Summit to sell assets
Direct Telephone Co. will pay
$125,000 and assume leases
of the bankrupt Hawaii
telecommunications firm
The trustee of troubled telecommunications firm Summit Communications Inc. has agreed to sell its assets to a Texas telecom company, which would pay some of a $525,822 federal tax claim, but would not reduce a $528,602 tax claim owed to the state.
The only way the state and unsecured creditors may see some money is if the court-appointed trustee in Summit's bankruptcy case, Derek Sakaguchi, can win a mismanagement lawsuit against the family of Harold Johnston, co-founder and former chief executive of Summit.
Sakaguchi in July agreed to sell most of Summit's physical assets to Direct Telephone Co. of Texas, which recently began operating here as Hawaii Direct Telephone Co.
Direct Telephone would pay Summit $125,000, and assume $182,000 in telecom equipment leases, according to a filing this week in U.S. Bankruptcy Court.
The proceeds would partially pay the Internal Revenue Service, which is owed a secured debt of $300,000, as well as administrative debts incurred after Summit filed bankruptcy, including attorneys' fees and trustee compensation. Administrative claims totaled $332,117 as of June 30.
Clearly, there's not enough money to go around.
In January, when the U.S. Bankruptcy Court took up the issue of trusteeship, Summit said it had found an investor willing to put in $500,000. At the time, Bankruptcy Judge Robert Faris pointed out that $500,000 would not likely cover the outstanding amount of the tax claims.
Faris removed the Johnstons from management and placed the company into trusteeship, saying there were big risks in not appointing a trustee. A court-appointed examiner had issued a scathing report of the Johnstons' management, and questioned payments that went to Johnston family members. The state and federal governments were calling for a trustee.
Summit, founded in 1996 in Honolulu, provides local and long-distance telephone services, and call-center services. The firm filed Chapter 11 reorganization bankruptcy last year after it lost key business and was facing a $1 million tax liability.
Around the time of Sakaguchi's appointment, Summit lost more business from another key customer -- the state-funded Hawaii Visitors & Convention Bureau.
The bureau, which had been paying a minimum of $32,539 to Summit each month for call center services, negotiated a new contract with Summit that ended the monthly minimum starting in February. Summit's monthly revenue from the visitors bureau dropped to as little as $10,000 a month. The bureau was reacting to a drop in the number of phone calls, and a shift in inquiries to its Web site, said Gail Ann Chew, a bureau spokeswoman.
Sakaguchi, faced with Summit's losses, began seeking buyers for Summit, an 18-employee firm.
Soon after, in reaction to the negative examiner's report and "challenges" with answering phone calls, the Hawaii visitors bureau split off some of Summit's business to another company, Chew said.
STS Communications LLC -- a new local company formed by dissident Summit shareholders -- contracted to buy Summit's assets in May, but the deal fell apart.
The Direct Telephone asset sale agreement is scheduled to go before Faris in a Sept. 3 hearing in U.S. Bankruptcy Court. Direct Telephone has posted a $10,000 deposit.
Sakaguchi wants to disallow further bidding for Summit's assets, to reduce uncertainty about qualification of bidders. Because Summit is losing money each month, putting together a reorganization plan would cost more than selling the assets now, according to Sakaguchi's motion for a court order to approve the sale.
Johnston said other bids should be entertained. "I think there might be some other parties that are interested. It's pretty interesting to me that certain parties blocked the sale of Summit previously for amounts that would have brought a better settlement to creditors," he said.
Sakaguchi's motion notes that other interested parties have had a fair opportunity to purchase Summit, and lists 14 of them.
Johnston and Sakaguchi are battling it out in a related lawsuit, in which Sakaguchi is seeking unspecified damages from the Johnston family for their management of Summit.
The suit, filed April 30, alleges that federally funded Sandwich Isles Communications Inc. loaned Summit $456,793 through Johnston, and that Johnston pocketed interest payments from the deal.
Johnston said Sandwich Isles loaned him some money, and that he loaned $456,793 to Summit, but that there was no connection between the two transactions.
Johnston, who left Summit temporarily in 1998 to work for Sandwich Isles, said his arrangements with Sandwich Isles had nothing to do with Summit. He declined to say how much he was loaned by Sandwich Isles. Sandwich Isles was once a major customer of Summit, but cut back its business in 2001, speeding Summit into bankruptcy.
Johnston has said the lawsuit was based on incorrect information provided by Richard Ichikawa, who founded Summit with Johnston, and became a dissident shareholder.
Sakaguchi, the trustee, declined comment for this story. According to his asset sale motion, "the Trustee hopes to realize substantial additional proceeds from its lawsuit against the debtor's former management."
Last week, Faris denied a motion by the Johnston family to dismiss part of the suit. Johnston said he will file a formal response to the suit shortly. "This is the first opportunity we've had to actually respond in court formally to some of these ridiculous allegations," he said.
