Williamsburg Hotel case needs Chapter 11 trustee, U.S. trustee says

By Sarah Lizee

Olympia, Wash., April 1 – 96 Wythe Acquisition LLC, the owner of the Williamsburg Hotel in Brooklyn, N.Y., should have a Chapter 11 trustee appointed to its case, Region 2 U.S. trustee William K. Harrington said on Thursday in a motion filed with the U.S. Bankruptcy Court for the Southern District of New York.

Harrington said an investigation by examiner Eric Huebscher uncovered evidence “of a complex scheme to divert and siphon substantial amounts of money from the debtor, through a labyrinth of banking relationships between the debtor and the manager, and other entities under common ownership and control of the principals.”

While the debtor filed a response finding fault with Huebscher’s conclusions, the U.S. trustee said the response failed to address the most serious aspects of the examiner’s report.

“There are ample grounds for the appointment of a Chapter 11 trustee,” said Harrington, who added that the debtor can’t investigate itself, review the information uncovered by the examiner during his investigation, or take action against its principals if required.

“This is abundantly clear because rather than investigating further into the detailed facts uncovered by the examiner, the debtor has unabashedly ignored those facts and conclusions, and instead, has proposed in its proposed plan of reorganization to bestow upon the principals – who may have among other things caused federal funds to be transferred from the debtor’s estate – broad releases and exculpations solely for the benefit of those very same principals,” the U.S. trustee said.

The Brooklyn, N.Y.-based hotel owner filed bankruptcy on Feb. 23, 2021 under Chapter 11 case number 21-22108.

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