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Scrub Island Development Seeks Chapter 11 Protection
By Dow Jones Business News, November 20, 2013, 12:56:00 PM EDT
By Jacqueline Palank
Scrub Island Development Group Ltd., which owns a luxury resort and the 230-acre private Caribbean island on which it sits, filed for Chapter 11 bankruptcy protection Tuesday to stop its lender from wresting away control of the company.
Chapter 11 shields companies from litigation and creditor collection efforts, a protection that Scrub Island--part of the British Virgin Islands--is hoping to avail itself of to ward off lender FirstBank Puerto Rico's bid for a court- appointed receiver to take over.
Since 2005, the company has used its funding from FirstBank to build and operate its Scrub Island Resort, Spa & Marina, an amenity-stocked property with estate homes, villas and suites for sale and to rent.
According to Scrub Island, it had reached a deal with FirstBank to cut the loan debt ($108 million in principal as of Tuesday) to $40 million. But before the agreement could be finalized, FirstBank sued Scrub Island in a Caribbean court demanding payment of its loans. In response, the Eastern Caribbean Supreme Court on Nov. 1 appointed a temporary receiver.
Scrub Island said it hasn't been able to discuss the suit or a resolution with FirstBank, which has allegedly ignored the company's overtures, leading Scrub Island to question the bank's intentions.
"It has also become apparent to the debtors that FirstBank's secretive actions in obtaining the appointment of a receiver were done with the goal of wiping out all claims of creditors of the debtors, including claims of significant United States creditors of the debtors, as well as the substantial equity invested in [Scrub Island] by its shareholders," the company said in court papers.
A FirstBank representative couldn't immediately be reached for comment Wednesday morning.
The receiver's appointment expires Nov. 27, and the court is slated to consider extending the receivership at a hearing the following day--a hearing Scrub Island hopes its bankruptcy filing will prevent from going forward.
Scrub Island said it would work to restructure the loan debt in Chapter 11 and pay its other creditors in full. The company also plans to continue operating its resort, which opened in 2010 and features such amenities as a multi-level swimming pool and waterfall, restaurants, a spa and deep-water marina with slips for yachts that are up to 160 feet long.
In 2011, Scrub Island signed a deal to make its resort part of Marriott International Inc.'s ( MAR ) Autograph Collection, a group of upscale, independently owned resorts that Marriott promotes while offering booking and other services.
The company said it wants to keep Scrub Island Resort in the Autograph Collection, a request it expects to take up with the bankruptcy court at a later date.
A representative of Marriott, whose $450,000-plus claim makes it one of Scrub Island's biggest unsecured creditors, couldn't immediately be reached for comment Wednesday morning.
Scrub Island reported assets and debts each in the range of $100 million to $500 million in its Chapter 11 petition, filed Tuesday with the U.S. Bankruptcy Court in Tampa, Fla. The case has been assigned to Judge Michael G. Williamson.
Read more:
http://www.nasdaq.com/article/scrub...er-11-protection-20131120-00843#ixzz2sPlvUnAb