Saline Lodging Group's Plan for Hotel Dealt Blow in Bankruptcy Court
Saline Lodging Group’s plan to finish its hotel on East Michigan Avenue was dealt a blow in bankruptcy court.
The hotel has been stalled since April of 2020.
On Wednesday, United State Trustee Andrew Vara motioned to convert the bankruptcy case from a Chapter 7 to a Chapter 11 - or order for the appointment for a trustee to administer the estate.
In a Chapter 7, the debtor’s assets are sold off to pay creditors. In a Chapter 11, the debtor negotiates with creditors to avoid liquidation.
The Saline Lodging Group’s plan was challenged by Your Enterprise Solutions LLC, which purchased the position of First State Bank, the primary lender for the hotel project. Elizabeth Haeussler is the principal of Your Enterprise Solutions, which joined the Saline Lodging Group.
Earlier in December, Saline Lodging Group, a group of 21 mostly local members, submitted their plan showing it would complete the hotel/restaurant project as a joint venture with K&B Capital, and make lump-sum payments to its creditors.
K&B Capital, controlled by Robert Kuttala of Shelby Township, is in the business of hotel development and redevelopment. Saline Lodging planned to sell 85 percent of the hotel to K&B for its $2,720,000 investment and recommence construction of the hotel as a joint venture within 60 days.
Creditors include the City of Saline and Washtenaw County, owed $129,901 in back taxes. In addition, debts include $156,000 to Acoustic Ceiling & Partition, $76,000 to Chelsea Lumber Company, $115,000 to Hoffman Plastering, $53,000 to Quality Roofing, and $335,000 to Tri-County Electric Group.
But the largest creditor is Your Enterprise Solution, owed $3,791,554.
In November, Your Enterprise Solutions filed an objection to the bankruptcy, arguing Saline Lodging Group wasn’t eligible to file for bankruptcy under Chaper 11 Subchapter 5. The court sided with Your Enterprise Solutions. Since then, Saline Lodging Group has missed its deadline to file another plan.
The motion states there are presently two cash offers for the property - both of which were made known to Saline Lodging Group by email. In addition, the Saline Lodging Group has not yet filed a list of the largest 20 unsecured creditors -”making solicitation for a creditor’s case in a timely manner difficult.”
In the argument, Vara states “The Debtor’s failure to withdraw its plan, its failure to seek leave of court to file an amended plan, its failure to respond promptly to cash offers that have been made to purchase the property, and its failure to provide complete contact information for each of the twenty largest unsecured creditors constitutes
gross mismanagement of the estate.”
Vara wrote that a prompt sale is in the best interests of the estate and creditors.
The Saline Lodging Group used Saline’s Peters Building Company, owned by Jim Haeussler, as the contractor for the project.
The project was plagued by cost overruns, unpaid contractors, and a piecemeal pace that eventually crashed the development. Peters Building Company is also in bankruptcy court.