaranteed Countrywide's performance. City advanced $802,209 to Countrywide. Countrywide terminated its business operation at the airport industrial park in September 1999. City filed suit to collect the $802,209 from Countrywide and Kipuros and has actively pursued collecting the $802,209. The City currently has a claim in the Kirpuros Bankruptcy in the amount of $521,945.32. The basis of the claim is the Settlement Agreement dated April 2, 2001 under which the original principal balance was $842,208 with interest at eight percent (8%) per annum. The balance has been reduced by appreximately $400,000 threugh pre-petition payments in the amount of $163,000 and credit in the amount of $234,230 relating to the sale of the collateral of Countrywide Telecommunications, LLC. The City's claim is secured in the amount of $195,000 by a promissory note and mortgage upon Kipures' residence. The trustee has appreised the real preperty between $622,000 and $640,000. The priority of City's mortgage is second to the mortgage of Dovenmuehle Mortgage Corporation in the amount of $523,000. In the bankruptcy preceeding the City has taken the following actions: (1) Filed a request for relief from stay to foreclose the City's interest in the real property; and (2) Filed an adversarial proceeding to determine City's claim to be non-dischargeable pursuant to 11 U.S.C. §523(a)(2). The request for relief from stay has been continued in an attempt to negotiate a settlement with the Kipuros. In the adversarial proceeding, Kipuros stipulated to judgment which excepts from discharge City's claim, however, City has agreed to a general release from said judgment provided: (1) Debtor's Chapter 11 Plan is confirmed prior to December 31, 2003; (2) City receives at least $75,000 under its secured claim; (3) City receives at least 30% of its unsecured claim; (4) Kipuros fully perform the plan; and (5) No conversion of the plan to a Chapter 7 liquidation. As a final matter, the City has currently expended approximately $19,000 in attorney fees with respect to the Kipuros Bankruptcy proceeding. (a) Proposed Plan The City would receive an immediate distribution of approximately $140,000 to $150,000 upon confirmation. Over a five year period, the City would receive an additional amount of $156,000 for a total of approximately $300,000. The payment of the $156,000 over the five year period is dependent upon the continued successful operation of PTM Telecommunications, Inc. ("PTM"). Based upon its history of operation and irrespective of the actions of its owner, PTM has generally been a profitable business. To the extent Kipuros fails to perform the Plan, the City will be able to pursue collection against Kipuros since the City's claim will be a non dischargeable debt. Performance of the Plan is secured by a lien on all assets of Kipuros, including his home, and a pledge of his equity interest in PTM. PTM has also granted a security agreement to the trustee with respect to all of its assets. To the extent Kipuros successfully completes the Plan, the remaining amount of City's claim of $221,000 will be discharged. In addition, the Plan requires the City to execute a discharge of its mortgage against Kipuros' home after payment of the first $75,000. (b) Alternatives The only alternative the City has is to reject the Plan. If rejected, it is anticipated that the Plan will be converted to a Chapter 7 liquidation. Under such liquidation, it is estimated that there will be approximately $270,000 to $290,000 available for distribution to unsecured creditors of which the City would receive anywhere from $120,000 to $145,000. In addition, the City would be able to foreclose its deed of trust upon Kipuros' home. The drawback to this alternative is that the liquidation would probably take in excess of one year. In addition and with respect to Kipuros' home, the City would have to be willing to pay-off the first mortgage in excess of $500,000, incur carrying costs with respect to the home for six to nine months and incur foreclosure and sale expenses. Although speculative, it is not anticipated that the City would receive more than $100,000 and would likely receive much less in the foreclosure of Kipuros' house. The City would also incur additional attorney fees and costs with respect to the Chapter 7 bankruptcy liquidation. (c) Conclusion Viewed purely from an economic standpoint, it is in the best interest of the City to accept the Plan. The City has advanced $802,209 to Countrywide and through collection activities and the proposed Plan, the City will probably receive a total of $697.000 j~J~J~J~C~,J~EACT The financial impact of either passing or not passing this Resolution is described above.