Item 1.03: Bankruptcy or Receivership
On February 25, 2021, Fremont Hills Development Corporation ("FHDC" or
"Debtor"), a wholly-owned subsidiary of Gadsden Properties Inc. (the "Company"),
filed a voluntary petition (the "Bankruptcy Petition" or the "current case") for
relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the Northern District of
California (the "Bankruptcy Court"), Case# 5:2021bk50240. FHDC is the principal
operating subsidiary of the Company and owns the principal asset of the Company:
a mixed-use development known as Mission Hills Square (the "Mission Hills
Property") that is located in Fremont, California in the foothills of the San
Francisco Bay Area along Highway 680. The Mission Hills Property is planned to
offer 158 residential apartment units and more than 53,900 square feet of
commercial retail space.
FHDC had filed a voluntary petition for relief under chapter 11 of the
Bankruptcy Code on October 9, 2020 (the "prior case"). The automatic stay in the
prior case terminated on January 9, 2021 and the prior case was dismissed by the
Bankruptcy Court on February 16, 2021. A foreclosure sale for the Mission Hills
Property was scheduled to be held on February 26, 2021 by 2501 Cormack, LLC, the
holder of the first mortgage on the Mission Hills Property (the "Secured
Creditor"). During period of the prior case, FHDC and the Company worked on a
plan of reorganization, including a review of multiple options for the Mission
Hills Property such as refinancing the secured loan, a new money loan to
complete construction on the project, a sale of the Mission Hills Property, and
other strategic alternatives.
The Secured Creditor filed an Emergency Motion to Dismiss the Bankruptcy
Petition arguing, among other matters, that FHDC's "primary purpose" for filing
the Bankruptcy Petition was "…to circumvent or otherwise collaterally attack the
dismissal order in the [prior] case. That can never be anything other than an
abuse of the chapter 11 process and blatant, overt misconduct." A hearing on
this motion by the Bankruptcy Court was held on February 26, 2021.
The Company believes that FHDC adequately responded to the Secured Creditor's
motion. FHDC has requested the Bankruptcy Court dismiss the Secured Creditor's
motion on the condition that FHDC provide adequate protection payments of
$100,000 per month and that FHDC provide a Plan of Reorganization within 30
days. The Company believes on the basis of a July 2019 appraisal that was
provided by FHDC to the Bankruptcy Court, that the value of the Mission Hills
Property is greater than the amount owed to the Secured Creditor and that a
foreclosure sale is not in the best interests of the other creditors.
A subsequent hearing was scheduled by the Bankruptcy Court for March 16, 2021.
The Secured Creditor may file an amendment to its motion by March 5, 2021 and
FHDC may respond to such amended motion by March 12, 2021.
The foregoing is a summary of the arguments that were made by the parties in
documents that were submitted to the Bankruptcy Court by the Secured Party and
FHDC and are qualified in their entirety by reference to the full text of such
documents. A copy of the documents that were submitted by the Secured Creditor
to the Bankruptcy Court related to the Secured Creditor's motion are attached as
an exhibit to this filing and are incorporated in this Item by reference.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits
Exhibit No. Description of Exhibit
99.1 Emergency Motion to Dismiss Bankruptcy Case by Attorneys for the
Secured Creditor
99.2 Declaration of Paul Rahimian In Support of Emergency Motion to
Dismiss Bankruptcy Case
99.3 Ex Parte Application for Order Shortening Time for Service and
Hearing On Emergency Motion to Dismiss Bankruptcy Case by Attorneys for
the Secured Creditor
99.4 Declaration of Ori Katz In Support of Ex Parte Application for Order
Shortening Time for Service and Hearing On Emergency Motion to Dismiss
Bankruptcy Case
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