Recent rulings have kept the boatbuilder’s prospects murky after bankruptcy petition is dismissed
Fountain Powerboats and its related entities had their Chapter 11 petition dismissed by a Southern Florida court, but legal troubles continue for the beleaguered boatbuilder.
Judge Erik Kimball in U.S. Bankruptcy Court for the Southern District of Florida dismissed the petition in response to a motion by Joseph Wortley to dismiss the cases. Wortley is at least a partial owner of Fountain and other related entities. A U.S. trustee had also filed a motion to dismiss the bankruptcy case or, in the alternative, appoint a Chapter 11 trustee, but that motion was denied as moot because of this ruling.
At issue was whether the receiver, Ronald Glass, had the authority to file the bankruptcy petitions. The Chapter 11 filing was made Jan. 18 and marked the second time in less than three years that Fountain had filed for bankruptcy protection. In his order, dated March 23, Kimball writes, “The court finds that Ronald Glass was not duly authorized to file the petitions commencing these cases.” The case was dismissed without prejudice.
Entities involved in the dismissal include American Marine Holdings LLC, Donzi Marine Inc., AMH Government Services Inc., Baja Marine Inc., Fountain Dealers’ Factory Super Store Inc., Fountain Powerboat Industries Inc., Fountain Powerboats Inc., Fountain Powerboats LLC, Palmetto Park Financial LLC, and Pro-Line Boats LLC.
However, shortly after Kimball’s decision was filed, Glass and the firm of GlassRatner Advisory & Capital Group, which last October were appointed the corporate receiver in First Capital’s case against Fountain, filed a motion in North Carolina asking for confirmation that the receiver had the authority to file for Chapter 11.
First Capital is seeking $61.04 million in damages from Fountain and other entities for the “borrower defendants’” breach of loan agreements, according to documents filed in the North Carolina court. The “borrower defendants” include American Marine Holdings LLC, Donzi Marine LLC, AMH Government Services LLC, Pro-Line Boats LLC, Fountain Powerboats LLC, Fountain Powerboat Industries LLC, Fountain Powerboats Inc., Fountain Dealers’ Factory Super Store Inc., Baja Marine Inc., Palmetto Park Financial LLC, 50509 Marine LLC, Liberty Acquisition FPB LLC, and Joseph G. Wortley.
In the latest filing, Glass notes that before filing for Chapter 11 in Florida he asked the North Carolina court for authority to sell 11 boats in the Palmetto Park inventory for $429,000, claiming the proceeds of the sale would generate capital to assist with continuing operations. Palmetto Park, according to court documents, is an entity created and funded by First Capital to provide dealers with floorplan financing.
On Jan. 16 Wortley, a principal of the borrower defendants, filed a Chapter 11 petition “purportedly” on behalf of Palmetto Park that “halted the receiver’s proposed sale of 11 boats and the planned construction of new boats. … The inability to proceed with the sale and to manufacture additional boats dramatically impacted cash flow.
“In response to Wortley’s bankruptcy filing, First Capital informed the receiver that it was unlikely to continue funding any of the borrower defendants unless they also filed bankruptcy,” according to Glass’ latest filings.
“Lacking prospects of further funding from [First Capital] or revenue from the proposed sale of boats, the receiver determined that Chapter 11 bankruptcy filings afforded the borrower defendants the best opportunity to restructure their debts and otherwise reorganize on a going forward basis,” he adds.
The filing, he says, would reduce operating expenses by enjoining the collection of prebankruptcy debts, which are currently in excess of $3 million, increase the likelihood of debtor-in-possession financing from First Capital and allow for the restructuring of loan obligations.
Fountain seeks dismissal
While Glass seeks confirmation that he can file for bankruptcy, an attorney for Fountain Powerboats Inc. and Baja Marine Inc. filed a motion in North Carolina to dissolve the temporary receivership. An attorney for American Marine Holdings also filed a motion to dissolve the receivership. A hearing on these motions was scheduled for April 23.
Lawyer Randolph James, for Fountain and Baja, notes in his motion that Glass said in depositions that he filed the Chapter 11 petitions because “[First Capital] informed Glass verbally that they (First Capital) would not continue to fund the entities unless they were in Chapter 11. Ronald Glass further testified he knew at the time he filed bankruptcy petitions that all of the parties were waiting for Judge Gale to rule on a number of issues.
“Undersigned counsel has consistently maintained before this court that Ronald Glass has an inherent conflict of interest in acting as a receiver for the manufacturing, parts and service companies which occupy the building owned by the movant Fountain Powerboats Inc. and financed by an [First Capital] mortgage,” James says, “Ronald Glass, while acknowledging his fiduciary duties, has failed to discharge those duties fairly, evenly and uniformly.”
The motion adds that Fountain Powerboats Inc. is prepared to immediately resume building Baja boats and employ 25 to 30 people in Washington, N.C., through its parts and service division as soon as the court discharges Glass as the temporary receiver for Fountain Powerboats and Baja Marine.
James also says First Capital “intended to liquidate the defendants since the beginning of this action,” despite its statements in prior hearings that it intended to start production and take finished boats to the Fort Lauderdale International Boat Show. “The intention to liquidate these companies was confirmed by Ronald Glass in his deposition testimony,” James says in his motion.
The entities asking for the dissolution of the receiver’s authority include Fountain Powerboat Industries Inc., Fountain Powerboats Inc., Fountain Dealers’ Factory Super Store Inc., and Baja Marine Inc. No mention was made of Donzi or Pro-Line, and James did not return a request for comment.
This article originally appeared in the May 2012 issue.