The latest effort by Albuquerque, New Mexico-based One Aviation to exit Chapter 11 bankruptcy has encountered snags following an objection by the U.S. Trustee’s Office and orders to produce documents related to the Section 363 sale of the company's assets to real estate holding firm SE Falcon.

U.S. Bankruptcy Court judge Christopher Sontchi ruled last month to allow the expedited sale to proceed, after the company filed an emergency motion to part ways with original debtor-in-possession Citiking International US following what the court determined were repeated failures to take the company out of bankruptcy.

In an October 5 objection to that ruling, U.S. Trustee Andrew Vara notes while the sale provides compensation to various creditors in line with terms of the original Citiking bankruptcy emergence plan, it “does not provide for payment in full of all allowed administrative or priority claims.

“This violation of the bankruptcy code's priority scheme absent a consensual plan of reorganization is impermissible,” reads the Trustee’s 20-page objection, adding the SE Falcon sale agreement potentially “evinces collusion between debtors, the noteholders, the committee and the purchaser to ‘squeeze out priority unsecured creditors,’” in violation of precedent established by a prior Supreme Court ruling.

Citiking also isn’t surrendering its claims without a fight, issuing subpoenas last week for SE Falcon and One Aviation lienholder DWC Pine Investments to produce documents related to the new sale. The Chinese-backed entity has also deposed One Aviation CEO Alan Klapmeier and company board member James Patrick Carroll, who offered testimony in favor of the emergency motion.

Ahead of the Trustee's objection, the court announced a second delay to the hearing date for approval of the SE Falcon sale, originally scheduled for the end of September, to October 14. It's not yet known how these and other developments could further affect that hearing.

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