A frustrated federal bankruptcy judge removed the management of Silver Airways on Tuesday and ordered the appointment of a trustee after a fresh series of missteps clouded the sales prospects of the company’s affiliated carrier in the Caribbean.
U.S. Bankruptcy Judge Peter Russin, whose patience has been tested frequently since Silver and Seaborne Airlines filed for Chapter 11 bankruptcy protection last Dec. 30, took the action after it became evident that Silver’s management had little to offer in the way of information about a prospective buyer for Seaborne.
A fractured presentation in Russin’s Fort Lauderdale courtroom about Seaborne’s main suitor — Nella Airlines — seemed to be the last trigger for the judge, who has complained throughout the case that Silver has been short on factual information at key moments and the source of too many surprises.
Russin said the U.S. Bankruptcy Code authorized him to use his discretion to find that the appointment of a trustee to essentially wind down the bankruptcy cases of both companies was warranted.
Among the key points:
- The surprise June 10 shutdown and stranding of hundreds of passengers by Silver just as the company was about to be sold as a turnkey operation to an affiliate of Wexford Capital of West Palm Beach and Connecticut.
- The 11th-hour pullback by the affiliate, Argentum Acquisitions LLC, from the original deal that envisioned Silver management operating the carrier until the buyer obtained the necessary regulatory approvals
- The loss of an estimated $1 million in revenues in late May after the Federal Aviation Administration ordered the carrier briefly closed because of outdated battery kits on the airline’s turboprop planes. The unexpected financial loss was the reason for Argentum’s decision to modify the deal so that it did not include operating the airline.
For all of the above, the judge had little or no advance notice about what was transpiring.
And on Tuesday, after lawyers gathered in court to discuss an auction process for Seaborne Airlines, a small seaplane operation that serves the U.S. Virgin Islands, information about the proposed “stalking horse” bidder, Nella Airlines, seemed equally fleeting.
No one from Silver was in possession of documents such as bank statements that would have provided evidence that Nella, a company with Brazilian roots and offices in Orlando, has the financial wherewithal to cover a $200,000 offer that would serve as a baseline offer for an auction next week.
CEO Steven Rossum was called to the witness stand to vouch for the company’s financial standing. But Rossum said he did not have any documents regarding Nella to show the court. Neither did his company’s lead lawyer, Brian Hall. And the Silver chief financial officer, who was expected to be in court with documents, was a no-show.
“I mean, really?” Russin declared. “Honestly, this is bordering on the inept!”
The hearing also generated another surprise: Tampa lawyer Nathan Wheat, speaking over Zoom, said his client, Ballair Aviation Holdings of Lauderdale-by-the-Sea, had been trying to make a bid for Seaborne but failed to make an impression on management.
In open court, a brief argument ensued between a man in the gallery associated with Ballair and Hall, the Silver lawyer, over what had transpired previously.
Russin shut down the exchange, declaring it “out of order.” And during a recess, Hall and the man revived discussions outside the courtroom about a bid from Ballair.
Reached by telephone in Tampa, Wheat declined comment.
Hall also declined comment, and Rossum left the courtroom without commenting.
But now, it appears that Seaborne has two apparent competing bidders: Nella Airlines and Ballair Aviation.
But will an auction occur?
Whether any bidding takes place may hinge on the original “white knight” for Silver, Argentum. Attorney Michael Shiner, who represents Wexford and Argentum, reminded the court via Zoom that under a just-closed deal to buy Silver for $5.775 million, Argentum has the right to take possession of Seaborne if no sale of the seaplane operation has occurred.
There are other unresolved issues.
Miami attorney Barbra Parlin, who represents the owner of Seaborne’s sole leased seaplane, said she had not heard from management about any auction plans. Moreover, she said, the lease is up in October and her client has no desire to renew it with Seaborne.
As for Nella Airlines, she said: “It doesn’t exist — it’s an idea of a possibility that may be something.”
Employees plead for help
Once again, the court proceedings were closely watched by multiple laid-off Silver employees, all of whom have filed claims for back pay after having their salaries abruptly cut by 45% in the days leading up to the airline’s shutdown. Most of the claimants — flight attendants, pilots and ground workers — have written emails to the judge discussing their plight.
In court, Russin heard from one flight attendant — Maria Salinas — who said she was owed $6,411. “I don’t know how I am going to get my money back,” she told the judge, asking for his help.
“The reality of this case is that currently there is no money,” Russin replied.
Russin said he hopes all of the issues — the Seaborne sale, the back pay claims of employees, and the future of Seaborne’s only aircraft — can be expeditiously taken up by the trustee, who he hopes will be retained this week with the help of the Office of the U.S. Trustee.
Companies will remain in Chapter 11
As far back as April, it was the U.S. Trustee’s Office that raised serious doubts about Silver’s ability to sustain and restructure itself through a Chapter 11 proceeding. Although it filed a motion to convert the case to a Chapter 7 liquidation, the judge elected to go through an auction process in the hopes of raising cash for creditors of both airlines.
At the hearing’s end Tuesday, several lawyers and the judge agreed that the cases should remain in Chapter 11, as there is little or no track record for successfully selling an operating airline through a Chapter 7.
Russin set another hearing for Thursday, expressing hope that a Chapter 11 trustee will be in place by then.
Originally Published: