In an unusual move, a major creditor of the defunct Bibelot book chain has asked a U.S. bankruptcy judge to appoint a trustee to oversee the personal bankruptcy cases of the chain's owners.
A trustee would protect the creditors because the owners, Brian D. and Elizabeth G. Weese, have always intended "to prevent [their creditors] from reaching the assets that were fraudulently conveyed" to an offshore trust, according to papers filed this week by Bank of America in U.S. Bankruptcy Court in Baltimore.
The bank, which is owed $15.5 million by the Weeses, argued in the filing that the couple shouldn't administer their own bankruptcy estates while they fight lawsuits to keep millions of dollars they transferred to an offshore trust in the Cook Islands in the South Pacific.
Bibelot filed for bankruptcy in March 2001 with more than $20 million in debt - most of it owed to Bank of America. The bank had given the bookstore chain a $17 million loan that was personally guaranteed by Elizabeth Weese, who had a net worth of $41 million at the time.
The company received the Bank of America loan in May 1999 but defaulted about a year later. When Bank of America tried to collect, it discovered the Weeses had shifted more than $20 million to a Cook Islands trust several months before the chain declared bankruptcy, lawsuits against them alleged.
The creditors filed involuntary bankruptcy petitions against the Weeses last fall. The couple filed their own voluntary bankruptcy petitions under Chapter 11 in January, and the bankruptcy judge consolidated the cases later that month.
Appointing a trustee in a Chapter 11 case is an exception rather than a rule, said Charles Shafer, a law professor at the University of Baltimore School of Law.
"The norm in a Chapter 11 is for the debtor to stay in control of the property and come up with a plan" that will pay off the creditors, Shafer said. The statute allows for a trustee appointment only if there's fraud, dishonesty, incompetence, or gross mismanagement, he said.
"One of the things that the debtor [in Chapter 11] is supposed to do is reverse fraudulent conveyances," added Shafer. The Weeses are accused of fraudulently conveying assets to the Cook Islands trust.
An attorney for the Weeses did not return a phone call seeking comment. Lawyers for Bank of America declined to comment.
Bibelot opened its first store in Pikesville in 1995 and grew to operate four stores in the Baltimore metropolitan area. But the independent bookstore chain stumbled and, by 1999, faced increased competition from national chains.
Other creditors include Allfirst Bank, Community Banks NA and MART Ltd., which are collectively owed approximately $10 million, the filing said.
Bank of America also has lawsuits pending in Baltimore County Circuit Court and in the Cook Islands, and has received injunctions in both venues that bar the Weeses from moving the funds.
The Baltimore County case is scheduled for trial May 13, though attorneys may seek to extend the start date. The Cook Islands lawsuit is expected to go to trial in the fall.