Realty Executives files reorganization plan

Phoenix-based Realty Executives Inc. has submitted its Chapter 11 reorganization plan to the U.S. Bankruptcy Court and hopes to emerge from bankruptcy by the end of September, a consultant to the company said Wednesday.

The plan, along with an accompanying document known as a disclosure statement, explains the circumstances that led the company to file for bankruptcy and offers a proposal for repaying creditors, most of whom would be paid in full.

The residential-real-estate agency, which does business as Realty Executives Phoenix, filed for Chapter 11 reorganization on April 30.

Both the franchise and its parent company, Realty Executives International, are based in Phoenix and owned by Richard Rector.

In legal documents filed along with the bankruptcy petition, attorneys for Realty Executives explained that only the franchise is a debtor in the bankruptcy, and that the parent company and its owner are 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.

Morrie Aaron, founder and president of Phoenix-based MCA Financial Group, which is the bankruptcy consultant to Realty Executives Inc., said that under the reorganization plan, the law firm and bank would likely be repaid in full.

In addition, all claims by current and former employees would be paid in full, including deposits owed to former agents.

Aaron said Rector has agreed to defer repayment of any debts which he is owed and actually would 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 now-profitable company's current projections, Aaron said.

However, he noted that a pending legal claim by former company president John Foltz could affect the company's ability to repay those unsecured creditors.

If a claim by Foltz for breach of contract and unpaid compensation is successful, Aaron said, it could reduce the amount paid on unsecured claims - including Foltz's claim - to as little as 25 cents on the dollar.

If a judge approves the reorganization plan and disclosure statement, it would then go to a vote of creditors, including Foltz. Each creditor also would have the opportunity to submit a competing reorganization plan.

Aaron said if no creditors object, the company could emerge from bankruptcy as early as Sept. 30.

The real-estate agency already has implemented a number of cost-cutting measures that have made it a viable business again, Aaron said.

"The company is profitable and we expect to have a successful emergence from bankruptcy," he said. "Internally, I feel that we're already there."

Company representatives have said that 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 is now in relatively good financial health except for several expensive lease agreements, they said.

Of the roughly 15 leases Realty Executives holds for various offices in the Valley, there are four in particular in which renegotiations with the property owners had broken down, making it necessary to file the bankruptcy petition, Aaron said.

A motion filed along with the bankruptcy petition most likely will allow Realty Executives to "reject," or walk away from, four of the 15 lease agreements.

Those leases include two Tucson offices, one in Peoria and another in north Scottsdale, which cost the company a combined $37,733 per month.

In exchange for breaking the leases, Realty Executives proposed adding the amount still owed on each lease, not to exceed 12 months' worth of payments, to the company's list of unsecured debts to be settled in the bankruptcy, which is standard.

The U.S. Bankruptcy Court generally gives debtors broad discretion to decide which lease agreements and other service contracts to reject or keep in a reorganization proceeding.

The other party to each contract has a right to claim damages, which may or may not be paid as part of the reorganization plan.

One of the company's landlords, Montana-based Saypo Cattle Co., filed a complaint March 31 in Maricopa County Superior Court alleging non-payment of lease and fraud.

Aaron has characterized the fraud claim as false and said there were problems with the north Scottsdale location and that Saypo had been unwilling to work out a deal.

by J. Craig Anderson The Arizona Republic Jun. 23, 2011 12:00 AM



Realty Executives files reorganization plan