The assets of Clearwater Fla.-based Avantair will be sold and the company liquidated after it failed to meet an August 13 deadline to contest an involuntary Chapter 7 filing in the Florida Middle District U.S. Bankruptcy Court in Tampa. Judge Catherine McEwen signed an order during a hearing on August 16 authorizing the case to proceed under Chapter 7.
The entire chain of events began about three weeks earlier–on July 25–when four Texas-based creditors filed the involuntary Chapter 7 petition [A1]against Avantair in the Florida federal court. Avantair initially was given until August 16 to respond, but this deadline was later shortened to August 6 and then pushed out to August 13.
Avantair CEO Steven Santo told AIN on August 7 that the compressed schedule was hurting efforts to secure debtor-in-possession financing. He said this would have allowed the company to petition the court to allow it to reorganize under Chapter 11, an outcome that never came to pass. (Santo has not responded to AIN’s numerous inquiries since that date.)
The accelerated schedule was the result of a July 30 petition filed by the creditors asking the judge for an emergency hearing of the case, appointing an interim trustee to “preserve the property of the estate or prevent loss to the estate.” They based the trio of requests “on the fact that Avantair”–which ceased flight operations on June 5 and furloughed all employees on June 26–“is no longer operating as a ‘business in the ordinary course,’ has no income and is not meeting contractual obligations to customers,” according to the motion filed by the creditors.
McEwen immediately granted two of the creditors’ requests, scheduling the emergency hearing for August 2 and appointing Beth Ann Scharrer as the trustee–the person tasked with protecting the assets, which will be sold and the proceeds distributed to creditors. During the initial hearing the judge also approved the request to secure assets and business records, which included aircraft and their maintenance logs–a move that later proved thorny for Avantair share owners trying to take possession of their aircraft and associated maintenance records (see article on page XX).
On August 3, according to a sworn statement she filed with the bankruptcy court, Scharrer visited Avantair’s Clearwater headquarters to secure the premises, only to find many of the 30 doors at the facility unlocked, some cleaned-out offices and evidence that furloughed employees had been in the offices within the preceding 24 hours. Within two days, she had the locks changed and the employees’ magnetic airport access cards invalidated, all backed by an emergency order signed by the judge that limited facility access to the “trustee, trustee’s counsel or authorized agents of the trustee.”
During the follow-on August 16 hearing that affirmed the Chapter 7 path, McEwen gave Avantair seven days to provide the court with a list of creditors, co-debtors and unexpired leases. The court also gave Avantair’s creditors until December 18 to file a claim.
Meanwhile, the trustee is working to ensure that each of Avantair’s assets is accounted for and secured. On August 20, McEwen approved Scharrer’s request to authorize the examination of Avantair CEO Santo, CFO Bret Holmes, president David Haslett, associate general counsel Tom Palmiero, executive vice president Kevin McKamey and executive vice president of finance and operations Stephen Wagman “to obtain any and all documents in [their] possession related to the assets, liabilities and business operations of [Avantair].”
The six Avantair executives were given until August 28 to submit to the trustee’s counsel what will ultimately be thousands of documents. The material sought includes written notes, computer files, emails (personal and company), inter- and intra-company communications, phone records (personal and company), mortgages, leases, personal bank records and individual tax returns.
In addition, these Avantair executives have also been ordered to “make themselves available for examination and appear before a court reporter [at the trustee’s counsel’s office in Tampa starting on September 4 at 10 a.m.] and continuing from day-to-day until conclusion, giving sworn testimony concerning the acts, conduct, business, transfers, real and personal property of the debtor [Avantair], the financial condition of the debtor, and any other matter which may affect the condition of the debtor’s estate.”
[A1]Technically, it’s an “involuntary Chapter 7 petition.” The “case” means the whole case – all of the proceedings that follow the petition. But this may be a distinction only a lawyer can love.