Thursday, August 23, 2012

Santa Ysabel Indian Casino Argues for Chapter 11 Eligibility


By Bill Rochelle - Aug 22, 2012 8:40 AM ET

The American Indian-owned Santa Ysabel Resort & Casino on Lake Henshaw in North San Diego County filed papers this week arguing that the casino’s status as an unincorporated company makes it eligible for bankruptcy reorganization in Chapter 11.
The filing was in opposition to a motion by the Yavapai Apache Nation, a secured creditor, contending that the case must be dismissed because the casino is actually a tribe ineligible for bankruptcy.
The casino is owned by the Iipay Nation of Santa Ysabel, a federally recognized tribe. The tribe admitted that if the casino and the tribe are one and the same, it’s not eligible for bankruptcy because a tribe is a governmental unit that can’t be in bankruptcy.
The casino’s papers this week argue that the business is an unincorporated company that’s eligible for bankruptcy. An unincorporated company “is an enterprise of numerous people joined in a common business,” the casino said.
The casino cited cases allowing involuntary bankruptcies to be filed against unincorporated businesses. The bankruptcy court in San Diego will hold a hearing on Sept. 4 to decide whether the casino is eligible for Chapter 11 reorganization.
The casino’s argument could end up being a double-edged sword. If the casino establishes itself as an independent business entity, that fact that it’s not incorporated opens the door to arguments that individuals involved with the business have personal liability for the casino’s debt.
The U.S. Trustee filed a companion motion to dismiss the bankruptcy, also arguing that the unincorporated casino is ineligible as a government unit.
The 37,000-square-foot casino opened in 2007 with 349 slot machines, four poker tables and six table games. An accompanying hotel and resort never were built.
The facility was built with a $26 million loan which the Apaches took over as the result of a guarantee of bank debt. The Apaches also made a $7 million loan.
The Apaches say they obtained an $8.8 million judgment from a tribal court in February that was recognized in California as a foreign judgment in May. There is a separate $34.6 million judgment from an Arizona court on the bank loan, according to the Apaches.
After filing under Chapter 11 in early July, the casino listed assets of $1.5 million and debt totaling $54.8 million, including $53.1 million in secured claims.
The case is Santa Ysabel Resort & Casino, 12-09415, U.S. Bankruptcy Court, Southern District of California (San Diego).

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