WebSuite, the National Association of REALTORS® technology partner for the deployment of the e-PRO certification, filed a voluntary Chapter 11 bankruptcy case on Wednesday, December 6, 2000 in the United States Bankruptcy Court for the Western District of Washington in Seattle. The case has been assigned to Judge Thomas T. Glover under Case No.00-11967. Representing WebSuite is attorney Raymond Gessel.

December 6, 2000 was also the deadline for WebSuite to file its response to the involuntary Chapter 7 bankruptcy that had been earlier commenced by a group of its unpaid former employees. Rather than contest the involuntary filing, the company apparently elected to proceed with its own Chapter 11 case. WebSuite's petition indicates that there will be no funds available for distribution to unsecured creditors, a point which baffles the plaintiff's attorney, Jim Day.

For those who have never been issued a hide-the-assets-from-unpaid-employees-and-vendors playbook, the debtor in a Chapter 11 bankruptcy case is allowed to retain possession of assets, and can continue to operate in the ordinary course of business as debtor-in-possession, explains Day.

"A trustee is not automatically appointed but can be appointed if there is a sufficient showing of fraud, dishonesty, incompetence or gross mismanagement by the debtor," explains Day. "The goal of a Chapter 11 is generally to reorganize the financial affairs of the business through the development and approval of a plan of reorganization, which becomes the debtor's contract for the repayment of its creditors over time.

"WebSuite, however, states in its bankruptcy petition that there will not be any distribution to unsecured creditors. Our information is that there is at least $100,000 remaining in the merchant reserve account maintained by the financial institution which clears its online credit card payments. There is also some stream of income from existing customers, plus whatever might be available under the N.A.R. contract. It therefore makes me suspicious that WebSuite can opine at the outset of its bankruptcy that unsecured creditors will not get paid," says Day.

Former employees of WebSuite filed the involuntary Chapter 7 case so that a trustee would automatically be appointed. The trustee would take possession of the debtor's assets, convert them to cash and distribute the proceeds to creditors, according to the priorities set forth in the Bankruptcy Code, offers Day. "If a business is operating upon the bankruptcy filing, the trustee has the ability to operate it for a limited period of time if to do so serves some economic purpose - to close a pending sale of the business as a going concern, for example. Generally, however, the trustee will not operate a business but will simply proceed with a liquidation immediately."

Part II - The Whole Ugly Truth About WebSuite And The N.A.R. will run Monday.

Published: December 8, 2000

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