Le Jardin Pitted Against Security Bank
Le Jardin (which went into Chapter 11 in Aug’08) had commenced adversary proceedings against the secured lenders – the 3 related entities of Security Real Estate Services (previously known as Fairfield Real Estate Services), Security Bank Corporation, Security Bank of Gwinnett County.
The complaint states the following:
This Case stems from the insurmountable amount of debt BOJ Homes incurred as a result of Fairfield’s fraudulent scheme, bad faith, and misconduct. Fairfield and its agents, through an improper course of conduct, knowingly financed more than $14 million in project cost overruns, all without the consent of BOJ Homes, Fairfield’s borrower. Fairfield knew about inflated invoices, funds being diverted to other projects, and improper disbursement requests, but approved them anyway creating the company’s financial distress. Then, Fairfield improperly induced BOJ Homes to incur additional debt with unfavorable terms based on inflated revenue numbers and Jordan to personally guarantee the debt. Instead of conducting business during the ordinary course as an arms-length lender, Fairfield has exercised dominion and control over the company and its real estate project and created the financial distress that led to BOJ Homes seeking bankruptcy protection.
On the other hand, Security Bank and friends had not only filed motions for relief from stay, but also motions to dismiss the cases as bad faith filings, or in the alternative, to convert to Chapter 7. Amongst others the motions for relief from stay was based on allegations that Le Jardin and its affiliates have ceased operating, developing and maintaining the Project, and failed to pay taxes as they became due, that the collateral value is deteriorating and thereby Le Jardin and its affiliates had no equity in the collateral.
In terms of book value, the developer reported $24,534,225 in Total Assets and $64,067,556.81 in Total Liabilities. This strongly weighs against any prospects of reorganization. Not to mention that proceedings so far are focused on litigation (the “blame game”) rather than reorganization. Our Crash Predictor indicates the following:
