Not everyone is happy with golf club deal
Now that Soft Draw Investments has reached an agreement to take over the bankrupt Golf Club of New England, there remains one major outstanding issue aside from the financial future of the venture: What kind of loan did the company make?
How much of the $17 million debt should be repaid before satisfying a construction company’s mechanic’s lien?
On the surface, this is a purely financial dispute that will in all probability be settled without too much rancor. But if things get messy – and because Soft Draw is owned by Gov. Craig Benson – the dispute could evolve into a legal dispute and the possibility of the governor being deposed in a civil case.
The Chapter 11 reorganization plan appeared to be in jeopardy in April, over a dispute about $500-an-hour legal fees for the attorney representing club members, among other matters. But after Soft Draw agreed to withdraw its loan, the members’ attorney, Todd Feinsmith, declared on April 30 that “peace has broken out” and withdrew his objection to a $600,000 loan, just in time for the club to reopen on May 1.
The town of Stratham — where part of the club is located – had also objected to the transaction, concerned that the latest loan would get paid off before the bankrupt estate’s taxes, but the town also backed off after the loan-withdrawal threat.
Only contractor Channel Construction – which built the $4.5 million clubhouse — continued to raise questions through its attorney, Joseph Foster.
“What they are getting for their $600,000 loan is a lockout of other buyers, and I don’t think that is right,” Foster – who’s also a Democratic state senator from Nashua — said. But Bankruptcy Court Judge J. Michael Deasy overruled Foster’s objection, clearing the way for the loan, and eventually the settlement, to go forward.
Back on the course
Under the settlement, Soft Draw acquires the golf course, swallowing several million of its own debt and paying the unsecured creditors a quarter of what they are owed.
Those members, who had already ponied up a $65,000 initiation fee, get to play, if they are caught up with their back fees and dues, for three years at the rate of $7,500 a year.
Soft Draw also will take over potential claims against various former and current board members who received questionable payments from the club, according to previous bankruptcy filings. Whether Benson chooses to pursue such claims against some of the state’s well-known corporate executives remains to be seen.
About 65 the of these members – including, reportedly, Benson — appeared the first weekend in May to play the course, and there was even some talk of taking up a collection to pay off dozens of small creditors, but that would still leave Channel Construction out in the cold.
Channel filed a $675,000 mechanic’s lien on Jan. 22, shortly before the club declared bankruptcy. That put it ahead of unsecured creditors. The question is where does it stand in relation to Soft Draw’s loan?
On May 4, Channel filed suit against Soft Draw, urging that the question be resolved.
Channel’s contention is that, since the property sold for $3.3 million, only that amount of Soft Draw’s initial $12 million is a traditional mortgage. The rest of the money was either a construction or operation loan.
Channel also contends that Soft Draw gave the golf course a $3 million unsecured loan, and that loan later got incorporated into a refinancing arrangement that advanced another $2.5 million, upping the new principal to $16.7 million. The company argues that, under state law, the golf club and Soft Draw should have informed Channel of the loan in order to keep its place in line as secured creditor on a construction loan, and neither the lender nor the borrower did so. Therefore, the company argues, it should have first dibs.
There is a chance that title insurance will cover the mechanic’s lien, and the whole question will be moot, or Soft Draw could settle the matter without further litigation.
But if there is no settlement, Channel is likely to seek documentation to show what was secured, when it was secured and where were the loan proceeds spent.
It also may raise the question – already voiced in bankruptcy hearings – about the hands-off nature of the loan.
When Benson made the initial loan, he was a founding member and vice president of the club. The current golf club president is a former Cabletron employee who once considered Benson to be his mentor.
But Foster expects most of the answers to these questions will be found on paper, not with oral testimony.
“My expectation is to determine the facts through documentary evidence, and only if the documents are unclear, would depositions be necessary,” Foster said.