A pair of creditors of troubled Indianapolis developer HDG Mansur want a federal bankruptcy court to force the firm into liquidation, claiming it has no hope of reorganizing and is using Chapter 11 as a stall tactic to fend off a $5.8 million judgment.
Two affiliates of HDG Mansur, HDG Mansur Investment Services Inc. and HDGM Advisory Services LLC, filed for Chapter 11 bankruptcy protection in May. The longtime local developer is led by Harold Garrison, who helped develop some of downtown's biggest projects, including the Omni Severin Hotel, Lockerbie Marketplace and Market Tower, which now is in foreclosure.
The creditors, KFH Capital Investment Co. and Kuwait Finance House Real Estate Co., on Aug. 14 asked the bankruptcy court to convert the case from a Chapter 11 reorganization to a Chapter 7 liquidation. They claim another HDG affiliate owes them nearly $100 million from a real estate investment in Bristol, England.
“They have no reasonable prospect of reorganization and cannot be using chapter 11 for any legitimate purpose,” the investors said of the HDG affiliates. “Instead, they are seeking to use their chapter 11 filings to stave off enforcement of creditors’ claims and to shield their owner, Harold D. Garrison, from liability to creditors.”
The creditors, collectively known as KFH in court documents, filed suit in November against Garrison and affiliate Mansur Investment in a United Kingdom court, alleging breach of contract, fraud and negligent misrepresentation in connection with the development called Finzels Reach.
In the pending suit, KFH claims that Garrison and Mansur Investment concealed a misappropriation of funds invested in the project through false invoices submitted by various entities.
KFH, by requesting to have HDG Mansur’s bankruptcy converted to a Chapter 7, at the very least wants the court to appoint an impartial trustee, who would evaluate claims against the HDG entities fairly, KFH said in its court filing.
“Either alternative—conversion or trustee appointment—would maximize the collection and preservation of assets for distribution to creditors and avoid conflicts of interest that taint current management,”
Michael Hile of Indianapolis law firm Katz & Korin PC, who is representing the HDG affiliates in the bankruptcy, did not return phone calls seeking comment.
The two Mansur affiliates seeking Chapter 11 protection managed and provided advisory services to a pair of Cayman Islands-based equity funds that comply with Muslim Sharia law, according to court documents. Shariah-compliant funds must follow rules that include investing only in Shariah-compliant companies, appointing a Shariah board and donating interest earned to charity.
The Sharia funds, GPIF Equity Co. Ltd. and GPIF Finance Co. Ltd., sued the HDG Mansur affiliates in federal court in January 2013, accusing them of misappropriating $5.8 million in assets. The judge awarded GPIF the damages in August, rejecting HDG Mansur’s argument that it charged the additional fees to rectify a billing error.
The judge has yet to grant final judgment on a counterclaim brought by HDG Mansur against GPIF, claiming the funds owe the local firm more than $20 million in fees. A trial has been set for Oct. 6.
The GPIF funds said in a June filing that they also want the bankruptcy case converted to a liquidation.
KFH's court filing requesting liquidation mentions a criminal probe launched by the U.S. Attorney’s office against Garrison and the Mansur affiliates.
IBJ reported in May that HDG Mansur attorney Francis J. Earley informed the court of the investigation in an attempt to persuade a federal judge to delay the May bench trial on Mansur’s counterclaim.
KFH’s Aug. 14 request for the conversion contains a statement about the investigation that GPIF lawyer Charles C. Platt gave the court in June.
“The United States Attorney’s Office for the Southern District of New York is investigating the HDG entities and Mr. Garrison,” he said. “Defendants had earlier advised the court that Mr. Garrison and other HDG representatives might not testify in any event because they might have to invoke the Fifth Amendment privilege against self-incrimination if they did appear at trial.”