A U.S. Bankruptcy Judge on Tuesday granted a temporary stay of any civil action against the Samanta Roy Institute of Science and Technology while SIST appeals the dismissal of its Chapter 11 bankruptcy petition.
U.S. Bankruptcy Judge Kevin Gross, who dismissed the bankruptcy case last month, stated in his order Tuesday he was issuing the stay despite very slim chances of SIST successfully appealing.
"The Court is highly confident of the correctness of its ruling," Gross wrote. "The Court therefore views the likelihood of appellants succeeding in their appeal as correspondingly very low."
Gross concedes in his ruling a stay would do more harm to the creditors than the debtors and calls it "not appropriate."
However, Gross goes on to cite the heavy workload of the District Court - of which the bankruptcy court is a part - and the lack of a full complement of judges in deciding to issue the stay.
Gross writes that it would "better serve the administration of justice and enable the District Court to schedule any application for a stay on a less disruptive basis."
The stay, which expires October 26, puts a temporary hold on the Order for Dismissal Gross issued September 21.
SIST last week filed a request for a stay of any other legal action while the appeal is pending and outlined the case it expects to make when the appeal is heard.
According to the filing, SIST is maintaining a number of errors by the bankruptcy judge in reaching his decision.
Those errors, according to SIST, include dismissal of the case during the exclusivity period, taking into account the failure to file tax returns while the bankruptcy was pending, and failing to give notice of the subject matter of the September 21 hearing at which SIST had been ordered to show cause why the case should not be dismissed.
SIST also maintains the bankruptcy judge abused his discretion by considering SIST’s revenue possibilities prior to the bankruptcy filing, accepting an oral motion from the U.S. Trustee’s Office to dismiss the case and considering the cash management of a subsidiary that wasn’t part of the bankruptcy filing.
Gross ruled the dismissal was necessary given SIST’s mounting financial losses, the absence of a plan to rehabilitate, lengthy inaction in obtaining financing and a lack of effort to maximize the value of assets for the benefit of creditors.
Gross cited several grounds for dismissal, including the fact the debtors had not filed tax returns since 2004, including a 2008 return due after the bankruptcy petitions were filed.
Failure to file tax returns after the date of an order for relief is one of several grounds under the U.S. Bankruptcy Code Gross used to make his ruling.
He also cited substantial or continuing loss to the value of the estate, the absence of the likelihood of rehabilitation and gross mismanagement of the estate as other grounds.
The appeal argued for a stay against civil actions aimed at foreclosing on a number of SIST properties.
"Without the imposition of a stay, the estate’s value will diminish rapidly and irreversibly as the properties owned by the Appellants are foreclosed upon and sold off," the motion states.
One of the creditors had already attempted to re-initiate its civil suit.
Southwest Guaranty, Ltd., filed a motion in Shawano County Circuit Court last week to reopen the case against SIST and its subsidiary U.S. Acquisitions and Oil, which owns the property that is home to Midwest Amusement Park and the USA International Raceway.
A hearing date in the civil suit - which requests a receiver be appointed to the racetrack over an allegedly defaulted $2.2 million mortgage - has been scheduled for December 4.
A host of civil litigation against SIST and its subsidiaries had been put on hold when the Chapter 11 bankruptcy petition was filed in March, including the imminent foreclosure sale of three gas station properties in Shawano.
According to the civil suit filed by Integrity First Bank, of Wausau, Midwest Oil secured a total of $1.3 million in financing from the bank in August and September 2006 by mortgaging the three properties. According to the suit, $1.2 million was remaining on the debt in March.
SIST and its subsidiaries own a number of Shawano area businesses, including the three gas stations, the AmericInn and Kiryat Hotels, Spirit of the Northwoods, Midwest Gift and Fudge Shop, and USA International Raceway.
They also own a number of commercial properties in the city, some of which are leased to other businesses.
SIST representatives in the past have said the businesses were intended to fund the operation of an international boarding school, which they once proposed building in the town of Wescott.
