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Kirk Homes reorganization plan denied; creditors discuss next steps
By Anna Marie Kukec | Daily Herald Staff

Kirk Homes development along Edgartown Lane in Hoffman Estates in May.

 

Bob Chwedyk | Staff Photographer

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Published: 9/22/2009 8:35 AM | Updated: 9/22/2009 6:15 PM

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Streamwood-based Kirk Homes has vowed not to shutter its doors just yet.

No liquidation order was issued in U.S. Bankruptcy Court on Tuesday, so the struggling homebuilder remained in Chapter 11 reorganization. Another hearing was scheduled for Oct. 6.

"They could still file another amended reorganization plan," said company spokeswoman Susan Stoga.

On Monday, the bankruptcy judge denied confirmation of Kirk's proposed reorganization, which intended to continue building and paying off debt over a number of years. The judge believed that the plan wasn't feasible and rejected it. While the banks and other creditors pushed for liquidation, no such order was issued when the case continued on Tuesday.

In fact, Kirk CEO John Carroll met privately with his employees for nearly three hours late Tuesday after returning from court. He was unavailable for comment, but Stoga said the company has been huddling "to determine its best course of action."

Parent company The Kirk Corp. had been one of the suburbs' largest regional homebuilders since it started in 1978. During its early years, it had more than 50 neighborhoods throughout Chicago and the suburbs. Its most recent developments were in Lakemoor, Hoffman Estates, Woodstock and Bolingbrook.

But beset in recent years by the depressed housing market that affected most developers, Kirk stopped building in May and filed for Chapter 11 reorganization, seeking to work out agreements with creditors, vendors and other customers. The privately held Kirk had $96.8 million in assets with about $64.5 million in debt at the time. Now, Kirk faces hundreds of thousands of dollars in legal fees and expenses, some legal experts said.

On Monday, however, a federal bankruptcy judge denied Kirk's reorganization plan. Many believed the decision put an end to Kirk's business, at least in its current form, following the course of other bankrupt homebuilders nationwide, including Rolling Meadows-based Kimball Hill.

Now, creditors of all kinds are lined up and just waiting.

Homebuyers expecting their deposits back, or a finished home, from the bankrupt Kirk Homes may be out of luck if the company liquidates. Or they could get what the law allows, $2,425 per person or $4,850 per couple, depending on who signed the contracts.

Whether those individuals or couples get anything depends a lot on how much money first goes to the banks, lawyers and other primary creditors, legal experts said.

"Individuals are No. 7 on the list" out of 10 categories, said Bruce A. Harwood, partner with Manchester, N.H.,-based Sheehan Phinney Bass & Green law firm. "And homebuyers could get something only if the other claims are paid first and there's money left."

When a company in Chapter 11 bankruptcy files a reorganization plan and it's denied by the judge, which happened to Kirk on Monday, the creditors need to determine their next steps, said David Welch, one of the attorneys with Crane Heyman Simon Welch & Clar, the Chicago law firm representing the unsecured creditors committee.

"When a plan is denied, the court expects the case to progress in some fashion, and we need to discuss that," Welch said.

Lake County landscaper Arthur Weiler is owed "in the low six-figures," said that company's attorney, David Leibowitz.

"We expect to be paid something," Leibowitz said. "We have a mechanic's lien against them and it's for a substantial amount."