Creditors mull impact of Carinalli bankruptcy

<p>If real estate tycoon Clem Carinalli is forced into bankruptcy, it could trigger legal actions that might delay loan payments to Exchange Bank and possibly other institutions.</p><p>But Exchange Bank President William Schrader said Tuesday he’s “confident” Carinalli eventually will pay back about $5 million that he owes the bank.</p><p>“Ultimately, we would be confident that we would get our dollars, but a bankruptcy action could affect the timeliness of getting those payments,” he said. “We are getting them on a monthly basis.”</p><p>Carinalli, who owes about $150 million to creditors, said he was hoping to avoid bankruptcy and instead negotiate privately with investors, saying that would increase the odds of paying people back.</p><p>But on Monday, a group of investors who say they are owed almost $1 million, including former Santa Rosa Symphony conductor Corrick Brown, filed papers seeking to force Carinalli into Chapter 7 bankruptcy proceedings.</p><p>The petition will affect not just the investors who filed the papers in U.S. Bankruptcy Court in Santa Rosa, but could eventually encompass the claims of all of the approximately 50 creditors that are owed money by Carinalli.</p><p>Support for the bankruptcy filing was difficult to assess Tuesday. A half-dozen Carinalli investors declined to comment Tuesday and more than a dozen did not return telephone calls.</p><p>Some had supported Carinalli’s efforts to reorganize his finances outside of bankruptcy, while others had been concerned that they were not on the list of creditors continuing to receive payments.</p><p>Greg Wick, whose mother, Marian Wick, is owed $117,900 for her share of a 2003 land deal in southeast Santa Rosa, said he lacks the financial expertise to know whether the bankruptcy petition is a positive development or not. But he said the action has made him more anxious about the prospects of recouping the money.</p><p>Carinalli never repaid the loan to Wick’s mother and by June had stopped making the 4.25 percent annual interest payment. Wick said the medical bills related to his 96-year-old mother’s treatment for Alzheimer’s disease continue to rise.</p><p>“We’re getting broke over here,” Wick said from Maui, where he and his mother live.</p><p>Steve Huntley, a debt restructuring consultant hired by Carinalli to negotiate with creditors, did not return a call Tuesday seeking comment.</p><p>Under the private repayment plan Carinalli had proposed, creditors have no say or visibility into who gets repaid, how much money they would receive, or when they are paid, said Doug Provencher, the attorney representing several members of the Brown family.</p><p>Many of these investors, Provencher said, are senior citizens “who are not able to see his books, and even if they were, the majority of them are not real estate investors. They don’t even know which questions to ask or what they are looking at.”</p><p>Carinalli previously said a Chapter 7 filing, which could lead to the immediate liquidation of his assets, would be a “total disaster.”</p><p>Provencher, however, said he expects the court will allow Carinalli to convert the case to a Chapter 11 bankruptcy, which would allow him to reorganize his debts and not simply liquidate his assets. Converting the case to Chapter 11 would give Carinalli more time to try to settle his debts, he said.</p><p>“The theory under Chapter 11 is that everyone works together for the best result and the most money,” Provencher said.</p><p>Carinalli owes about $50 million to individuals and about $100 million to banks and other institutions. That includes $3.6 million Carinalli borrowed from Exchange Bank in October in return for a deed of trust on two of his commercial properties in Santa Rosa, including the building on Mendocino Avenue that houses Community Market, The Last Record Store and Govinda’s Restaurant.</p><p>To receive the loans, Exchange Bank required Carinalli to sign an additional document that entitled the bank to ongoing inspections of his business financials. The documentation gives the bank full annual access to Carinalli’s balance sheets and profit-and-loss statements during the course of the loan contract.</p><p>Schrader said the bank’s investments, which he called “well-secured,” place Exchange Bank in a different situation than individual investors.</p><p>“I think certainly we have a great deal of respect for the Corrick Brown family and the Carinalli family,” he said. “We hope that the investors’ group and others can find a situation they are comfortable with.”</p>