In January of this year, George L. Miller, the chapter 7 trustee (the “Trustee”) in the WL Homes bankruptcy, began filing avoidance actions against various creditors. As alleged in the complaints, the Trustee seeks the recovery of what he deems are “preferential transfers” pursuant to 11 U.S.C. section 547(b) of the Bankruptcy Code. This post will look briefly at the WL Homes bankruptcy, as well as provide information on common issues that arise in preference litigation.
Background on the Bankruptcy Proceeding
On February 19, 2009, W L Homes, also known as John Laing Homes, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware. According to the Affidavit in Support of First Day Bankruptcy Motions, WL Homes sold over 1,300 homes in 2007, generating revenues of $948 million. With the crash of housing market, the company’s home sales dropped to approximately 560 homes in 2008, with revenue declining to $287 million.
Prior to filing for bankruptcy, WL Homes had over 100 development projects underway ranging from entry level condos to multimillion dollar homes. When the company originally filed for bankruptcy, its stated goal was to exit certain “non-core regions” and move forward with more successful developments in the southern California region.
In the days prior to bankruptcy, WL Homes’ secured debt totaled $350 million. Debtors’ secured lenders include Wells Fargo, Bank of America, Wachovia, Indy Mac and KeyBank (among others). At $140 million, Bank of America holds the largest amount of WL Homes’ secured debt. According to W L Homes’ bankruptcy petition, its largest unsecured trade creditors hold claims ranging from $331,000 to $118,000 for construction-related goods and services.
W L Homes was purchased by Emaar Properties in 2006 for $1.05 billion. Emaar is a public joint stock corporation formed in Dubai and considers itself the “world’s largest real estate developer.” Since buying W L Homes, Emaar has invested over $600 million in WL Homes for the purpose of asset acquisition. Emaar cut-off funding to WL Homes in December of 2008.
Conversion to Chapter 7 and Sale of Assets
On May 7, 2009, the Official Committee of Unsecured Creditors for WL Homes filed a motion to convert the bankruptcy proceeding from a chapter 11 reorganization to a chapter 7 liquidation. The WL Homes bankruptcy converted to a chapter 7 on June 5, 2009 and the Trustee was appointed soon after. In August of 2009, the Delaware Bankruptcy Court approved the sale of substantially all of WL Homes’ assets to Emaar for $7 million. With the sale completed, the Trustee will now seek to administer claims made against the bankruptcy estate and pursue various causes of action, including preference actions.