A U.S. Bankruptcy Court judge has approved Phoenix-based Realty Executives Inc.'s Chapter 11 reorganization plan, allowing the company to emerge from bankruptcy.
The two creditor objections filed against the company's reorganization plan were withdrawn, owner Richard Rector said Thursday after the brief courtroom hearing.
One of those objections, filed by former company president John Foltz and his wife, Marie, was withdrawn Thursday, clearing the way for approval of the reorganization plan, court documents show.
"The parties have reached an agreement to mediate the amount of the Foltzes claims," according to a document filed Thursday by the Foltzes' attorneys.
Rector and Foltz had been embroiled in an employment lawsuit related to Rector's removal of Foltz as president.
The residential-real-estate agency, which does business as Realty Executives Phoenix, in its lawsuit accused Foltz of theft and mismanagement, while Foltz had filed a counterclaim accusing the company of severing his employment contract under false and defamatory pretenses.
With the legal dispute behind it, the company's first order of business will be to recruit additional real-estate agents to make up for those lost to competitors during the bankruptcy proceedings, Rector said.
The agency ran into financial trouble in 2007 when the real-estate market crashed, in part because Realty Executives had grown to a large organization with 17 offices, 1,800 real-estate agent contractors and about 120 payroll employees.
After downsizing and cutting overhead costs, the company was returned to relatively good financial health except for several expensive lease agreements, Rector has said.
Of the roughly 15 leases Realty Executives held for various offices in the Valley, there were four in particular in which renegotiations with the property owners had broken down, making it necessary to file the bankruptcy petition.
A motion filed along with the bankruptcy petition allows Realty Executives to "reject," or walk away from, four of the 15 lease agreements.
Those leases included two Tucson offices, one in Peoria and another in north Scottsdale, which cost the company a combined $37,733 per month, according to court documents.
Both the franchise and its parent company, Realty Executives International, are based in Phoenix and owned by Rector.
Only the franchise was a debtor in the bankruptcy, with the parent company and its owner as two of its biggest creditors.
A list of the 20 largest creditors, filed with the company's Chapter 11 petition, includes Rector as the largest creditor, saying the company owes him about $1.25 million. Franchisor Realty Executives International is the third largest, with a claim of about $600,000.
Other creditors include Phoenix law firm Greenberg Traurig, owed about $838,000, and Johnson Bank in Scottsdale, which is owed $400,000.
Under the reorganization plan, the law firm and bank likely would be repaid in full.
All claims by current and former employees would be paid in full, including deposits owed to former agents.
Rector agreed to defer repayment of any debts owed to him and pay an additional $300,000 toward the repayment of other creditors.
Most of the remaining contractors, landlords and other unsecured creditors would receive an estimated three-fourths of the money owed to them, based on the company's projections.
The residential-real-estate agency filed for Chapter 11 reorganization on April 30.
"When you think about it, this was done rather quickly compared with some other recent bankruptcies," Rector said. "Now it's just a matter of executing the plan that's in place."
by J. Craig Anderson The Arizona Republic Oct. 28, 2011 12:00 AM
Judge approves Chapter 11 for Realty Executives
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