Secured creditor client seeks relief from buyer who filed Chapter 11
“ In any event, client does not have $100K. Client decides to have a fresh start in life with a Chapter 7 bankruptcy to wipe out the labor department award of $100K for back pay.”
OH, the woes of owning and running a business come in all shapes and sizes! Even when a business is profitable, something can go wrong that wipes it out. This is particularly true with small businesses when an unexpected lawsuit literally kills the business. Client has operated a successful small business for 5 years. He turns a profit of $50K a year, just enough to pay for his home mortgage all household expenses for his young and growing family. About five years ago, client hires an employee to help him run the business for a salary of $1,500 a month. That’s all the small-scale business can afford to pay the employee who was enthusiastic to accept the job. Employee had been out of work for three years and drastically needed income. Client informed employee that $1,500 was the most he could afford to pay him, and that because this was a small business, the two of them would have to do everything to make sure everything was running smoothly. In other words, this was not a regular nine to five job. Deliveries would be made after five, and if there were a lot of orders, he would have to come in earlier and leave later to ship out the orders in time. Employee said that there was no problem, that he was willing to work hard, and would consider the salary heaven sent.
After working for three years at $1,500 a month, he starts to complain to client that he’s not getting paid enough because of all the overtime work that he has put in. Client reminds him that he already informed him at the very beginning that the business could not afford to pay more than $1,500 a month, and that employee willingly accepted the terms of the offer of employment that it would have a lot of overtime work that would not be paid, and that he accepted those terms. Nevertheless, employee filed a complaint with the labor department asking for back pay for unpaid overtime for 3 years. The labor department computed that unpaid overtime work to be $2,500 monthly for 3 years. With interest and penalties, the labor department award came out to be $100K for 3 years of back pay! What a turn of events. Client helps this man by giving him employment, and then he comes around and sues him for $100K. Employers beware. You may be hiring a wolf in sheep’s clothing. In any event, client does not have $100K. Client decides to have a fresh start in life with a Chapter 7 bankruptcy to wipe out the labor department award of $100K for back pay.
In another case, client sold a parcel of land to a developer couple of years ago for $2.0M in installment payments. Developer ran into some problems with city zoning. Developer’s intent was to develop the land into commercial property, a strip mall. Unfortunately, the property was re-zoned into a residence putting a monkey wrench into developer’s business plan. Client decides to foreclose on the property. On the eve of the foreclosure sale date, developer files for Chapter 11 reorganization. Under Chapter 11, debtor can stop payments to client for 3 months, but must start paying client interest or monthly mortgage payments after 90 days. Otherwise, client can ask the court for relief from the bankruptcy stay and proceed with foreclosure. Client entered into an adequate protection agreement to restart monthly payments at $10K monthly immediately. Further the court found that the value of the property had been reduced to $1.1M because of the rezoning. However, developer has not been able to present a viable chapter 11 plan to the court for 2 years. Why not? The reason nothing really is going on. Developer is basically stuck, dead in the water, except for new money being infused by new investors, if any, it’s future looks really bleak.
However, recently, developer has asked the court to find that the current value of the property is now $400K, and proposed a plan that crams down the secured portion to $400K, and the $1.6M unpaid balance as unsecured. In other words, developer wants client’s property for free! Client now needs to get his property out of developer’s bankruptcy and proceed with foreclosure.
“For God so loved the world that he gave his only begotten son, that whoever believes in him should not perish but have everlasting life.” John 3:16
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Disclaimer: The foregoing is an expression of opinion and is not meant to be legal advice to any reader. There is no attorney-client relationship established by this article with the reader. If you want to discuss your situation, you have to set an appointment to consult with the attorney. The first general consultation is free.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave, Mailstop 58, Building A-1 Suite 1125, Alhambra, CA 91803 or at 20274 Carrey Road, Walnut, CA 91789.
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