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How does a company with $69.8 million in assets and only $9.2 million in liabilities end up filing for Chapter 11 bankruptcy protection? The answer is crime doesn’t pay, especially when you get caught hiring a hit man to make someone “stop breathing.”

An Offer A Creditor Can’t Refuse…Unless Someone’s Wearing a Wire.

Daniel Dvorkin, a local developer who was formerly in charge of Dvorkin Holdings LLC, was arrested in July after telling a federal informant that he would pay $100,000 for the informant to find a hit man that would make sure one of his creditors would sleep with the fishes. The cooperating witness was wearing an audio and video recording device for several of the conversations with Dvorkin. The target was an attorney who owned a corporation that had recently won an $8.2 million judgment against Dvorkin.

As the allegations against Dvorkin spread, Dvorkin Holdings filed for Chapter 11 bankruptcy protection in August. Despite the apparently strong balance sheet indicators (almost 70 million in assets against just 9 million in liabilities), the venture’s debts will almost surely rise as unsecured creditors will file foreclosure suits demanding what they are owed amidst Dvorkin’s legal mess.

Dvorkin Holdings owns stakes in properties across Chicagoland, including a large medical office building in Palos Heights and a commercial building in Lakeview. One of the venture’s largest projects, a 250-unit condominium building, was repossessed in 2010.

Back to (Bankruptcy) School

Chapter 11 bankruptcy protection is most commonly used by businesses, though individuals can also seek it under certain circumstances. A Chapter 11 is more advantageous than a Chapter 7 bankruptcy because the debtor can still operate the business under the supervision of the Bankruptcy Court, just with a reorganized payment plan to its creditors. Under the Bankruptcy Code, a trustee, normally the debtor, executes the Chapter 11 plan under the guidance of the Court. A Chapter 7 bankruptcy is a total liquidation of assets and means the business stops operating.

For Dvorkin Holdings LLC, the Chapter 11 buys the company time while Dvorkin’s legal proceedings play out. The Court may allow the debtor company to cancel certain contracts, or most importantly litigation against the company can be put on hold. For Dvorkin Holdings, this is a considerable advantage as many unsecured creditors are demanding payment for what they are owed. The creditors are obviously concerned that Dvorkin’s criminal proceedings will undermine the future of the LLC.

The Creditor Strikes Back

The company’s creditors are not simply rolling over for the Chapter 11 however. One of the creditors, Ohio-based FirstMerit Corporation, is seeking a separate and independent trustee for Dvorkin Holdings. Alluding to Dvorkin’s criminal charges, FirstMerit raised these concerns in their court appearance in conjunction with the Chapter 11. Under the Bankruptcy Code, all creditors are allowed to have their day in court to challenge the Chapter 11 plan.

A separate and independent trustee is someone who was not previously associated with the company. Considering the dastardly allegations against Dvorkin, FirstMerit has little faith that the company would act rationally if it were its own trustee, “(the creditors cannot) possibly be expected to have any confidence that (Dvorkin Holdings) is acting in their interests in light of these drastic allegations.” Dvorkin Holdings is owned by Daniel Dvorkin, his wife Francine, and their children. Under the Bankruptcy Code, a separate and independent trustee can be appointed if a creditor shows cause, which is legalese for strong rationale that the debtor will not operate the business rationally if it is its own trustee.

Crime Doesn’t Pay

While Daniel Dvorkin awaits trial, the future of Dvorkin Holdings and its Chapter 11 plan is murky. The Bankruptcy Court will have a challenge on its hands handling aggressive creditors hoping to get their money back before Dvorkin himself potentially heads to jail. Furthermore, whether Dvorkin is convicted or not, it would difficult to imagine the company’s reputation and business prospects will not be unsullied by the ordeal. On top of those headaches, Dvorkin Holdings will try to gain the best deal possible in part by arguing that Dvorkin is still innocent until proven guilty. Dvorkin’s lawyer has repeatedly stated his client’s innocence.

Is your business struggling? Are you staying above water but simply need extra time for business to pick up? Contact M. Hedayat & Associates today-we have been Chicago experts in all forms of bankruptcy as well as real estate and business law for nearly two decades.

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