As LuxUrban Hotels works its way through the bankruptcy process, a department of the Justice Department is calling for the appointment of an independent receiver to take charge of the company.
Attorneys from the Office of the US Trustee filed a motion last week for an independent trustee to take over the bankrupt Bisnow company. reported. The motion described the bankruptcy case as a “free fall” and described the “chaos” faced by customers and creditors, pointing to “gross negligence” on the part of LuxUrban.
“A hotel operator … abandoning customers, putting people in rooms where services are not available and where union workers appear to be unpaid is untenable and dangerous,” said Andrea Schwartz, attorney for the U.S. trustee.
LuxUrban filed for bankruptcy a month ago, with less than $10 million in assets and at least $50 million in liabilities. The company said the Chapter 11 filing would allow it to continue operating four hotels in New York City.
Shortly after the filing, however, news outlets reported that paying customers showed up to claim room reservations at the company’s Manhattan properties but were turned away. That led to letters to the bankruptcy judge, requesting an emergency hearing due to possible harm to consumers.
One of those letters was sent on the same day the Hotel and Gaming Trades Council alleged LuxUrban owed weeks of wages to union workers and managers. The union also alleged that the company illegally withheld at least $57 million in pension contributions.
According to Schwartz, there are at least 85 lawsuits pending against LuxUrban in state or federal court. The attorney also alleged that LuxUrban left out additional creditors and debtors in the initial bankruptcy filing, including $118 million in back sales taxes.
LuxUrban’s bankruptcy attorney, Leo Jacobs, did not respond to the outlet’s request for comment.
The company has faced numerous problems in New York.
At the 166-key property known as The Herald, LuxUrban is said to have racked up at least $1.6 million in arrears through December, prompting a judge to approve the landlord’s eviction request this summer as the owner tried to fend off foreclosure.
Other issues range from a $1.2 million city fine for illegal Airbnb rentals to delisting from the Nasdaq. The company is also accused of overstating its hotel holdings and is facing a class action lawsuit.
— Holden Walter Warner
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