Hawaii judge hears Fund’s Chapter 11 case

U.S. Bankruptcy Court for the District of Hawaii Chief Bankruptcy Judge Robert J. Faris held yesterday the first hearing on the motions filed by the NMI Retirement Fund related to its Chapter 11 bankruptcy petition.

Faris, who is in Honolulu, held the hearing via video teleconference at the U.S. District Court for the NMI. It lasted less than two hours.

The next hearing is on June 1, 2012, at 9:30am Saipan time.

As this developed, the two unnamed retirees represented by attorney Bruce Jorgensen filed yesterday a motion to dismiss the Fund’s bankruptcy petition.

Faris deferred his ruling until the next hearing on the Fund’s motion to allow the Fund to pay for two months the full amount of benefits owed beneficiaries. He noted that other arrangements have already been made to continue payments for 60 days.

Faris granted the Fund’s motion for an order extending time to file its schedules of assets and liabilities, schedule of executory contracts and unexpired leases, and statement of financial affairs.

The judge, however, denied the motion for an entry of order authorizing protections and prohibiting unauthorized actions against the Fund’s management and its board. Faris said he is denying the motion but without diminishing the scope and power of the automatic stay.

Faris cautioned that automatic stay as a result of the filing of the bankruptcy petition is a very serious matter. “Violation of automatic stay is very serious,” he pointed out.

As with other cases under other chapters of the Bankruptcy Code, a stay of creditor actions against the Chapter 11 debtor (in this case, the Fund) automatically goes into effect when the bankruptcy petition is filed.

Faris temporarily granted, subject to the next hearing, the motion for an entry of an order authorizing the Fund to maintain existing bank accounts and continue the use of its cash management system; continue the use of existing forms; open new debtor-in-possession accounts, and forego bond requirements for investments.

The judge also granted the motion to allow the Fund to pay the wages, salaries and other compensation of its employees; reimburse employee business expenses; pay taxes and other withholdings; and contribute to employee health and other benefit obligations and other insurance premiums.

Attorneys Braddock Huesman and Boston lawyers Steven Pohl and Jeremy Coffey appeared with Fund administrator Richard Villagomez at the hearing.

Attorney Stephen Woodruff appeared as local counsel for two unnamed creditors/ retirees. Attorneys Margery Bronster and Robert Hatch appeared on behalf of the unnamed retirees via video teleconference from the U.S. Bankruptcy Court in Hawaii. Jorgensen did not appear in court.

Also appearing via teleconference from the U.S. Bankruptcy Court in Hawaii were U.S. Trustee Curtis Ching and Trustee attorney Terri Didion.

About 20 people, mostly retirees, watched the proceedings in court.

Coffey first explained to the court about the Fund, then provided a background of the case as well as its financial situation. Coffey and Pohl argued the Fund’s motions.

Coffey said that many Fund members are frightened with the filing of the Chapter 11 petition as they think it means shutting off their benefits.

“This is an emotionally charged issue,” Coffey said. He then picked up a copy of the Saipan Tribune and showed the judge the front page, which carried the headline “Worst time in CNMI history.”

Coffey reiterated the Fund’s earlier statement that the intent of filing for Chapter 11 bankruptcy is to restructure the Fund’s obligation and not to shut down.

Coffey said it is the Fund’s intention is to involve the beneficiaries in the discussions. He cited the public meetings they already conducted and are about to hold in the CNMI.

“This is not the end of the road, but the beginning of the process,” he said, adding that they need the creditors’ support for input.

On the motion for continued payment of certain beneficiaries, Trustee Ching and unnamed retirees’ counsel Bronster addressed the court.

Ching said the U.S. Trustee opposes this motion. He noted that the Fund has already apparently made provision for payments of benefits outside of bankruptcy for a period of two months. Given this arrangement, Ching said they believe that is not necessary for the court to grant that relief right now.

Ching also expressed concern that creditors within the same class are not treated equally with respect to payments. He said the Fund should not be allowed to use estate funds to pay some general unsecured creditors but not others, particularly as a first day motion.

Bronster informed the court about their motion to dismiss the bankruptcy petition. In their pleadings, Bronster said the Fund is a “governmental unit” and an agency of the Commonwealth” and therefore is not a “person” eligible to file such a petition under the Bankruptcy Code.

Consequently, Bronster said, the Fund’s Chapter 11 petition must be dismissed.