honoluluadvertiser.com

Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Tuesday, October 8, 2002

Bankrupt builder must sell off assets

By Andrew Gomes
Advertiser Staff Writer

The judge in the bankruptcy reorganization of Hawaiian Palisade Homes yesterday converted the case to Chapter 7 liquidation after a would-be purchaser halted interim financing.

California-based Westlink Construction Inc. had agreed in August to lend the factory-built home builder as much as $300,000 as a prelude to buying its assets and restarting operations under a plan to generate income and eventually pay off creditors owed roughly $5 million.

But only about $110,000 of the emergency loans were made, and Hawaiian Palisade operations shut down again. The brief revival allowed completion of one portable classroom, but no homes.

Attorneys representing unsecured creditors, Westlink and Hawaiian Palisade asked Bankruptcy Judge Robert Faris to continue the case as a Chapter 11 reorganization to allow for the admittedly slim chance that Westlink or another buyer would restart operations and buy the business.

But Faris decided to convert the case to Chapter 7, citing the lack of any formal offers and the burden on secured creditor City Bank. The bank, which has a mortgage on Hawaiian Palisade's Kapolei factory, has been forced to pay for security and would soon have to pay for insurance.

Faris also allowed City Bank to begin foreclosure on the factory.

Cuyler Shaw, who represents unsecured creditors, said a liquidation would leave nothing for his clients, including buyers who made deposits on homes and material suppliers, collectively owed at least $1.7 million.

Still, Hawaiian Palisade bankruptcy attorney Chuck Choi said there was a slight possibility someone could emerge to buy the company's assets with the intent of continuing the business.

Anyone interested will have to arrange a purchase with a Chapter 7 trustee, to be appointed shortly, or negotiate with City Bank.

"The hope, as small as it is, is still there," said Curtis Ching, an attorney for the Office of the U.S. Trustee.

Susan Tius, a local attorney representing Westlink, said the company was trying to obtain financing to fulfill its loan agreement and purchase Hawaiian Palisade's assets. She said Westlink had loaned or directly spent $200,000 to pay for Hawaiian Palisade insurance, one month's rent, bankruptcy counsel and factory cleanup.

The Westlink loan was supposed to allow completion of six homes bought by people who took out mortgages with Central Pacific Bank. Hawaiian Palisade received about half the mortgage money from the bank, and the bankruptcy estate was to receive the balance upon completion.

Art Smith and Stuart Furman of California started Hawaiian Palisade two years ago, constructing low-cost, factory-built homes mostly for Hawaiian Home Lands property and modular classrooms.

The company initially said it had about $20 million worth of orders from home buyers and developers. Because of labor, regulatory and financing difficulties, it was able to produce and install only about 15 houses.

Creditors forced Hawaiian Palisade into bankruptcy in June. The company ceased operations in July, leaving about 120 customers without their homes.

City Bank has a priority claim of $1.5 million. Other priority claims of about $800,000 include roughly $390,000 in taxes and as much as $2,100 per deposit made by would-be home buyers.

Most buyers made the minimum $500 deposit. Another 21 deposited more than $2,100, including 18 who deposited between $30,000 and $110,000.

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.