New England Hermitage Club, VT, in the news.

[LegacyGT]

Link will not work, what the gestalt?

The gist is that someone paid $1 million for memberships and two parcels of land. In addition to the membership becoming essentially worthless, one parcel of land didn't really exist and the other had been sold to someone else. The judge ordered that the person be paid back the $million with adjustments for some expenditures from their house account and attorney fees. I don't know where the line is between simply running a business poorly and criminal behavior. But I feel like you tend to see criminal charges when organizations start selling assets that don't exist. I also find it interesting that the judge's ruling covered not just some portion of the $million that would have been attributed to the properties but the full amount which included the memberships themselves. If courts are going to take that position, we could assume that the entire membership may start looking for refunds.

Hermitage Club founder Jim Barnes and Hermitage Inn Real Estate Holding Company LLC have been ordered to pay a club member more than $1 million for breach of contract.

Judge Robert Gertey issued the order for default judgement for Douglas Hollenbeck of Rhode Island to receive about $1,000,975. Gerety said the evidence shows Hollenbeck paid $1 million for a club membership then bought five memberships as an investment with "a promise by defendants to convey one of two parcels of real estate."

"One referenced parcel has been sold to an apparently bona fide purchaser," Gerety wrote. The other "was not described in a manner that permits the court to make a finding of precisely what parcel of property was promised."​

 

[LegacyGT]

Link will not work, what the gestalt?

The gist is that some guy paid $1 million for memberships and two properties. In addition to the membership becoming nearly worthless, one of the properties didn't really exist and the other had been sold to someone else. The judge ordered that the guy be paid back the $1 million with some adjustments (down for money spent from house account and up to cover legal fees.) I'm no expert on these things but a couple things jump out at me.

First, this is the first I've seen where the behavior transitions from bad or reckless business decisions into criminal territory. Selling fictional assets can get you in trouble and this is the first evidence I've seen of that practice in this case. Perhaps, it's not as straight forward if the properties were "promised" rather than "sold" but it certainly doesn't look too good.

Second, the judge is ordering that the full $million be refunded. He didn't carve out a portion associated with the properties and indicated that even the memberships should be refunded. This would seem to open up the idea that every member is entitled to reimbursement.

 

[Wilhelmson]

Second, the judge is ordering that the full $million be refunded. He didn't carve out a portion associated with the properties and indicated that even the memberships should be refunded. This would seem to open up the idea that every member is entitled to reimbursement.

This struck me as odd. Perhaps the memberships and properties were bundled in one contract which made the memberships refundable.

 

[LegacyGT]

https://www.reformer.com/stories/hermitage-companies-file-for-bankruptcy,574889

Chapter 11 is upon them. The list of creditors is interesting as it does include some memberships (although it uses the term "membership investment" which may be a different category of membership). It's kind of amazing that all these people and organizations were in the process of being screwed but it took the state tax collection people to notice that something was amiss.

Also interesting that the restructuring plan includes getting at least 65% of the existing membership to start paying dues again. I wonder if they have any indication that this is realistic.

 

[LegacyGT]

So here is their plan:
https://www.reformer.com/stories/hermitage-club-plan-focuses-on-company-being-publicly-traded,575226

For what it's worth, I have been one of the few willing to give this endeavor the benefit of the doubt. I have not been on board with the direction, strategy, decisions, etc. But I have believed that there may be a way to make a private club work at this property with a different, more focused approach (likely with new ownership/management). This plan does not indicate any of that. Moreover, it contains a number of concepts that pretty much have to make you laugh:

• Public company
• Board members will represent groups of people with labels like "$100,000 Equity Club" and "Barnstormer Summit Lift"
  
• Swift acceptance from a majority of creditors
• They have secured $1.75 million loan to assist in restructuring
  
• Reopen in 60-90 days
• Members must begin paying their annual dues right away
  
• Hermitage Club Foundation, which would "further meet the philanthropic needs of the Deerfield Valley community," using "free cash flow after the planned retirement of the senior debt in year five."

So this management team, with it's history of special deals, on-offs and ponzi behavior is going to be able to operate in a transparent way? Creditors will approve this? Members will begin paying dues before the reorganization is fully outlined? $1.75 million is going to help when as recently as last week a judge ordered that they had to pay a member $1 million and there must be dozens of other similar cases? There will be a philanthropic foundation? This all requires so much good faith, little of which has been earned.

 

[LegacyGT]

The Chapter 11 plan proposed a few weeks ago was laughable. That was clear, even from the outside. It appears that someone on the inside agrees: https://www.reformer.com/stories/he...-citing-unworkable-reorganization-plan,576958

 

[LegacyGT]

Can it get any worse? Hermitage management presented a Chapter 11 restructuring that was hard to take seriously. They provided the details on their site and have posted videos on youtube that promote the plan as a better alternative for creditors than the Chapter 7 petition that had been filed against them. Well now it turns out that they have committed two separate violations. The release of the plan itself and the attempt to generate support for it among shareholders and creditors are both illegal.

https://www.reformer.com/stories/us-trustee-criticizes-hermitage-plan,579174

 

[Dee]

Here is the said illegal promotion of of the reorganization plan behind the court’s back:

https://hermitageclub.com/member-news/

I’m surprised it’s still up on the website after the slap-down by the trustee for posting it in the first place

 

[LegacyGT]

I’m surprised it’s still up on the website after the slap-down by the trustee for posting it in the first place

And they've got these on Youtube (one video outlines the reorganization plan and the other tries to show how it's better than the alternative):

 

[LiquidFeet]

https://www.reformer.com/stories/receiver-to-be-replaced,580864
Friday stuff happened in court. Chapter 11 bankruptcy was converted to Chapter 7. The receiver was replaced. Liquidation of assets is expected to follow.

'Following a hearing Friday, Judge Colleen A Brown said the U.S. Bankruptcy Court for the District of Vermont found cause to convert the cases "due to the continuing loss and diminution of the debtors' estates and the absence of a reasonable likelihood of rehabilitation; the debtors' gross mismanagement of the estates; and the debtors' failure to maintain insurance."
Her order is expected to trigger the start of a process for selling off Hermitage assets.
"The court finds that it is in the best interest of creditors that these cases be converted," Brown wrote in an order issued Tuesday. "Upon appointment of a Chapter 7 Trustee by the Office of the United States Trustee, the receiver, Alan Tantleff, will be relieved of his duties in these cases and the Chapter 7 Trustee will take over such duties."'

 

[LegacyGT]

https://www.reformer.com/stories/receiver-to-be-replaced,580864
Friday stuff happened in court. Chapter 11 bankruptcy was converted to Chapter 7. The receiver was replaced. Liquidation of assets is expected to follow.

Hard to see this getting resolved in any reasonable amount of time. These things always have a variety of parties with conflicting interests but in this case the conflicts are pretty extreme. The group that "owns" the new chairlift might be able to sell it and get back a decent share of their money. But for the bank which holds the largest amount of the debt they probably want to keep the resort intact and losing an asset like the summit chairlift make the resort less valuable. And who would want to buy the resort when it might include the tangled mess of real estate obligations in various stages of development?

So Vail is in the process of purchasing neighboring Mt Snow. I wonder if they look into purchasing The Hermitage. It could make the luxury model work. There's been much discussion here about the causes of the Hermitage Club's failures but one sticking point has always been luxury cachet. There's a class of luxury customer who may have been reluctant to join the Hermitage Club that might take another look if it were marketed as some Eastern affiliate of Vail.

 

[LegacyGT]

Bankruptcy courts must be very familiar with balancing competing interests. But there's some indication here that we will be watching a circular firing squad. Now the people who loaned the money for a chairlift are accusing the bank of fraud.
https://www.benningtonbanner.com/stories/bank-accused-of-defrauding-chairlift-investors,582588

 

[James]

They put in a six pack bubble there? And people got together and loaned nearly $8million to do it?
Just an incredible waste of money.

 

[S.H.]

They put in a six pack bubble there? And people got together and loaned nearly $8million to do it?
Just an incredible waste of money.

It's a really nice lift though.

 

[James]

It's a really nice lift though.

Maybe Magic could get it for 30 cents on the dollar. Still too expensive.

 

[LegacyGT]

They put in a six pack bubble there? And people got together and loaned nearly $8million to do it?
Just an incredible waste of money.

It's pretty amazing that they got some members to fund the lift without raising a million red flags. It is a very nice lift. Unfortunately, given the terrain of Haystack mountain, it only spends about 75% of the ride actually gaining vertical.

 

[James]

It's pretty amazing that they got some members to fund the lift without raising a million red flags. It is a very nice lift. Unfortunately, given the terrain of Haystack mountain, it only spends about 75% of the ride actually gaining vertical.

No doubt it’s nice. They’d probably have been better off buying a $2million dollar yacht on the coast and running that for members.

 

[LegacyGT]

The court has approved a sale of the Hermitage Club's snowmaking equipment (directly to the owner of Mt Snow if not by auction) later this month. If this is the way things are going to go, it's hard to see the Club reopening in any form. And it's hard to see the creditors and other parties getting more than pennies on the dollar. I don't know what the club would be worth intact without the tangle of debt and legal issues, or even if such a restructuring could have been possible. But the parts have to be worth a lot less than the whole. Management/ownership had a chance to put forward a good faith plan but it was clear that they were simply looking to double down on their bad decision making and strategy. Now we're left with a circular firing squad and all interested parties are making it worse for everyone.

 

[x10003q]

Old Eastern adage: No snowmaking = no skiing.

 

[James]

Maybe people involved with Ascutney could buy the chairlift. Kidding, sort of.