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VIRGINIA TRUE: Up to 87% for Unsecureds in Diatomite Plan

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Diatomite Corporation of America, filed a proposed Chapter 11 Creditor Plan of Liquidation for debtor Virginia True Corporation.

In April 2017, Debtor acquired from Diatomite a 977-acre parcel of undeveloped land located within the environmentally-protected Fones Cliffs area in Richmond County, Virginia (the “Property”), with the intent to develop a resort and build a hotel, luxury condominiums, housing, a golf course, a commercial village, and attendant amenities. At closing, Virginia True paid Diatomite approximately $5 million of the purchase price in cash or cash-equivalents, i.e., a wire transfer of immediately available funds. The remaining $7 million of the $12 million purchase price was seller-financed through a purchase money promissory note, dated April 27, 2017, made by Debtor and payable to Diatomite (the “Diatomite Note”).

In the three years since purchasing the Property, Debtor has not made any meaningful progress toward achieving its plan. But for the illegal clearing of approximately 13-acres of the Property (which resulted in pending environmental litigation, remediation, civil penalties and more stringent compliance measures and expenses on a go-forward basis), the Debtor has yet to break ground or even obtain proper rezoning approval and the authorizations and/or permits needed to do so. The Property is presently the Debtor’s sole valuable asset.

Diatomite has asserted a $7,280,000 Claim, pursuant to the Diatomite Note. See Proof of Claim No. 8-1. In addition, Diatomite has asserted an unliquidated claim for damages arising out of the Debtor’s breach of its agreement with Diatomite by encumbering the Property to secure the Cipollone Note without the requisite prior written consent of Diatomite, as the purchase money lender.

General Unsecured Claims (Class 2) will recover 87% in Plan. Each holder of an allowed general unsecured claim, except for the Diatomite Unsecured Claim (Class 3), will be paid as follows:

* If the Plan Proponent (or its affiliate or other designee) is the Purchaser of the Property, Holders of Allowed General Unsecured Claims in Class 2 shall receive their Pro Rata Share of any remaining Creditor Plan Funding.

* If a Third-Party Purchaser is the Purchaser of the Property, Holders of Allowed General Unsecured Claims in Class 2 and the Holder of the Diatomite Unsecured Claim in Class 3 shall be treated as a single category or class and shall each receive their Pro Rata Share of any remaining Sale Proceeds.

Diatomite’s unsecured claim (Class 3) is impaired. The claim will be paid as follows:

* If the Plan Proponent (or its affiliate or other designee) is the Purchaser of the Property, the Holder of the Diatomite Unsecured Claim shall receive the Property free and clear of all Liens, claims, charges, encumbrances or interests of any kind or nature, as provided in the Asset Purchase Agreement.

* If a Third-Party Purchaser is the Purchaser of the Property, then, on the Closing Date, or as soon thereafter as is reasonably practicable, the Plan Proponent will be repaid the Creditor Plan Funding amount in full from the Sale Proceeds, and, after the Creditor Plan Funding is repaid in full from the Sale Proceeds and all senior Allowed Claims are paid in full, Holders of Allowed General Unsecured Claims in Class 2 and the Holder of the Diatomite Unsecured Claim in Class 3 will each receive their Pro Rata Share of any remaining Sale Proceeds.

Subordinated Claims (Class 4) are impaired. Holders of Allowed Subordinated Claims will not receive any Distributions on account of such Subordinated Claims unless and until all Allowed Claims in Classes 1, 2, and 3 have been paid in full, in which case, each Holder of an Allowed Class 4 Subordinated Claim shall receive such Holder’s Pro Rata Share of the remaining Sale Proceeds.

Interests (Class 5) are impaired. After payment in full to all Creditors holding Allowed Claims has been made under this Creditor Plan, and appropriate amounts have been reserved for Disputed Claims, any excess Available Cash shall be distributed to the Holders of Allowed Interests in Debtor.

In order to fund Distributions under this Creditor Plan, the Plan Proponent will provide the Plan Funding and the Property will be sold pursuant to the Bid Procedures to the Purchaser pursuant to Sections 363 and 1123(a)(5) of the Bankruptcy Code, free and clear of any and all Liens, Claims, and encumbrances to the fullest extent provided by the Bankruptcy Code or other applicable law.

A full-text copy of the Disclosure Statement dated June 17, 2020, is available at https://tinyurl.com/y7zecmnx from PacerMonitor.com at no charge.

Counsel for Diatomite Corporation of America:

Rishi Kapoor
VENABLE LLP
Rockefeller Center
1270 Avenue of the Americas, 24th Floor
New York, New York 10020
Telephone: (212) 307-5500
Facsimile: (212) 307-5598
E-mail: rkapoor@venable.com

About Virginia True Corporation

Virginia True Corporation, a New York-based golf resort owner and developer, sought protection under Chapter 11 of the Bankruptcy Code (Bankr. E.D.N.Y. Case No. 19-42769) on May 3, 2019. At the time of the filing, the Debtor was estimated to have assets of between $10 million and $50 million and liabilities of the same range. Judge Nancy Hershey Lord oversees the case. Pick & Zabicki LLP is the Debtor’s legal counsel.

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