Naniloa Staves Off Foreclosure With Bankruptcy Filing

The parent company of the Naniloa Volcanoes Resort filed for bankruptcy this morning.

The filing in US Bankruptcy Court in Honolulu puts at least a temporary halt to a bank’s effort to foreclose on the landmark property on Hilo’s Banyan Drive.

The announcement of the Naniloa’s bankruptcy filing came at a hearing scheduled for this morning in Hilo’s Third Circuit Court.

Speaking by teleconference from Honolulu, the attorney for the bank seeking foreclosure told Judge Greg Nakamura that the bankruptcy petition was filed 15 minutes before the foreclosure hearing.

At the hearing, Nakamura was to rule on a motion filed by the hotel’s primary creditor to appoint a receiver to take over management of the Naniloa.

First-Citizens Bank and Trust, which holds the mortgage on the hotel and nine-hole golf course, is seeking to have the resort placed into receivership because of what it said is “continued mismanagement” by owner Ken Fujiyama.

According to Ted Pettit, the bank’s Honolulu-based attorney, the bankruptcy filing puts an automatic hold on the receivership motion.

Ken Fujiyama. Facebook photo.

The resort has filed for Chapter 11 bankruptcy, which involves reorganization of the company and its debts, as opposed to Chapter 7 filings, which are designed to liquidate the business’ assets.

Pettit said a hearing is scheduled for Wednesday morning in Honolulu on what are known as “first-day” motions, which usually include whether the court will grant the business the authority to continue operations.

“We will obviously be participating in the Chapter 11 proceedings,” he said.

Those proceedings, which for a business of this nature could take a year or more to complete, include the court’s determination of whether the “debtor in possession,” in this case Fujiyama’s company, Hawaii Outdoor Tours, Inc., will be allowed to continue to operate the business.

In some Chapter 11 cases, the court appoints a trustee to manage the company during the bankruptcy proceedings.

Pettit said he had no comment on that matter at this time.

The bankruptcy petition filed by Neil Verbrugge, an attorney in the Honolulu law firm of Wagner Choi and Verbrugge, said the Naniloa has assets estimated in value from $10 million to $50 million. It said it also owes the same amount to between 50 and 99 creditors.

Previous court filings indicate that Fujiyama, who took over the property in 2006, owes North Carolina-based First-Citizens Bank and Trust $9.9 million in principal and interest on what was originally a $10 million loan.

Today’s filing lists Naniloa’s 20 largest unsecured creditors. They include more than $169,000 owed to Hawaii Electric Light Co., $32,656 to EZ Computing in Keaau and $32,251 to Marian Thornton, trustee of the Eleanor Rose Benda Trust in Carrollton, Texas.

The next biggest unsecured creditor is the Hawaii County Wastewater Division which is owed more than $32,000, followed by $25,691 owed to the county Department of Water Supply, $20,267 to Hawaiian Telcom and $20,000 to Hirayama Bros. Electric, Inc.

It said Naniloa owes lesser amounts to various companies including the Thyssenkrupp Elevator Corp., the Ashford and Wriston law firm in Honolulu, Rainbow Isle Refrigeration in Hilo, Oceanic Time Warner Cable and the Hawaii Employer’s Mutual Insurance Co., on down to $731.24 owed to Paradise Beverages.

The filing goes on to list 52 businesses and agencies owed money.

They include the state Department of Land and Natural Resources, to which Naniloa recently went into default on a $250,000 semi-annual payment on its lease for the state land under the resort and golf course.

Fujiyama has defaulted on lease payments several times before, and the state has filed numerous liens against the property.

It also includes the county’s Real Property Tax Division, which according to court filings is owed about $392,000 in back taxes on the seven parcels of land on which the resort is built.

Court documents say the resort also owes the state $401,000 in hotel room taxes and about $100,000 in general excise taxes.

The latter is the reason the resort’s liquor license was put on inactive status in July.

The failure to make numerous lease payments and to pay taxes was among the reasons cited by First-Citizens Bank to have control of the resort taken over by a court-appointed receiver.

The bank’s filing also seeks to stop the “diversion and misappropriation of hotel and golf course revenue” by Fujiyama.

According to documents on file with the DLNR’s Hilo office, gross revenues for the resort’s operation in 2011 totaled $3.7 million, including $2.9 million from room revenues and $195,000 from the golf course.

The documents said $379,000 in revenues came from the hotel’s restaurant, which is no longer in operation.