Creditors Hammer NJ Construction Co. On First Day Of Ch. 11

September 16, 2019  |  By: Daniel M. Stolz, Esq.

Law360, Trenton (September 16, 2019, 10:13 PM EDT) — Companies tied to Hollister Construction Services LLC projects urged a New Jersey bankruptcy judge Monday to safeguard money they’re owed as the company’s Chapter 11 case proceeds, arguing during a firstday hearing that their funds should not be fair game for senior secured creditor PNC Bank’s potential recoveries.

During a first-day hearing before U.S. Bankruptcy Judge Michael B. Kaplan in Trenton, the subcontractors lodged limited and outright objections to Hollister’s bid to finance at least the next week of its case with cash collateral, as well as its motion to enforce Chapter 11’s automatic stay, which one creditor described as “bizarre and unusual.”

When Hollister sought Chapter 11 protection on Sept. 11 with more than $100 million in debt, it also filed a motion looking for an order “restating and enforcing the automatic stay,” a bankruptcy provision that halts any creditor collection efforts or litigation unless approved by the bankruptcy court. The debtor said it filed the motion out of “an abundance of caution” to inform creditors of the “broad protections” of the Bankruptcy Code.

But on Monday, one of Hollister’s creditors, 147 Bloomfield Ave JV LLC, argued the motion seeks to enlarge the section of bankruptcy code addressing stay rights.

“I think your honor should take an aggressive pen to anything that could be broader than … an automatic stay,” 147 Bloomfield attorney Daniel Stolz of Wasserman Jurista & Stolz PC told Judge Kaplan. Stolz had argued in a brief that the stay motion was “bizarre and unusual.”

147 Bloomfield, which owns The Vestry rental project underway in Montclair, New Jersey, was among several creditors, many of them contractors, that also objected to Hollister’s cash collateral motion. Each wants to ensure their pay is preserved separately from any cash Hollister can access, and they argued that their prepetition work isn’t an asset of the estate. Those creditors could be collectively owed upwards of $90 million, according to Hollister’s court filings.

An attorney representing Sparwick Contracting Inc. and Jordano Electric Inc., subcontractors that worked on a pedestrian bridge at Fairleigh Dickinson University, said it was unknown if there was a trust set aside to pay them for their work. Neither Sparwick nor Jordano were provided a copy of the contract, the companies said in court briefs.

If there was a trust, the stay wouldn’t prevent Sparwick from prosecuting its construction lien it lodged against Hollister just hours before the Chapter 11 filing, said Greg Trif of Trif Law LLC, counsel for Sparwick and Jordano.

“If [the motion to enforce the stay] it is a comfort order for a debtor, it think it may be viewed as limiting a right,” he told the court.

The concern about the cash collateral motion was that, if there was a trust fund, “that money is gone” if it gets disbursed during next week’s precedings, Trif said.

Objectors also included Delcon Builders Inc., which also did work on The Vestry, along with Pentel Drywall Inc., which was subcontracted for a transit-oriented development in Harrison, New Jersey, along with Arch Insurance Co. and Arch Reinsurance Co., which issued payment and performance bonds on 14 Hollister projects.

The stay motion also received pushback by Newark Warehouse Redevelopment Co. LLC and Newark Warehouse Urban Renewal LLC.

But Hollister isn’t “looking in any way to expand” its rights, said one of the debtor’s attorneys, Mary E. Seymour of Lowenstein Sandler LLP.

In its motion to enforce the stay, Hollister said it feared that absent the stay, companies that owned the projects Hollister supervised would stop remitting project payments, the “sole source of operating revenues.”

The stay isn’t impacting rights, according to Judge Kaplan. “There’s no limiting or expansion of the rights,” he said.

Payroll is among the expenses cash collateral would cover for the Parsippany, New Jersey-based company, according to its motion on that topic. Hollister laid off 46 employees days before the bankruptcy, leaving it with 94 workers, according to its lawyers.

The company also plans to seek debtor-in-possession financing, Lowenstein Sandler partner Kenneth A. Rosen told Judge Kaplan. Hollister “grew too fast,” Rosen explained during the status conference portion of the hearing. Now, certain projects are underwater due in part to inaccurate estimates, he said.

The company is beholden to an estimated 200 to 999 creditors, according to its attorneys.

“The vendors and the subcontractors have been loyal. They’ve done good quality work. They’re not the ones to be blamed,” Rosen told the judge. He added that Hollister wants to “minimize the pain inflicted” on others by its insolvency.

When Hollister filed for Chapter 11 protection, it listed more than $100 million in liabilities, including roughly $89 million owed to subcontractors and $14 million and $1.3 million to PNC Bank for, respectively, a line of credit and a term loan.

Hollister is represented by Arielle Adler, Bruce Buechler, Joseph DiPasquale, Jennifer B. Kimble, Kenneth A. Rosen and Mary E. Seymour of Lowenstein Sandler LLP.

Sparwick and Jordano are represented by Greg Trif of Trif Law LLC.

147 Bloomfield is represented by Daniel M. Stolz of Wasserman Jurista & Stolz PC.

Pentel and Delcon Builders are represented by Nicole Nigrelli and Albert A. Ciardi III of Ciardi Ciardi & Astin.

Newark Warehouse Redevelopment Co. and Newark Warehouse Urban Renewal are represented by Joseph L. Schwartz and Tara J.

Schellhorn of Riker Danzig Scherer Hyland & Perretti LLP.

Arch Insurance and Arch Reinsurance are represented by Robert E. Nies and Armen Shahinian of Chiesa Shahinian & Giantomasi PC.

The U.S. Bankruptcy Trustee is represented by Lauren Bielskie of the U.S. Department of Justice.

The case is In re: Hollister Construction Services LLC, case number 3:19-bk-27439, in U.S. Bankruptcy Court for the District of New Jersey.

–Additional reporting by Bill Wichert. Editing by Adam LoBelia.