Echelon Furniture could follow Munire with Chapter 7 court action in Gas City

Munire Furniture president Munir Hussain is also president of Echelon, which he launched in late 2010 in Gas City’s former Amcast Automotive facility with the help of several million public dollars.

Friday was Echelon’s last day in operation, Gas City Mayor Larry Leach said he heard from Hussain that day. Hussain also said Munire had filed for Chapter 11 bankruptcy and that Echelon would file for Chapter 7 bankruptcy protection, Leach said.

Only a Munire filing was available through the U.S. Court’s public records database as of Tuesday afternoon.

“This may never go to bankruptcy,” Leach said Tuesday.

Lois R. Lupica, resident scholar at the American Bankruptcy Institute, said Munire’s existing filing under Chapter 11 gives the New Jersey company two options.

“Chapter 11 is business reorganization, but a business can also liquidate in 11 and it can do that in a variety of ways,” said Lupica, a University of Maine School of Law professor. “So it’s possible they intend to reorganize. It’s also possible they intend to liquidate or even sell off certain assets, certain holdings, which could mean affiliated companies.”

Leach said Tuesday that the city is not currently involved in Echelon’s situation, although city representatives have entered Echelon’s rented Gas City factory at 100 Munire Drive since Friday to take pictures of all the equipment.

“They granted us permission to do that, and other than that, our hands are pretty well tied until anything is done in court,” he said. “There’s nothing we can do at this time.”

The equipment is collateral on a loan from Gas City to Echelon last year, one of a few incentives backed with public money.

In 2010, Gas City offered Echelon the proceeds of a $2.4 million bond the city backed with tax increment finance revenue.

TIF revenue is a type of special property tax generated by development in designated areas called TIF districts. It’s then earmarked for economic development projects rather than being distributed among other local governments like schools and townships.

The Grant County Economic Growth Council also gave Echelon a $200,000 grant, Growth Council Executive Director Tim Eckerle said Tuesday, declining to comment on whether the nonprofit is currently involved in Echelon’s situation.

“We neither confirm nor deny projects we may or may not be working on,” he said.

In spring 2012, Gas City granted Echelon a property tax abatement worth $3.6 million.

In summer 2012, Gas City loaned the company another $1 million backed by TIF revenue and secured by Echelon’s equipment. Leach said Hussain expected the equipment would be worth enough to cover the debt.

Echelon also has debts in common with Munire, as the Gas City company is listed as a co-debtor in Munire’s bankruptcy filing.

“It means the two entities are both obligated on the same debt,” Lupica said of the co-debtor designation.

For example, she said, Munire and Echelon could have cosigned on a debt or one company could have been the guarantor for a debt of the other.

The two other co-debtors cited in Munire’s filling are Hussain himself and a Piscataway, N.J., “aviation service” company called Munire Transportation LLC.

Echelon is cited as a co-debtor to two creditors, Sterling MFC Capital in Iselin, N.J., and Bank Leumi USA in New York, N.Y. Those creditors are also two of the four to which Hussain is cited as a co-debtor with Munire.

Sterling MFC Capital has an unsecured claim for $800,000, records show. Bank Leumi USA has a secured claim for about $17 million, a “revolving loan note” from November.

One day before Munire filed for bankruptcy, Bank Leumi USA sued Munire for alleged “fraud,” court records show.

The civil lawsuit filed Sept. 18 claims Munire qualified to draw about $3.8 million based on the “real value” of the collateral but was able to draw the full $17 million because Hussain and other Munire officials “repeatedly made material misrepresentations” to the bank, including having “falsely reported to (the bank) the borrower’s financial condition” and “inflating the value of the collateral to (the bank) over at least a six-month period.”

No one could be reached for comment at Munire Tuesday.

If Echelon were to proceed with a Chapter 7 bankruptcy, it would leave the company only one option.

“Only one thing is intended by a Chapter 7, a pure liquidation,” Lupica said. “Essentially, what the company is doing is selling off assets of value and then dissolving.”