By Tracy Record
West Seattle Blog editor
The newest development in the AllStar Fitness Chapter 11 bankruptcy and proposed sale: We heard today from multiple club members who reported receiving a copy of these court documents for a motion asking the federal bankruptcy judge to allow the cancellation of contracts purchased before the bankruptcy proceedings started last August.
Other court documents we have since obtained online say that would mean a cancellation of more than 2,100 contracts for the North Delridge club.
Those documents explain that Chapter 11 bankruptcy trustee Richard Hooper believes:
… the Club’s balance sheet has been hampered by the Debtor’s longstanding practice of selling long-term membership as significant discounts. A practice which the Trustee ceased in the interim period of his appointment. It was often the case that the Debtor would offer members reduced monthly rates in return for prepaying 6 or 12 months at a time. The Debtor would further discount these pre-paid memberships by offering an additional 6 or more months free of dues as an additional incentive for prepaying the already reduced rate. As sales of these prepaid membership slowed, the Debtor’s ability to meet its ongoing obligations suffered greatly. It appears from the Debtor’s financials that it relied heavily on these prepayment to meet operational and other needs…
The court documents say the trustee does want to:
(1) assume and assign to the buyer the contracts of those members on month-to-month contracts and those members on prepaid long term memberships who purchased those membership AFTER the start of this bankruptcy case on August 27, 2013, and (2) to reject and terminate the contracts of the remaining long term prepaid members upon the sale of the Club to the buyer. The Trustee believes that the proposed sale and assumption/assignment and rejection of contracts is in the best interests of the estate and its creditors because (i) this is the highest and best offer received by the Trustee to date, and (ii) the Club is currently unable to fund its ongoing operations and the costs of these proceedings.
2013 is what the document says, but the case actually started in August 2012. One member – who bought memberships just weeks before the bankruptcy filing – wrote, “A number of us will lose a substantial amount of money if existing prepaid memberships are terminated by the court. Longtime members of the gym, my partner and I purchased three-year membership renewals (the offer: pay for two years, get another one free). … Is it really too much to ask that the new owner honor existing memberships until they expire — if only as investment in future loyalty and to build goodwill and positive word of mouth in the West Seattle community?”
Meantime, the additional court document we downloaded tonight has details on proposed sale terms – including:
The Buyer proposes to purchase the Transferred Assets for a purchase price of $75,000 pursuant to the terms of the Agreement. Title to the Transferred Assets shall be conveyed without warranty as to title after the Trustee obtains an order from this Court approving the sale free and clear of all liens. As part of the Agreement, the Buyer will assume all of the month-to-month memberships in good standing as of the entry of the Sale Order, as well as all post-petition prepaid Club memberships listed on Schedule 1.1(b) (the “Assigned Contracts”). The Buyer will not be assuming the pre-petition long term member contracts and the Trustee will be rejecting these contracts (the “Rejected Contracts”).
It is pointed out in that document that the current club owners do not own the real estate, so in addition to the expense of buying the assets, the new owner has to negotiate a lease.
The documents say a hearing is planned at the federal courthouse before Judge Karen Overstreet at 9:30 am March 22nd; the sale, to a company owned by former Seahawks player Sam Adams, will be approved, the documents say, if nobody challenges it.
Another hearing set for April 5th – mentioned in the document members just received – is aimed at seeking permission to limit hearing notices from hereon out:
The Trustee is also seeking an Order from the Court to limit his obligation to provide all members and creditors notice of future motions and hearings in this case because of the significant expense of such notices, the Club’s inability to fund its ongoing operations and the cost of these proceedings, and the high likelihood that unsecured creditors will not receive distribution from this case. The Trustee is proposing that he only be required to provide future notices to: (1) all creditors appearing on the Debtor’s schedules; (2) those persons filing proofs of claim on or before April 5, 2013, and (3) those persons filing requests for special notice on or before April 5, 2013.
The court documents include instructions on when and how to send letters challenging either of the above, if you are interested.
Meantime, we’ve been trying to reach prospective new owner Sam Adams for comment (even before this development) and will continue to follow up as the case, and sale, proceed.
SUNDAY, 10:30 AM: Just talked with Sam Adams. He says he expects to honor “99 percent” of the 2100 aforementioned contracts but not those he described as “illegal” – very-long-term contracts (3 or more years, he thought) including those that resulted from investment money given to the longtime owners as they proposed a new club on the Eastside. Separate story to come within a few hours with details from our conversation, including Adams’ plans to renovate what he confirms will be renamed West Seattle Athletic Club.
SUNDAY, 9:31 PM: Here’s the link to that story.
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