Colony drama continues in bankruptcy court Nov. 22

Circle your calendars for Nov. 22 if you’re interested in how the ongoing saga of the Colony Beach & Tennis Resort will play out in bankruptcy court.

It’s shaping up to be a big day in U.S. Bankruptcy Judge K. Rodney May’s courtroom. That’s when May will hear numerous motions and details of a proposed settlement, along with objections to that agreement.

On Oct. 24, May heard a lengthy discussion involving three acres of recreational property in the middle of the 18-acre shuttered hotel site, including whether it amounts to real or personal property.

Longtime Colony owner Dr. Murray “Murf” Klauber and other parties controlled the property that includes the resort’s longstanding tennis courts. When the Colony was operational, the Association, which consists of unit owners, entered into a lease of on-site facilities.

But when May liquidated the partnership that ran the Colony in 2010, effectively giving unit owners control of their units, Klauber and other interests maintained ownership of the three-acre property.

Meanwhile, Colony Lender LLC purchased bank loans on Klauber’s property, including the three acres, and is now seeking to collect on a recent judgment of more than $13 million.

Colony Lender claims it’s the secured creditor on the rental income involved with the lease — a claim Klauber’s entities have disputed in bankruptcy court.

Klauber and the Association argue that Colony Lender didn’t have a secured interest because there was a breach of the agreement, and the recreational property hasn’t generated income in years.

Colony Lender attorney Michael Assaf, though, noted that without the land, there would be no ability to assess rent for the lease. Assaf urged May to consider the lease and Colony Lender’s 80% interest in the lease as real property.

Although May didn’t rule last week on the argument, he indicated he was siding with the Association on that specific argument.

Following the arguments, May said, “The more I look at it, it looks less and less like real estate.”

May directed counsel for the Association to prepare a motion for summary judgment in favor of the Association, meaning Colony Lender would not have a perfected lien on the recreational property, because other properties involved with the lease haven’t signed off on its claim.

“How can you have a secured interest when Klauber’s companies didn’t have a right to all of the income?” May asked.

Assaf, meanwhile continued to argue that the entire case should be transferred from a Chapter 11 bankruptcy case to a Chapter 7 liquidation, noting that the Association has had ample time to come up with a viable plan to submit a settlement that doesn’t include Colony Lender.

That settlement involves only the Association, Klauber and a U.S. bankruptcy trustee. Colony Lender, meanwhile, is urging May to consider other options, including a settlement that involves Orlando-based Unicorp National Development Inc. as the Colony’s development partner.

Colony Lender maintains the Association has yet to hold any settlement discussions with it regarding its interest as the case’s largest affected bankruptcy creditor.

“It’s unfair to the secured creditors,” Assaf said.

May, though, noted he’s “sticking to” a calendar that involves a hearing scheduled for 9 a.m. Friday, Nov. 22, to hear various motions and review a settlement.

Contact Kurt Schultheis at [email protected]