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Condo developer faces involuntary business bankruptcy

Real estate developers often use favorable markets to obtain financing to build and sell their projects. Unhappily, bull markets do not last forever, and when a market cools, developers and investors are often left wondering what happened -- and what to do next. Filing a lawsuit or a business bankruptcy petition is often the next step.

Several banks in the New York City suburbs, including one in Rockland County, have recently filed a petition in bankruptcy court in White Plains asking the court to declare a real estate developer and his firm, Michael Paul Enterprises, involuntarily bankrupt and to liquidate their assets. About seven years ago, the developer began to buy older townhouses and either renovate them or demolish them and build high end condominium apartments in their place. According to the allegations of the bankruptcy petition, the developer sought financing for seven projects in or near New York City. Total project costs were estimated to exceed $114 million. The bankruptcy petition alleges that the developer has failed to make payments when due.

The bankruptcy petition asks the court to appoint a receiver to take charge of the developer's business assets and dissolve his businesses. The developer has 21 days to respond. The outcome of the bankruptcy case will not be known for several months or longer. Claims alleged in the petition come to more than $6 million. Several lenders have stopped funding construction loans and shut down other lines of credit when they learned about the developer's troubles.

In addition to the three banks that filed the involuntary bankruptcy petition, 14 individuals and four companies have sued the developer and Michael Paul Enterprises, claiming damages for fraud. The developer has not formally responded to the bankruptcy petition, but he sent out an e-mail categorically that he had committed no fraud. He blamed real estate investors with "big damaged egos."

Many people may understand that a floundering business may be best off filing for bankruptcy, but they may not know that involuntary business bankruptcy is possible as well. Whether or not the involuntary bankruptcy will succeed depends on the facts of the case. Therefore, if a business is contesting an involuntary bankruptcy, its owners will want to make sure they understand the laws behind the involuntary bankruptcy, so they can make informed decisions.

Source: West Fair, "Banks ask bankruptcy court to force D'Alessio liquidation," Bill Heitzel, April 20, 2018

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