Trustee appointed to oversee Colony operations

The Colony Beach & Tennis Resort will remain open, and its Chapter 11 bankruptcy case was not converted to a Chapter 7 liquidation Friday.

At the Colony Chapter 11 reorganization bankruptcy hearing in Tampa, U.S. Bankruptcy Court Judge K. Rodney May said he did find cause to convert the Colony’s case to a Chapter 7 liquidation.

“But rather than end the debtor’s life now, I will appoint a Chapter 11 trustee to oversee the operations at the resort,” May said.

By making his decision, May said he hopes that a U.S. trustee and/or all parties involved have more time to settle their differences.

Referring to Colony Lender LLC (which bought the Colony’s bank loans) partner David Siegal, who testified that he has a revitalization plan for the resort, May said, “If Mr. Siegal is for real, then this will keep the operation in play for a business deal.”

A trustee will now be appointed to oversee operations at the Colony as early as next week and will be responsible for its day-to-day operations. The trustee will make recommendations to the resort’s future moving forward.

That trustee, according to Colony attorney Roberta Colton, can also act as a mediator.

“This was a fair decision,” said Colton, who noted that the decision also gives Colony Lender LLC time to file its own reorganization plan with the court. “While the trustee will soon control the resort and will make all decisions going forward, we are hopeful that the trustee will also help to resolve issues between the parties.”

And there are many issues at hand to resolve, according to May.

During the course of his hour-long ruling, May said he didn’t think the Colony’s reorganization plan, as submitted, would be confirmed.

Said May: “It’s a placeholder plan with no legs.”

He also noted that the resort has more than $200,000 in losses through March and pointed out that Colony President and General Manager Katie Klauber Moulton said the resort needs another $200,000 to get through the rest of the year. The Colony also owes more than $200,000 to its attorneys.

“I conclude there is a continuing loss that there is no clear method of paying off,” May said. “On top of that, parties involved say the hotel needs $10 million to $20 million in capital, maybe more, to be profitable again.”

Although noting that he was not questioning the way Moulton and her staff operates the hotel, May said he agrees with the association’s claim that there is “gross mismanagement” and questioned the resort’s accounting practices.

May said mismanagement at the resort includes what he perceives as a conflict of interest.

May questioned why Colony owner and Chairman Dr. Murray “Murf” Klauber is a lender to the debtor in the bankruptcy case, noting that Klauber owes approximately $1.5 million to the resort.

“But while he (Klauber) may owe money, the effort here is clearly to keep the embers glowing and keep activity at the resort going until Klauber can cut a deal for his own benefit,” May said.

The bottom line, May said, is the issues facing the Colony cannot be known or resolved while the current management team is in place.

“My conclusions have nothing to do with Ms. Moulton, her team and how the resort operates,” May said. “It’s now about relationships moving forward to resolve the estate.”

Colony Association President Jay Yablon called the judge’s decision “a tremendous one.”

“It’s been the association’s view, for at least the last five years, that the Colony has been grossly mismanaged,” Yablon said. “Today, Judge May agreed with that view and ordered the removal of the longstanding management of the Colony.”

Moulton, meanwhile, told The Longboat Observer that she was “truly delighted with the outcome.”

“The judge’s mission was to continue the resort operations to ensure the property retains its value through the negotiation process with various investors,” Moulton said. “To have a trustee to help us expedite negotiations with outside investors and assist us with the reorganization process is a great outcome for us.”

Moulton said the fact that she is no longer in charge of day-to-day operations is not important.

“What’s important is the resort stays in business, my employees keep their jobs and guests can continue to enjoy the Colony while a resolution is achieved,” Moulton said.

Siegal also reported he was happy with the judge’s conclusions.

“This decision allows for time,” Siegal said.

The court-appointed trustee is expected to take 30 to 60 days to present its findings to May in the form of an initial report and will eventually give a recommendation to the court on how the bankruptcy case should move forward.

Contact Kurt Schultheis at [email protected].