Barnes Bay committee seeks trustee appointment amid Starwood control

By Caroline Salls

Pittsburgh, April 13 - Barnes Bay Development, Ltd.'s official committee of unsecured creditors has asked the U.S. Bankruptcy Court for the District of Delaware to appoint a Chapter 11 trustee to oversee the company's bankruptcy case, according to an April 13 court filing.

Specifically, the committee said the company's bankruptcy case is designed to benefit Starwood Capital Group affiliate SOF-VII-Hotel II Anguilla Holdings, LLC.

"The debtors are hopelessly conflicted and quite obviously have been bought off to do Starwood's bidding," the committee said in the motion.

"There is no plan of reorganization here for the benefit of the estate. Rather, there is a proposed sale of all of the debtors' assets solely for the benefit of Starwood and the debtors' insiders and a resulting liquidation that delivers little, if any, value to unsecured creditors."

The committee said Bradford Korzen controls Barnes Bay and has $150 million of exposure on a personal guarantee of the debt currently held by Starwood, which would be released under the Starwood-Barnes Bay sale plan.

In addition, the creditor group said Korzen and numerous other insiders will be released and insulated from any and all claims, including prospective purchasers of vacation residences at the company's Anguillan development arising from the misappropriation of $65 million in purchase deposits.

The committee said Korzen continues to get paid to manage the property under his Viceroy "flag," and the committee understands that Korzen and Starwood are still negotiating a "potentially lucrative" compensation package for Korzen to manage the future sales of residences at the resort.

"These facts establish that Korzen's interests are purely selfish and that he cannot be counted upon to discharge his fiduciary responsibilities to the legitimate creditors of these estates," the committee said in the motion.

Additionally, the committee said the company did not seek an alternative to the $5 million debtor-in-possession loan being provided by Starwood.

The committee said the DIP loan allows Starwood to credit bid its claim, "conceding the significant strategic advantage held by debtors."

The committee said the company's proposed plan would also release potential hundreds of millions of dollars in claims held by third parties against insiders for no consideration.

"The debtors have been paid off to assist Starwood in using these proceedings to implement a transfer of ownership of the property, free and clear of all liens, claims and encumbrances while leaving the unsecured creditors of the debtors holding an empty bag," the committee said in the motion.

A hearing is scheduled for May 3.

Barnes Bay, the developer of the Viceroy Resort and Residences in Anguilla, British West Indies, filed for bankruptcy on March 17. The Chapter 11 case number is 11-10792.

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