WC Braker Portfolio, LLC – At this time, court dismisses termination effort and “bad faith” filing arguments; concludes that the debtor controlled by Natin Paul was kept bankrupt “in the interests of creditors” | Daily updates from bankrupt companies

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July 18, 2022 – The WC Braker Portfolio Court has dismissed a motion filed by ATX Braker SR, LLC (“ATX” or “Mortgage Lender”) seeking dismissal of Debtor’s Chapter 11 case [Docket No. 120].

On May 13, ATX filed a motion seeking the dismissal of the debtor’s Chapter 11 case [Docket No. 24] arguing that the debtor appeared to lack authority for the Chapter 11 filing and, that even if this blocking authority issue were resolved, that the debtor bad faith Filing Chapter 11 “simply has no place in bankruptcy and is just the latest chapter in Mr. Paul’s continuing saga of using litigation to thwart legitimate state law of creditors and contractual rights more generally”.

In its order dismissing the motion to dismiss (at least for the time being), the Court notes that the Debtor has remedied the deficiencies in the date of the motion. Addressing the broader accusations of bad faith, the Court, after making it clear that it had some sympathy for ATX’s arguments, notes the appointment of a Chapter 11 trustee and the contribution of a creditor who urged the Court to stay the course of Chapter 11 before deciding that: “on balance, the Court finds no reason to dismiss the case or grant a waiver of the automatic stay and finds that maintaining the business is in the best interest of creditors. The Court also finds that ATX is, at present, sufficiently protected by a substantial capital buffer.”

The court order

In rendering its decision, the Court provides: “In its motion, ATX first argues that the case should be dismissed because it was filed without permission. Specifically, ATX argues that under the LLC Agreement , the approval of two independent administrators was required before the debtor could declare bankruptcy.
admits that no independent manager endorsed the filing, but argues that such a shortcoming can be ratified. And the debtor subsequently filed a notice that its independent directors ratified the bankruptcy filing on June 28, 2022. The bankruptcy filing here has been ratified and is now authorized.

ATX also argues that this case should be dismissed, or the automatic stay lifted, because it was filed in bad faith. At the hearing of the motion, one of the Debtor’s unsecured creditors appeared and argued against the dismissal because if the case were dismissed or the stay lifted, recovery for creditors, other than the secured lender, is questionable. That much, a Chapter 11 administrator has been appointed and the matter is being administered. Some of the factors that were set forth by the Fifth Circuit in its Little Creek3 notice are present here, but on the whole, the Court finds no reason to reject
case or grant a waiver of the automatic stay and concludes that keeping the case is in the best interest of the creditors.
The Court also finds that ATX is, at present, adequately protected by a substantial capital buffer.”

Background to Motion to Dismiss

The Motion to Dismiss [Docket No. 24] states, “The debtor is in default under the mortgage loan agreement and commenced this Chapter 11 matter with no viable restructuring plan and only one objective: to block the legitimate efforts of the mortgage lender to seize the properties through a public sale scheduled for the day immediately following the date of the petition. This Chapter 11 case is just one of more than 30 bankruptcy cases commenced over the past three years in an elaborate scheme orchestrated by Mr. Nate Paul, the debtor’s beneficial owner and guarantor of the mortgage bonds. of the debtor, to hinder and delay the enforcement by creditors of their rights and remedies under state law. In fact, this Court recognized what can only be characterized as an abuse by Mr. Paul of the protections offered by the Bankruptcy Code and appointed a trustee under Chapter 11 in each of the affiliated cases currently pending before this Court. .

As a blocking issue, the debtor information sheet folder contains no evidence of the debtor’s authority to file for bankruptcy protection, probably because the debtor did not obtain such authorization. Under the terms of the limited liability partnership agreement which governs the Debtor, the authorization to place itself under the protection of the law requires the unanimous consent of the sole partner of the Debtor and of two independent managers. The debtor failed to comply with the United States Trustee’s guidelines requiring the filing of resolutions authorizing a bankruptcy filing, likely because no such resolution was ever obtained. Unless the debtor can prove that the bankruptcy filing was authorized, dismissal of this Chapter 11 case is mandatory and the Court does not need to conduct further analysis.

Even if the debtor overcomes the hurdle of authorization, the circumstances of this Chapter 11 case and Mr. Paul’s history of bad faith filings – including in this Court and in the District of Delaware – demonstrate a lack of good faith here, which provides an independent basis for dismissal. The start of this Chapter 11 case is like all the others filed by Mr. Paul – purely a delaying tactic, with no other legitimate or rehabilitative objective under the Bankruptcy Code. This tactic constitutes a repeated and ongoing abuse of the judicial process and the reorganization provisions of the Bankruptcy Code that should not be tolerated by this Court. As the courts of this circuit have consistently held, the lack of good faith evident in the circumstances that led to the debtor’s filing for bankruptcy requires either dismissal of the Chapter 11 case or relief from the automatic stay. for cause pursuant to Sections 1112(b) and 362(d)(1) of the Bankruptcy Code, respectively.

To the extent that the Court does not dismiss this Chapter 11 case as a bad faith filing, a “cause” nevertheless exists to grant the mortgage lender relief from the automatic stay due to the lack of adequate protection of its security interests in the mortgages. properties. Given the debtor’s historical negative cash flows based on the monthly rental income generated by the properties, which has been insufficient to meet the debtor’s debt service obligations under the mortgage loan agreement for at least the three months, and the deterioration of properties while Mr. Paul continues to abuse the bankruptcy system solely as a litigation tactic, the debtor will almost certainly be unable to provide adequate protection, which justifies a waiver of the automatic stay Because.’

This Chapter 11 case simply has no place in bankruptcy and is just the latest chapter in Mr. Paul’s continuing saga of using litigation to thwart legitimate state law and contractual rights. creditors. Accordingly, the Mortgage Lender respectfully requests that the Court grant the motion and grant an order dismissing this Chapter 11 matter or, alternatively, grant relief from the automatic stay to allow the mortgage lender to proceed with its planned foreclosure sale and to otherwise exercise its rights and remedies with respect to the Properties. »

Background to the case

On May 2, 2022, WC Braker Portfolio, LLC (“WC Braker” or the “Debtor”) filed for Chapter 11 protection in the United States Bankruptcy Court for the Western District of Texas, Main Case Number 22-10293 (Judge Tony M . Davis). At the time of the filing, the debtor noted assets estimated between $100.0 million and $500.0 million; and liabilities estimated between $50.0 million and $100.0 million.

The petition is signed by Natin (“Nate”) Paul, the Austin, Texas-based developer/investor who was granted a stay of lockdown efforts last week when a New York County Supreme Court judge issued a preliminary injunction to keep ATX Braker, a shell company owned by Los Angeles-based Karlin Real Estate, from proceeding with a UCC foreclosure sale scheduled for April 14 of the Braker portfolio. Documents filed in the New York case show that the debtor owes ATX Braker $29.0 million under a mezzanine loan and also has a mortgage of approximately $63.0 million with by JP Morgan. The debtor, who allegedly defaulted on the mezzanine loan upon the occurrence of a March 9 due date, claimed in the New York proceedings that it was not properly notified of the foreclosure action. This is not an unfamiliar pattern to those who have observed Mr. Paul’s frequent use of bankruptcy courts, including in relation to GVS cases (defined below) where he also dodged foreclosure efforts. launched by mezzanine lenders by putting its GVS assets into bankruptcy. .

As reported, Mr. Paul is looking to rebuild his once sizable property portfolio following better than expected results in a Section 363 sale of his GVS self-storage properties.

On March 22, 2022, the entities controlled* by Mr. Paul (GVS Texas Holdings I, LLC and 13 affiliated debtors, or “GVS”, see the list of affiliated matters below) notified the Court that effective on that date (i) their plan for the reorganization had become effective and (ii) their $580.0 million sale of substantially all of their assets to CBRE track horse WWG Storage Partners JV III, LLC had closed [Docket No. 882]. Confirmation (and entry into force) of the debtors’ plan followed a March 15 “stipulation and order agreed with World Class Holdings I, LLC” (the “WCH Order”) [Docket No. 852] which could see the much-maligned Natin Paul “as the sole officer and administrator of debtors” and sitting on more than $100.0 million in proceeds from the sale of assets (see our separate GVS coverage).

*M. Paul’s return to GVS continues to depend on the outcome of an ongoing investigation into alleged improprieties after the petition that ultimately led to a November 2021 “governance order” that saw Mr. Paul fully removed from any involvement or GVS management.

The fact of the governance ordinance pretty much summed up Mr. Paul’s universally shared (and low) opinion and followed multiple calls for the debtors’ cases to be converted to Chapter 7. That opinion, however, has been largely rendered moot by the GVS. proceeds from the sale of assets which is comfortably more than enough to repay everyone and effectively wipe out Mr. Paul’s accumulated shadow (at least as far as GVS debtors are concerned). If Mr. Paul can overcome the 549 investigation and behave for 120 days (starting March 22), in all likelihood he will soon be comfortably reinstated as Sole Officer of Debtors (albeit less his business sold). More importantly for him, he can also control almost $100.0 million (even after taking into account the reserves, see the table below).

Braker Wallet Properties

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