The Official Committee of Unsecured Creditors of Flagship Resort Development Corporation has unanimously endorsed the company's amended liquidation plan after negotiating a comprehensive global settlement that addresses all outstanding issues in the Chapter 11 bankruptcy case, according to documents filed with the U.S. Bankruptcy Court for the District of New Jersey.
The committee's endorsement, detailed in a letter filed as an exhibit to the company's Second Amended Disclosure Statement on August 9, 2025, comes after extensive investigation and settlement negotiations that resolved potential claims while establishing funding mechanisms for unsecured creditor distributions. The resort development company, which operates three Atlantic City-area properties with over 37,000 timeshare interval units, filed for Chapter 11 protection on May 10, 2025.
Business Operations and Financial Distress
Flagship Resort Development Corporation built its business around three major properties: the 32-story Flagship Resort with over 440 units, the 31-story Atlantic Palace with approximately 292 suites on the Atlantic City Boardwalk, and the boutique La Sammana Resort in Brigantine with 62 units. The company developed a multi-tiered ownership platform encompassing deeded timeshare interests, club memberships, and exchange-based travel benefits.
The company's financial distress stemmed from multiple converging factors, according to the disclosure statement. The COVID-19 pandemic and rising interest rates created a "whipsaw effect" on the company's business model, which relied on arbitrage between interest rates paid to the company by timeshare purchasers and rates paid to its receivables lenders. Consumer financial pressures led to a nearly 40% default rate on timeshare mortgages, while the company was forced to reduce interest rates to attract purchasers during the economic downturn.
The situation was compounded by significant litigation exposure. The Palmer litigation resulted in a $1.67 million judgment, leading the company to post a $1.775 million appeal bond. More concerning was the Lantych class action, certified in July 2024, representing potentially 10,000 class members with alleged damages exceeding $100 million for violations of New Jersey's Real Estate Timeshare Act and Consumer Fraud Act.
Global Settlement and Asset Sale
The global settlement reached on August 7, 2025, involves multiple parties including the debtor, secured lenders Banc of California and Colebrook Financial Company, the creditors' committee, management companies, and company co-CEOs Kevin Jones and Roxanne Passarella. The settlement coincides with a sale transaction to AC Boardwalk Investments LLC, an entity wholly owned by Jones and Passarella, for $5 million cash plus assumption of approximately $40.5 million in funded debt obligations.
Under the settlement terms, professional fees are capped at $1.2 million for debtor professionals, $475,000 for committee professionals, and $660,000 for secured party professionals. The buyer will contribute an additional $150,000 to a plan administrator wind-down reserve, while unused debtor-in-possession financing funds will be allocated to creditor distributions and administrative expenses.
Creditor Recovery Structure
The liquidation plan establishes two classes of general unsecured creditors with differentiated recovery rights. Class 6 Continuing Trade Vendor Claims, representing vendors and parties engaged in ongoing business with the debtor, will receive their pro rata share of net distributable proceeds after funding the plan administrator reserve, plus 50% of any proceeds from the Palmer Litigation Bond and retained causes of action.
Class 7 Other General Unsecured Claims, including potential claims from the class action litigation, will receive their pro rata share of 50% of Palmer Litigation Bond proceeds and retained causes of action recoveries. The committee emphasized that recovery from the Palmer appeal bond is contingent upon the success of the pending appeal to the New Jersey Supreme Court.
"THE COMMITTEE HAS NEGOTIATED A GLOBAL SETTLEMENT TO SATISFY ALL ISSUES REGARDING THE PLAN AND SUPPORTS THE PLAN IN ITS CURRENT FORM," the committee stated emphatically in its endorsement letter.
Committee Investigation and Third-Party Releases
The committee, represented by Cole Schotz P.C. and advised by IslandDundon LLC, conducted an extensive post-petition investigation into prepetition insider transactions involving current officers and directors. The investigation reviewed potential claims including avoidance actions while examining secured parties' collateral packages and perfection issues.
Significantly, the plan includes broad third-party releases with an opt-out provision for creditors. The committee noted that creditors who choose not to opt out will be "giving up any independent claims you may have against third parties and the Debtor's directors and officers, including tort claims." Importantly, the committee emphasized that a creditor's decision regarding the releases will not affect their recovery under the plan.
Court Proceedings and Timeline
The bankruptcy case, numbered 25-15047 (JNP), is proceeding on an expedited timeline with the voting deadline set for September 5, 2025, at 4:00 p.m. Eastern Time. The combined hearing for final disclosure statement approval and plan confirmation is scheduled for September 12, 2025, at 10:00 a.m.
The debtor has established a robust marketing and sale process, though AC Boardwalk Investments emerged as the only qualified bidder. The sale transaction includes provisions for license transfers and operational transitions, with the buyer assuming post-sale effective date liabilities guaranteed by affiliated management companies.
The case represents a significant liquidation in the timeshare industry, with implications for thousands of timeshare owners and creditors across multiple classes of claims totaling tens of millions of dollars.
This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 77 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.