Hearing set for Naniloa bankruptcy case

By JOHN BURNETT

Tribune-Herald staff writer

The Honolulu attorneys for the bank which loaned Ken Fujiyama’s bankrupt Hawaii Outdoor Tours Inc. $10 million for construction at Hilo’s Naniloa Volcanoes Resort are alleging the company violated an interim court order allowing it to use cash collateral of secured creditors in its operations.

A hearing is scheduled for Monday morning before U.S. Bankruptcy Judge Robert Faris in Honolulu to decide whether the company can continue using the cash collateral, as well as to decide other issues surrounding HOT’s Chapter 11 reorganization filing.

Attorney Ryan Hamaguchi has filed an objection on the use of cash collateral on behalf of First-Citizens Bank & Trust Co. of North Carolina. In his document, dated Dec. 10, Hamaguchi alleges that the company “violated the terms of interim cash collateral order on multiple separate occasions.”

“I don’t think we did anything wrong,” Fujiyama said on Friday.

“My attorneys are responding to that before that hearing.”

One of the alleged violations is a $10,000 company check payable to “cash” dated Nov. 28. The document alleges the bank “requested a detailed accounting … for the disbursement of the cash from the $10,000 check” and that the company “has failed to provide First-Citizens with any receipts or documentation to trace the use” of the $10,000.

Another alleged violation of the order is two checks made out to “Lee Harlow-General” for $3,452.75 and $740.65. The document states the checks violate a provision ordering the company to “withhold compensation or other payments to insiders of the Debtor.” Harlow is Fujiyama’s wife and the company president. According to the filing, HOT “has refused to make a demand on Ms. Harlow for refund” of the money.

An attached Dec. 6 email to Hamaguchi from Neil Verbrugge, the Honolulu attorney representing the Naniloa, states that “the payments to Lee Harlow are reimbursement for ordinary operating expenses of the hotel, and the $10,000 payment is to establish a cash account for vendors of the hotel who are requiring C.O.D. in order to deliver to the hotel necessary items for operations.” Verbrugge also stated that Hamaguchi was “provided documents supporting these payments.”

In addition, the court filing states that the hotel’s daily cash report for Dec. 7 lists a $6,000 disbursement to “Hawaii Hotel Consult.” The document states that the “$6,000 disbursement is not on the budget, … and therefore, the payment is not authorized.”

The bank’s attorneys also allege that HOT has not complied with the court’s order to produce all documentation by a Nov. 30 deadline. The document states that Fujiyama’s company produced 2,934 pages of documents on time, and an additional 1,874 pages of documents late, leaving insufficient time to examine the hotel’s “poor financial condition due to debtor’s late turnover of books and records and voluminous production of documents.”

Other allegations include deficiencies in cash flow projections, projected revenues, and that there was an unexplained increase in projected monthly payroll from $92,500 in December 2012 to $124,00 in April 2013, and that the budget doesn’t include a $250,000 lease payment that was due to the state in August. The document states that there is a budgeted item for lease rent payment in January 2013, but none in February, when the next $250,000 payment is due.

The document also alleges that the hotel has paid “insiders of debtor” more than $160,000 during the past year, “while failing to pay, among other things, its secured creditors, necessary taxes and expenses, and the state lease rent.” The bank’s attorneys are objecting to a motion by the hotel for an order authorizing payment of pre-petition wages and other employment-related costs and expenses and to honor pre-petition employee benefits. The reason, according to the document, is that the company is seeking “to make … payments to insiders of the debtor.”

In addition CEO Fujiyama and Harlow, Fujiyama’s daughters, Kristie Fujiyama-Kosmides and Nicole Fujiyama, are the only listed officers of the corporation on the state Department of Commerce and Consumer Affairs website.

The bank is also objecting to the company’s use of secured creditors’ cash collateral to pay lawyers, stating that HOT’s attorneys are “apparently holding a retainer balance” of almost $39,500.“Debtor’s counsel accepted employment in this case with a full understanding of the risks of non-payment of legal fees,” the document states.

First-Citizens sued to foreclose on the loan in August, claiming that Fujiyama’s company was in default and owed more than $9.9 million on the loan. The bankruptcy staves off, at least for now, foreclosure proceedings in Hilo Circuit Court.

The bankruptcy petition claims debts of between $10 million and $50 million. The company is also claiming assets of between $50 million and $100 million.

“All we’re talking about is the Naniloa,” Fujiyama said. “It doesn’t include other assets. … The company owns the improvements to the buildings and all of that. The state owns only the land.”

Fujiyama acquired the 382-room Naniloa and its nine-hole golf course in a 2006 auction for a 65-year lease of the state property with a bid of $500,000 a year. The lease also required Fujiyama to pay $6.1 million to the previous lessee, a Japanese firm.

The foreclosure suit alleged that Fujiyama owed the state $760,000 in lease rent, but Verbrugge said last month that Fujiyama disputes the amount owed.

Fujiyama’s financial woes with Naniloa Volcanoes Resort come on the heels of his sale of the Nani Mau Gardens in March. Foreclosure proceedings on the Nani Mau property — 53 acres including a botanical garden and restaurant — alleged Fujiyama was in default on $3 million in loans to acquire the property.

Neither Hamaguchi nor Verbrugge returned calls seeking comment in time for this story.

Email John Burnett at
jburnett@hawaiitribune-herald.com.