Builder will have to adjust bankruptcy plan
Local home builder American West Development stumbled Thursday in its attempt to exit Chapter 11 bankruptcy proceedings but will try again soon.
In turning down the plan, U.S. Bankruptcy Court Judge Mike Nakagawa found several flaws tied to a trust fund created by the company's reorganization plan that will compensate buyers for construction defects. American West will have the opportunity to rework provisions, but no timetable was laid out.
"We were pleased with the clear direction," said American West President Robert Evans. "We finally have direction about how to clean up the process and get the plan confirmed."
He said changes would be incorporated "very quickly," restarting the legal process and a new vote on the provisions.
Brett Axelrod, the attorney representing American West, said it was "our hope" to complete the process by year's end.
The office of the U.S. Trustee, an arm of the Department of Justice that monitors the bankruptcy process, had raised objections to explanations provided to homeowners about how the trust would be funded, plus legal protections granted to people not in bankruptcy. That would included company founder and owner Lawrence Canarelli.
Certain changes involving the insurance policies that will back the defect fund came after creditors voted on the plan, so they did not have all the information they needed for their decisions, Nakagawa said.
The new vote would not only include the insurance information but a chart to make it understandable to homeowners not familiar with legal language.
Nakagawa also found that a permanent injunction preventing outsiders from legally pursuing people tied to the company or the administrator of the defect fund was too broad under current law.
Despite the ruling, most of the plan came through intact. The basic provisions, which were worked out before the bankruptcy, call for slashing $177.5 million in debt to $49.6 million, which will mature at the end of 2015. As part of the deal, lenders agreed to waive a $127.9 million deficiency claim in order to free cash to repay suppliers and others with unsecured claims.
Canarelli will retain control of America West in return for injecting $10 million, of which $1.5 million will go to unsecured creditors. That group would include any American West homeowners that can prove they have met all the requirements of the price promise or price guarantee the company promoted during the recession as a marketing tool to try to comfort buyers who feared falling prices.
Another $1.5 million from Canarelli will go into the defect fund. Under the terms, buyers will receive at least $200 and probably less than $300 if they agree not to pursue their complaints further. Buyers who consider that compensation too little will be funneled into the fund, to be run by former homebuilder James L. Moore, and not allowed to go to court.
According to Axelrod, 86 percent of the homeowners voted in favor of this plan. American West estimated in court documents that the defects could amount to as much as $80 million but will probably run less than $20 million.
Contact reporter Tim O'Reiley at
toreiley@reviewjournal.com or 702-387-5290.
