Woodbridge Group of Companies, a luxury real-estate developer, filed for chapter 11 reorganization on December 4, 2017. Woodbridge and its 200-plus affiliates operated a sprawling, complex real estate enterprise that focused on the acquisition and development of high-end properties.
Although the company estimates the value of its properties to be nearly $1 billion, it asserts it was forced to seek chapter 11 protection due to increasing operational and regulatory costs combined with an inability to access new capital. Woodbridge’s inability to recapitalize outside of chapter 11 is due, at least in part, to questionable capital-raising practices and the attendant regulatory scrutiny.
Woodbridge’s Private Fundraising Practices Questioned By Regulators
Woodbridge historically raised capital through a “private fundraising operation” that has spawned more than 20 inquiries by state regulators and an ongoing investigation by the U.S. Securities and Exchange Commission (which is seeking information from Woodbridge, its affiliates, and its insiders). Since 2012, Woodbridge and its affiliates had financed their expansion by offering short-term notes to individual investors promising substantial returns. Typically, the notes were issued by a Woodbridge affiliate and were described as being ultimately secured by a first-priority lien on valuable real property. More than $750 million of these notes—held by nearly 9,000 investors—were outstanding when Woodbridge filed for bankruptcy.
Woodbridge Noteholders Under Fire in Chapter 11
Woodbridge’s bankruptcy court filings assert that the noteholders failed to take the steps needed to properly “perfect” their security interests, and that the noteholders are therefore only unsecured creditors. Woodbridge’s attorneys have promised to quickly file suit against the noteholders to strip them of their secured status. Within the next few weeks, Woodbridge also plans to seek the bankruptcy court’s approval of a $100 million debtor-in-possession financing facility from Hankey Capital secured by “priming” liens on 28 of Woodbridge’s most valuable properties. Woodbridge’s thousands of noteholders and the challenges to their claims are certain to dominate the early stages of the reorganization case.
Woodbridge’s Former Chief Executive Nets Consulting Deal
Woodbridge’s former chief executive, Robert Shapiro, could be a potential litigation target. Although the SEC has not filed any charges as of today, Mr. Shapiro ceded control over Woodbridge to an independent management team to guide the company through its bankruptcy. Mr. Shapiro will stay on as a “consultant” in exchange for $175,000 in monthly compensation and other benefits agreed to by the Woodbridge debtors. That arrangement will also attract close scrutiny by the unsecured creditors’ committee that will be formed on December 14th and the bankruptcy court. The SEC has informed the bankruptcy court that it has “serious concerns” about Woodbridge and that its Chapter 11 filing may force the agency to “make some decisions quickly.”
Official Committee of Unsecured Creditors Formation Meeting
The United States Trustee has scheduled a meeting of creditors to form an official committee of unsecured creditors on December 14, 2017 at 10:00 a.m. (ET) at The Doubletree Hotel, 700 King Street, Wilmington, Delaware 19081.
For more information about Woodbridge’s Chapter 11 case, please contact David LeMay at firstname.lastname@example.org or 212.408.5112.
Woodbridge’s and certain of its affiliates’ Chapter 11 cases are pending in the United States Bankruptcy Court for the District of Delaware and are being jointly administered under Case No. 17-12560 (KJC).