September 18, 2000
Arizona Foundation moves
closer to settlement in bankruptcy case
___By Elizabeth Young
___Arizona Baptist Convention
___PHOENIX (BP)--A disagreement over the secured versus unsecured status of Baptist Foundation of Arizona investors has been resolved, subject to court approval, according to a proposed agreement filed in U.S. Bankruptcy Court Sept. 5.
___The disagreement had been "the single remaining impediment" to the bankruptcy case proceeding rapidly, according to a status report filed in July.
___Under the terms of the settlement--which has been agreed to by the foundation, the Unsecured Creditors' Committee and the Collateralized Investors' Committee--creditors holding what were offered as secured investments will receive a premium of $13.2 million in addition to the funds all investors will receive on a pro rata basis. If the assets sell for the $240 million that has been estimated, secured investors will recover about 44 cents for every dollar they invested, while unsecured investors will receive about 31 cents for every dollar invested.
___About 7,000 of the 12,000 investors hold secured investments, totaling 76.5 percent of all investor claims.
___From the beginning of the bankruptcy case, the Baptist Foundation of Arizona had maintained that all investors should be treated equally because of the way the foundation actually dealt with investors, handled the collateral pools and otherwise conducted business.
___To speed the settlement process along, on July 14, the foundation filed an "adversary proceeding"--a class-action suit against the approximately 7,000 allegedly secured investors--seeking a resolution to the secured versus unsecured question. The suit seeks no monetary damages, simply a resolution to the question of investors' status.
___A proposed schedule called for fairness hearings for the court to approve the settlement during the week of Oct. 30. The court's decision will be binding on all parties.
___In addition, the schedule proposes holding hearings concerning approval of the foundation's disclosure statement during the week of Sept. 11. Following the court's approval of the disclosure statement--which describes the liquidating plan, explains what caused the foundatoin's failure, identifies potentially responsible third parties and provides estimates of recoveries for creditors--investors will be asked to cast ballots for or against the plan.
___After the vote, the court will conduct a hearing to consider confirmation of the plan. The proposed schedule calls for the hearing to be held during the week of Nov. 6.
___If the schedule is met, it may be possible to distribute some funds to investors before the end of the year, said Mark Dickerson, general counsel to the foundation's management committee.
___Meanwhile, the foundation has filed a lawsuit against its former auditors, Arthur Andersen LLP, charging the firm with negligence in conducting its annual audits for 15 years, beginning in 1984.
___The suit alleges that Arthur Andersen ignored "red flags" and failed to investigate "highly suspicious, non-arms' length transactions." Arthur Andersen's actions allowed the foundation's undisclosed losses to escalate to hundreds of millions of dollars and ultimately resulted in the foundation's demise, according to the suit.
___In other news, the foundation is proceeding with the sale of key assets. A sale of its interest in Chaparral Pines in Payson, Ariz., closed for $9.6 million.
___With a bid by a major homebuilder and real estate developer in hand, the foundation has filed a motion for the auction and sale of Pleasant Point, its largest real estate asset, located north of Phoenix.
___In addition, the foundation is preparing contracts for bankruptcy court approval and auction of its Kilohana Waikaloa property in Hawaii.
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