Dynasty’s bankruptcy petition dismissed

The U.S. District Court for the NMI Bankruptcy Division granted the U.S. Trustee’s motion yesterday to dismiss the bankruptcy petition filed by the owner of Tinian Dynasty Hotel & Casino.

U.S. Bankruptcy Judge Robert J. Faris rendered moot all the other pending motions filed in the case.

According to the minutes of the hearing, the decision does not preclude Tinian Dynasty’s owner, Hong Kong Entertainment (Overseas) Investments Ltd., from once again filing the Chapter 11 bankruptcy petition.

Faris conducted the hearing via video teleconference from the Bankruptcy Court for the District of Hawaii. Assistant U.S. Trustee Curtis Ching appeared via video teleconference, also from the District of Hawaii. Attorney Timothy H. Bellas, counsel for HKE, was present in the U.S. District Court for the NMI.

Ching argued U.S. Trustee’s motion to dismiss. Bellas argued on behalf of HKE.

According to Ching, HKE lacks appropriate insurance and has not complied with the U.S. Trustee’s standard request for background documents.

Ching also noted that HKE appears to be incurring substantial losses and lacks a reasonable likelihood of rehabilitation.

Specifically, Ching said, HKE has admitted that it has no general liability insurance and no property insurance. HKE’s insurance broker, Trader’s Insurance, has confirmed this, he said.

Ching said HKE claims to have vehicle insurance for its 12 vehicles but has not provided the U.S. Trustee with documents verifying this insurance.

Ching said that Traders Insurance has stated that one policy covering several vehicles expired on Dec. 31, 2015, and other vehicle insurance policies will be cancelled in January 2016.

HKE, he said, informed the U.S. Trustee that it believed it lacked worker’s compensation insurance, but Traders Insurance indicated that the worker’s compensation policy would be cancelled on Jan. 2, 2016.

According to Traders Insurance, HKE must pay the outstanding premium totaling $308,280.22 in order to obtain renewed coverage.

Ching said HKE does not have general liability, property, worker’s compensation, and liquor liability insurance.

HKE also lacks typhoon insurance.

“The lack of any appropriate insurance puts estate assets and the public at risk for uninsured loss,” Ching said.

He said Tinian Dynasty continues to operate, albeit at a slower place, while in Chapter 11 bankruptcy.

Ching said hotel guests and visitors could be injured while on Tinian Dynasty’s premises.

“Such injuries place the estate’s assets at risk and pose risks for guests and customers for uninsured loss,” he said.

Ching also noted that hundreds of HKE’s employees reside in HKE property, which means the lack of insurance places these workers at risk as well.

HKE, Ching said, should not be allowed to operate under the protections of Chapter II bankruptcy laws while leaving estate assets, its own employees, and its customers at risk for potential injury that would not be covered.

Ching said that on Dec. 16, 2015, the U.S. Trustee made a standard request in Chapter 11 cases for HKE to provide certain documents, yet HKE has failed to provide these documents such as debtor-in possession bank account information, real property questionnaire, six-month profit and loss projection, physical inventory (food, beverage, items for sale), bank statements for the last six months, and check registers for the last six months.

HKE also failed to provide tax returns for the last two years, list of management employees and current compensation including benefits, list of officers and directors and compensation including benefits paid within the last 12 months, and certificate of insurance for vehicles.

Ching said the documents should be readily available to HKE such as bank statements, check registers, and tax returns or easily prepared like the real property questionnaire.

The documents, he said, should assist not only the U.S. Trustee in its review but also HKE in planning its course in this case.

“The debtor’s failure to produce these documents in a timely manner raises numerous red flags,” Ching said.

The U.S. Trustee is concerned that HKE, which has a history of law enforcement issues, “will not be forthcoming about its financial affairs.”

If HKE does not have easy access to its basic financial documents, Ching said this raises questions about the veracity of its sworn disclosures in its statement of financial affairs.

“How, for example, would the debtor know that no disbursements were made to insiders in the year prior to filing unless it had bank statements and check registers?” Ching asked.

Ching said the U.S. Trustee cannot fulfill its duty to oversee Chapter II cases without HKE’s basic cooperation.

Ching said the U.S. Trustee and other parties in interest are entitled to review financial information regarding HKE’s operations.

On the likelihood of Tinian Dynasty’s rehabilitation, Ching said HKE is likely accruing substantial losses while it is in Chapter 11. According to HKE’s bankruptcy petition, HKE has three secured creditors that are owed about $195 million.

“None of the three claims is disputed,” Ching said.

Even assuming interest-only payments at a modest 1 percent rate, the monthly payment would be $162,500, he said.

Ching said HKE may also be accruing wage obligations to its employees, including those who are residing at HKE’s property without pay.

HKE is also incurring various gaming fees owed to the CNMI government.

Ching said the only significant income being generated by HKE is its sale of pre-paid tours.

Ching said if HKE is unable to provide timely casino access, that income will very quickly cease.

In the longer term, Ching said, HKE lacks a reasonable likelihood of rehabilitation.

HKE values itself at $55 million, but its secured debts alone exceed $194 million, and unsecured debts total over $78 million more.

Ching said HKE lacks the ability to reorganize because it has apparently been operating without permission to use cash collateral, does not appear to have the ability to make adequate protection payments, and cannot operate without the Tinian Casino Gaming Control Commission’s consent.

Other reasons, Ching said, is that HKE had virtually no income as the time of filing for bankruptcy, HKE lacks adequate insurance, and has recently been prosecuted criminally and civilly fined for its failures to comply with financial reporting requirements under federal law.

HKE’s request for more time to file opposition was denied on Tuesday.

HKE counsel Bellas said HKE, while a local corporation, has substantial contacts with Hong Kong and as such communications can be time consuming.

Bellas said despite such obstacles, HKE has made considerable efforts to comply with requests for financial and other information requested by the U.S. Trustee.

Bellas said many of the issues raised in the motion to dismiss require additional time in order to provide responses.