Creditors approve LandAmerica's bankruptcy exit plan

Creditors in the LandAmerica Financial Group Inc. bankruptcy case voted overwhelmingly to approve a plan detailing how the holding company will dissolve itself and pay off creditors.

Of 632 ballots cast by individuals and businesses, 614 (97 percent) approved of LandAmerica's plan to exit bankruptcy, according to court documents filed yesterday.

"I think it's encouraging that all the debtors see the merit in trying to get this out of bankruptcy court and moving on to the next stage of recovering money," said creditor Robert K. Bridgeman, president of LubeExpress Operating Co. Inc. in New Jersey. "It's not perfect, but it's better than the alternatives that are available."

The tabulation was publicly released one day before attorneys are scheduled for a hearing this morning in U.S. Bankruptcy Court in Richmond to hash out objections to the plan.

Bankruptcy Court Judge Kevin R. Huennekens has set three days for the hearing.

More than 20 objections have been filed, including one from the U.S. trustee's office, which is charged with upholding bankruptcy laws. One of the trustee's objections had to do with treating creditors differently based on how they voted for the plan, which is not permissible.

"There are a number of substantial objections which are going to have to be decided upon by the court prior to confirmation," said Ronald A. Page Jr., an attorney with DurretteBradshaw PLC, who represents several creditors.

Page advised his clients to approve the plan because attorney and professional fees are mounting. Those fees are paid first and in full before creditors receive funds.

"It's going to stop the administrative bleeding in this case, which has been extreme, but unfortunately necessary," Page said.

Unsecured creditors are estimated to receive between 2 cents and 81 cents per dollar of what they are owed. The range depends on the subsidiary to which one is a creditor.

Henrico County-based LandAmerica and a subsidiary, LandAmerica 1031 Exchange Services Inc., filed for bankruptcy protection Nov. 26, 2008. Since then, eight additional subsidiaries also have filed.

The reorganization plan, as it is called in bankruptcy court, is the result of mediation between attorneys for LandAmerica, the creditors committees and lawyers representing customers of the exchange company who filed fraud claims.

Dallas attorney Charles R. Gibbs, who represents the unsecured creditors committee for LandAmerica 1031 Exchange, was unavailable to comment.

Rachel Strickland, a New York attorney who represents LandAmerica, also could not be reached yesterday afternoon.

The case has been especially contentious because of the exchange company.

Under Internal Revenue Service code, investors can defer capital gains taxes on the sale of property if they place the proceeds from the sale with a third party and then reinvest the money within a certain time period.

LandAmerica's exchange company held money for customers but ran into liquidity problems when it invested those funds in auction-rate securities.

The market for that supposedly liquid security froze in February 2008, causing the exchange company to borrow money from its parent company. Ultimately, the more than $200 million invested in auction-rate securities led to the company's downfall and eventual bankruptcy.

Many customers thought their money had been held in trust, but Huennekens ruled it was property of the exchange company. That meant customers became unsecured creditors, who are among the last to be paid when the estate is divided up.

"These are a lot of people who had worked all of their lives and these funds entrusted to LandAmerica were for their retirement," Page said. "Now, this bankruptcy strikes, and an enormous chunk of their retirement is stuck and they don't know what's going to happen. That uncertainty and the seemingly unfairness of it all has led to a lot of hostility."

Contact Emily C. Dooley at (804) 649-6016 or edooley@timesdispatch.com.