In a strongly worded decision, a U.S. Bankruptcy Court judge yesterday ordered the appointment of a trustee to oversee the personal bankruptcies of the owners of the defunct Bibelot book chain.
The decision means that the assets of Brian D. and Elizabeth G. Weese will now be managed by a trustee whose main responsibility is to creditors who are owed millions of dollars.
"If ever there was a case where a Chapter 11 debtor should be substituted for a trustee, this is that case," Judge James F. Schneider said in granting the creditors' motion to name a trustee after a hearing in U.S. Bankruptcy Court in Baltimore.
The Weeses, who filed for Chapter 11 reorganization early this year, also are defendants in lawsuits in Baltimore County and in the Cook Islands in the South Pacific. In both lawsuits, creditors allege that the couple fraudulently transferred assets to keep money out of creditors' reach.
Yesterday, Schneider said that there was no question that the Weeses' transfer of millions of dollars to offshore trusts in the Cook Islands "were for the purpose of hindering, delaying or defrauding creditors." He said the court "does not have confidence in the [Weeses]" to act in the interests of their creditors.
Naming a trustee in voluntary Chapter 11 filings is rare. It happens in about 5 percent of such cases, said Edmund A. Goldberg, a senior attorney for the Office of the U.S. Trustee, who supported the appointment of a trustee.
The Weeses owe about $15.5 million to Bank of America and roughly $10 million to other creditors that include Allfirst Bank, Community Banks NA and MART Ltd., according to court filings. Creditors forced the couple into involuntary bankruptcy last fall, but the court converted the cases to voluntary bankruptcies in January.
The Weeses, who attended the hearing yesterday, declined to comment.
Attorneys for the creditors met with the U.S. Trustee's office in Baltimore after yesterday's hearing to discuss selection of a trustee, who had not been named by the end of the day.
Bank of America gave Bibelot a $17 million loan in May 1999 -- an amount guaranteed by Elizabeth Weese, who at the time had a net worth of $41 million. Bibelot defaulted on the loan a year later, and when the bank tried to collect, according to lawsuits filed against the Weeses, it discovered that the couple had shifted more than $20 million of their personal assets to offshore accounts in family members' names. Bibelot filed for bankruptcy in March 2001.
In remarks yesterday, Michael G. Gallerizzo, attorney for Bank of America, told Schneider that a trustee was needed to monitor the Weeses' actions and ensure creditors' rights.
"To leave the reins of the Weeses' bankruptcies in their hands, your honor ... is basically to leave the fox in the chicken house," Gallerizzo said.
Morton A. Faller, the Weeses' attorney, argued that there hadn't been a decision by any court that said the Weeses transferred their assets fraudulently. Courts in the Cook Islands and in Baltimore County have issued injunctions preventing the transfer of funds from the trust, but a trial is still pending on the merits, he said.
Rather than appoint a trustee, the banks should continue to pursue lawsuits filed in the Cook Islands and in Baltimore County -- and not subvert those cases by wresting control of the personal bankruptcies from the Weeses, Faller said.
But the judge sided with the creditors. "We must reach the inescapable conclusion that a trustee must be appointed to find out where these assets are," Schneider said.