Silver State Bancorp tax settlement approved; trustee removal denied

By Caroline Salls

Pittsburgh, March 4 - A motion from Silver State Bancorp trust preferred securities holder manager HoldCo Advisors, LP to remove James F. Lisowski Sr. as Chapter 7 trustee for Silver State's bankruptcy case was denied Friday by the U.S. Bankruptcy Court for the District of Nevada.

The court also approved the trustee's motion for approval of a settlement with the Federal Deposit Insurance Corp. that resolves a dispute over the ownership of tax refunds recovered by the trustee and resolves a pending lawsuit.

In its removal motion, HoldCo Advisors said the trustee faced personal liability from his distribution of a roughly $8 million 2006 tax refund.

If the distribution was improper, as the FDIC had claimed, Holdco said the trustee could be forced to disgorge the $263,000 fee that he received nearly three years ago in connection with the $8 million distribution.

Holdco said the FDIC's clawback action could motivate Lisowski to bargain away his personal liability instead of maximizing estate value regarding the $8 million 2006 tax refund, which was already distributed, or the $16.3 million 2007 tax refund, which was not yet distributed.

Specifically, Holdco said Lisowski may give the FDIC a larger portion of the 2007 tax refund in exchange for a release of the FDIC's claims regarding his distribution of the 2006 tax refund and the related $263,000 fee that he received.

In addition, Holdco said "the trustee's recent conduct in the case indicates that he is, indeed, looking out for his own best interests over the interests of creditors."

Settlement terms

Under the FDIC settlement:

• The trustee will pay $15 million of a $16.31 million 2007 tax refund held by the trustee to the FDIC;

• Any future tax refunds received by the FDIC on behalf of Silver State Bank and its affiliates will be property of the FDIC and any future tax refunds received by the trustee on behalf of Silver State Bancorp are property of and must be delivered to the FDIC;

• Any remaining funds now held by the trustee from a 2006 or 2007 tax refund can be used to pay administrative expenses and other creditors;

• As a result of the settlement, the bankruptcy estate and its creditors will keep $8.38 million of the 2006 tax refund and $1.31 million of the 2007 tax refund;

• The FDIC will receive only the $15 million payment from the bankruptcy estate. Funds previously distributed by the trustee will not have to be recovered; and

• The lawsuit will be dismissed with prejudice.

Silver State Bancorp, a Henderson, Nev., holding company for Silver State Bank, filed for bankruptcy on Jan. 6, 2009. The Chapter 7 case number is 09-10069.

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