The unfinished Imperial Pacific International Hotel-Casino in Garapan as seen from Navy Hill.
THE official committee of general unsecured creditors is opposing Imperial Pacific International’s request for final court approval of its debtor-in-possession financing proposal or DIP for the remaining $6.6 million of the $7 million loan that the casino investor said it has secured.
The committee represents over 160 general unsecured creditors holding approximately $262.5 million in claims, as stated in their previous motions.
Represented by attorneys Aram Ordubegian and Christopher K.S. Wong, the committee has requested the bankruptcy court “to approve the initial $400,000 advance as a general unsecured loan and deny the request for the remaining funds under the DIP facility on a final basis.”
According to the committee’s 10-page motion, at a hearing on May 30, 2024, the court granted the motion on an interim basis, authorizing IPI to obtain an initial advance of $400,000 from Mr. Loi Lam Sit (the “Interim DIP Facility” and the “Lender”).
But the court also emphasized the need for IPI to supplement its motion to address a number of concerns which were and continue to be shared by the committee, the CNMI, and other parties before final approval of the loan can be properly evaluated.
“Chief amongst those concerns is the lack of evidence justifying the need for the remaining $6.6 million for the Debtor’s reorganization and the concealed nature of the Lender’s identity and connection to this case,” the committee stated.
“It must be reiterated that IPI has the burden of proof, by a preponderance of the evidence, to demonstrate that an additional $6.6 million in financing from this obscure source is ‘actual’ and ‘necessary’ to the bankruptcy estate,” the committee stated.
“Yet, with creditors eagerly waiting, IPI only submitted a one-and-a-half page, woefully deficient declaration from the Lender that neglects to address crucial concerns regarding the Lender’s background, his relationship with IPI and its insiders, and his motives for providing the DIP loan,” the committee said.
“Instead of clarifying these issues, it raises further questions.
“The Declaration provides only limited and vague information about the Lender, mentioning his status as a businessman in Hong Kong and his lack of familial ties to [one of IPI’s owners] Mr. Ji Xiaobo and [IPI majority owner] Ms. Cui Lijie. However, it fails to include his contact information, disclose any prior relationship with Mr. Ji or Ms. Cui, or explain why Mr. Ji approached him specifically for the loan. This scant detail does not provide the court and interested parties with sufficient basis to determine that the Lender is acting in good faith,” the Committee added.
Furthermore, a revised loan agreement addressing the court’s concerns is nowhere to be found, the committee said.
“It has become evident that IPI has not been forthcoming with the court, consistently providing only minimal information regarding the proposed Lender’s background and the source of the DIP funds. The Lender’s refusal or inability to explain his motive for extending $7 million makes him unsuitable as a DIP lender in this proceeding,” the committee said.
“Therefore, the Debtor must seek alternative funding sources, as mandated by Section 364 of the Bankruptcy Code,” it added.
“In granting interim relief for the initial advance of $400,000, the court recognized that certain basic stabilizing expenses had to be paid, including utilities, insurance, and rent. However, the Debtor has not provided justification for how the additional $6.6 million loan will fund a plan of reorganization,” the committee stated.
According to the proposed budget, $6.15 million of the remaining $6.6 million is to pay the Commonwealth Casino Commission and the CNMI Treasury.
“This figure is based entirely on the false assumption that the CCC and the CNMI Treasury have or will agree to such a settlement amount. … CCC has unequivocally stated that no settlement is being negotiated, let alone agreed upon,” the committee said.
Approving the DIP loan on a final basis is premature, unwarranted, and counter to the interest of the estate and creditors, the committee added.
It also stated that “this bankruptcy has been pending for two months, and IPI has provided no indication that it can reorganize.”
According to CCC, the committee stated, “the Debtor [IPI] is unable to reinstate its casino license and resume operations, and thus, the Debtor’s purported purpose for the DIP facility is nonexistent.”
“As a result,” the committee stated, “approval of [IPI’s] Motion on a final basis would only result in an added layer of administrative expenses in the form of a $7 million claim to a potential insider, to the great detriment to the estate’s general unsecured creditors.”
The committee reiterated its objection to the approval of the DIP loan on a final basis, “as it is unnecessary and inappropriate at this time.”
“Practically speaking,” the committee said, “it would be more prudent to first review the Debtor’s plan and then consider a new DIP loan if it is needed.”
The committee said it is prepared to take all necessary steps to preserve the value of the assets and to ensure the proper reorganization and administration of the estate if required.
A hearing on June 21 at 8:30 a.m. has been scheduled by the court to discuss the matter.
Opposed, too
The CNMI government, the U.S. Department of Labor and former IPI employee Joshua Gray, who successfully sued the casino investor, expressed similar objections to the proposed DIP financing.
The CNMI government represented by Chief Solicitor Jonathan Glass Jr. said, “Neither additional time to review Debtor’s statements and schedules filed May 23, 2024, nor the supplemental information regarding the DIP Lender filed June 11, 2024, has adequately addressed the concerns raised by the Commonwealth’s Opposition.”
Glass, in a previous motion, stated, “The Commonwealth cannot adequately evaluate the impact of Debtor’s proposed post-petition financing without complete disclosures in Debtor’s required statements and schedules or without additional information regarding the DIP Lender; and because Debtor represents that the financing will be used to fund a settlement and the Commonwealth does not intend to accept the settlement offered by Debtor.”
Chapter 11
IPI filed for Chapter 11 bankruptcy in the District Court for the NMI on April 19, saying it owes creditors over $165.8 million.
Chapter 11 bankruptcy allows a business corporation to restructure its debts and continue operating.
Among the IPI creditors with the largest unsecured claims were the CNMI Treasury with $62 million for casino license fees; MCC International, $34.9 million for construction services; Commonwealth Casino Commission, $17.6 million for licensing fees and penalties; the law offices of Hughes Hubbard & Reed, $8.58 million for legal fees; Century Estate Investment Ltd., $8 million for an unpaid loan; CNMI Division of Revenue and Taxation, $7.9 million for unpaid business gross revenue tax; and Joshua Gray, $5.68 million for default judgment.
IPI also owes money to the Internal Revenue Service in the amount of $4 million; the U.S. Department of Labor-Wage and Hour Division, $950,000; and the U.S. Department of Justice-Civil Division, $1.46 million — labeled as “contingent disputed.”
