SHB Confirms Two Chapter 11 Plans

September 16, 2011

The last year has been particularly busy for Shulman Hodges & Bastian LLP's Chapter 11 debtor practice group. Led by Jim Bastian, SHB has confirmed plans of reorganization in two Chapter 11 cases in the last 30 days.

In re Laguna Village Owners' Association

Laguna Village Owners' Association ("LVOA") is a homeowners association of over 900 units in Laguna Hills, California. In the summer of 2010, LVOA suffered a judgment in favor of AV Builders with respect to a construction services contract dispute. AV Builders won a judgment in excess of $2.5 million and was in the process of enforcement actions when SHB was retained to attempt to broker a settlement. After AV Builders refused to settle and facing judgment collection remedies, including the appointment of a receiver, SHB filed a Chapter 11 for LVOA in October, 2010. Shortly thereafter, AV Builders and LVOA commenced negotiations and reached a settlement earlier this year. That settlement was ultimately rolled into a Chapter 11 Plan of Reorganization whereby LVOA has an opportunity to pay a reduced amount to AV Builders over a five year period. The settlement and Chapter 11 Plan allowed LVOA's homeowners to avoid an immediate special assessment of the full amount owed to AV Builders and instead gives homeowners the opportunity to pay a reduced amount over time, which was viewed as being especially critical in these difficult economic times. On September 9, 2011, the United States Bankruptcy Court, Central District of California, the Honorable Robert Kwan presiding, entered an order confirming LVOA's Chapter 11 Plan of Reorganization.

In re Trade Union International, Inc. and In re Duck House, Inc.

In January, 2011, affiliated companies Trade Union International, Inc. ("TUI") and Duck House, Inc. ("DH") were facing aggressive lien enforcement actions from their lender, Cathay Bank as agent bank for itself and China Trust Bank. Cathay Bank had filed an ex parte motion to appoint a receiver after commencing a lawsuit in state court. This action came after months of negotiations where a deal could not be reached. As a result, TUI and DH had no alternative but to seek Chapter 11 protection and retained SHB for that purpose.

TUI is a multi-million dollar wheel manufacturer and distributor with operations in China and Montclair, California. The related entity, DH, is a distributor of licensed beverage ware and related merchandise which has license agreements with the NFL, MLB, NBA and various colleges. Rather than having the companies liquidated as sought by Cathay Bank, through the Chapter 11 process, DH and TUI have been able to remain in business, preserve dozens of jobs and now have a platform to grow the companies.

Cathay Bank had seized control of all of TUI's and DH's cash which effectively would have put DH and TUI out of business. Once SHB filed the Chapter 11 Petitions for these related companies, SHB was able to win use of cash collateral, defeat two separate efforts by Cathay Bank to appoint a trustee and assume license agreements with licensors including the NFL, MLB, NBA and various colleges. These early victories in the case paved the way towards a settlement negotiation and ultimate resolution with Cathay Bank, a new financing facility with a three year maturity, favorable interest rate and other concessions which led the way to a consensual Chapter 11 Plan of Reorganization.

On September 2, 2011, the United States Bankruptcy Court for the Central District of California, the Honorable Deborah Saltzman presiding, confirmed TUI's and DH's Chapter 11 Plan of Reorganization. The Plan allows TUI and DH to remain in business.