Update: EFI’s bankruptcy expectations
June 29, 2008
By KAREN VELIE
Estate Financial Inc. (EFI) will remain in bankruptcy for at least the next few months and at the same time independent evaluator Hanno Powell will continue his audit, the Fresno attorney said earlier this week.
A “complete evaluation” of EFI’s books was ordered during a June 16 San Luis Obispo Superior Court hearing. During that hearing, a group of investors requested the court appoint a receiver to oversee the company’s $170 million mortgage fund. A week later, the Department of Corporations, on behalf of the people of California, joined the plaintiffs in their request.
In an unrelated action, a group of creditors forced EFI into Chapter 11 bankruptcy proceedings in a Santa Barbara’s Central District of California United States Bankruptcy Court June 25. According to Powell, the bankruptcy proceeding would normally have canceled his evaluation, but he said this is not the case with EFI.
Under Chapter 11 bankruptcy, the court supervises the restructuring of the company and its debts, some of which can be partially or completely dismissed. Traditionally, the company comes out on top, followed by creditors, and then investors.
However, all creditors have a right to be heard by the court and receive fair and equitable treatment. As to EFI’s bankruptcy, investors may end up as creditors. EFI’s owners Karen Guth and Joshua Yaguda, if found responsible for the fund’s financial decline, may not fare well in the court proceedings.
“As the facts bear out, many investors may end up as creditors,” Powell said.
Two of the plaintiffs listed on the bankruptcy petition, James and Kathleen Scott, started as investors. However, the couple claims that because EFI failed to list them on the deed of trust on one loan and failed to pay them their proceeds on the sale of another, they are now creditors.
“No one can evaluate the effect on creditors until bankruptcy schedules listing all assets, liabilities, and creditors are filed with the court,” Powell added. “Because it is an involuntary bankruptcy, the schedule will probably take several months. I don’t know if anyone can give an accurate assessment of how this will affect the investors.”
Tags:, bankruptcy, EFI, Estate Financial, guth, paso robles, yaguda