Trump Entertainment’s Bankruptcy may be Converted to Chapter 7

We had previously examined the situation unfolding in Atlantic City where an uncertain economic climate and increased competition has laid waste to the once-powerful economic engine that was the legalized gambling industry. When we last looked at Atlantic City in our September blog post the Trump Plaza had announced its closing, its parent company had filed for bankruptcy, and the unaffiliated the luxury resort Revel had also declared bankruptcy. Since that time the situation has only gotten worse in Atlantic City as other casinos have closed and Trump’s bankruptcy plan has been called into question by a federal judge. With 4 casinos having already closed and 25% of Atlantic City’s casino worker’s unemployed, this latest setback is certainly unwelcome and can only slow the recovery process in Atlantic City.

Atlantic City

Why is Trump Entertainment’s bankruptcy plan in jeopardy?

Trump Entertainment’s announcement that the company’s only remaining casino, Trump Taj Mahal, is closing has thrown the company’s bankruptcy plans into disarray. A federal judge is seeking a “firm indication” that the company’s casino will remain open. The judge believes that the closing of the casino calls into question whether there is a “reasonable likelihood of rehabilitation” for the company. If the company proceeds with its planned December 12th closing of the Taj Mahal, a federal judge as indicated that he is willing to cancel the company’s Chapter 11 plan and convert it to a Chapter 7 plan.

Presiding bankruptcy judge, Kevin Gross, indicated on the record that if Trump Entertainment is unable to secure financing to cover bankruptcy costs and, “there is no firm indication that the Taj is going to stay open, then we’ll convert the case.” Converting the case would mean that the bankruptcy would be moved out of the more business-friendly Chapter 11 reorganization process and into a more restrictive Chapter 7 liquidation. Such a move would likely be a setback both for the city and for casino workers.

What would a conversion to Chapter 7 mean for the casino and Atlantic City?

Under the more flexible Chapter 11, a company’s management largely retains the right to make decisions regarding the assets of the company. While the plan itself must be approved by a bankruptcy court, the plan itself is devised by the company’s management and its lawyers. If the bankruptcy is converted to Chapter 7, then the management would lose control of the company’s assets. Rather, control would be held by the Chapter 7 liquidation trustee. This means that the trustee could choose to break-up the property and sell it off piece by piece.

This possibility is a problem for both Atlantic City and once heir-apparent Carl Icahn. The threatened conversion is a problem for Mr. Ichan because prior to the Judge’s statements and Order, he was expected to take control of the company through a creditor vote.  In Chapter 7 Mr. Ichan would be free to choose whether to keep the casino open, to close it or to sell it. However, if the matter is converted, Mr. Ichan’s secured interests would still take priority, but he would have to negotiate with the Chapter 7 trustee regarding the disposition of the assets.

Close-up of a bankruptcy petition

For Atlantic City, the goal is clearly to keep the casinos running and stem the tide of job losses. While a liquidation of the Trump Entertainment properties may only return pennies on the dollar for holders of Trump debt, its closure is likely to inflict even greater the economic damage. Like in many bankruptcies, the Judge still has the unenviable task of balancing all the competing economic interests so that the property can emerge from bankruptcy and so that creditors can move forward.

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Young, Marr & Associates can handle your bankruptcy concerns strategically. When you work with a Young, Marr & Associates bankruptcy attorney, you can rest assured that your financial situation will be thoroughly and meticulously assessed prior to offering potential solutions. Collectively, our experienced attorneys have filed more than 5,000 bankruptcy cases cases and have more than 20 years of experience. To schedule your bankruptcy consultation, call 1 (609) 755-3115 in New Jersey or (215) 701-6519 in Pennsylvania or contact us online.

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