Hendrik “Harry” J. Dorssers and Concept Dorssers – who are Mike Mastro creditors – filed an emergency motion in the U.S. District Court for the Western District of Washington, seeking to block the bankruptcy trustee, Jim Rigby, from distributing approximately $2.8 million to unsecured creditors. The Seattle Times reported on the anticipated distribution here.
Here are the facts: In December, 2008 Dorssers loaned $1.2 million to the Mastros, secured by real property. (Mike Mastro is pictured above.) The note rate was 10 percent, callable “on demand.” Dorssers were in second position. After receiving their deed of trust, they realized they were not sufficiently secure, there being insufficient equity in the real property. (See TEP’s upcoming post on “Classic Mastro & Hazelrigg Maneuvers.”)
So Dorssers threatened to call the note. Mastro then offered up his Medina home as new security, and signed a new note for “as much as may be disbursed to or for the benefit of [Mastro] to a maximum of $12 million.” This blanketed up the house from other creditors.
Rigby sued Dorssers, claiming that the loan was a fraudulent conveyance – meaning that Mastro either intentionally hindered other creditors while he was insolvent, or did not receive equivalent value for what he gave up. In other words, the loan was a sham in order to protect Mastro’s assets from other creditors. See TEP’s older post on asset protection/fraudulent conveyances, here. Rigby won. Dorssers has appealed.
In the meantime, Rigby is set to distribute the bulk of the bankruptcy estate to creditors. If Dorssers wins the appeal, and the money is already distributed, then Dorssers could be left high and dry (unless Rigby wants to personally make Dorssers whole). Hence the request to block the funds’ distribution pending the appeal.
The emergency motion is a good read, and well written, and available for download here.