Duo behind Eagle Hospitality Trust found in contempt of preliminary injunction

THE United States Bankruptcy Court for the District of Delaware has found Howard Wu and Taylor Woods to be in contempt of a preliminary injunction, and will convene a hearing on Friday (Nov 19) to consider sanctions - including whether to place the duo in custody.

According to court documents lodged on Monday (Nov 15), Judge Christopher Sontchi said the court is "gravely concerned that monetary sanctions will be insufficient" to compel Woods and Wu to comply with court directives.

Wu and Woods were former directors of Eagle Hospitality Trust (EHT) and co-founders of the trust's sponsor Urban Commons.

EHT is a stapled group comprising Eagle Hospitality Real Estate Investment Trust (EH-Reit) and the dormant Eagle Hospitality Business Trust. As many as 27 entities within the EHT stable had filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of Delaware on Jan 18.

The court documents called Wu and Woods "fraudsters", noting the pair fraudulently obtained a loan under the US Paycheck Protection Program (PPP) on behalf of an EHT unit without the authority to do so. Wu and Woods then "absconded with the proceeds", Judge Sontchi said.

Wu and Woods had applied for and obtained a US$2.4 million loan last year on behalf of Urban Commons Queensway under the PPP.

After a notice and hearing, the US court entered summary judgment against Wu and Woods and their company, and prevented them from dissipating their assets. The court had also ordered a "detailed accounting".

To date, Wu and Woods have not provided "sufficient accounting" and have "baldly stated they intend to dissipate their assets".

Wu and Woods also failed to respond to the summary judgement motion by the deadline of Sep 13. Wu had written a letter to the court on Sep 14 requesting for an extension of the deadline by 30 days to allow him to secure new legal counsel. This request was denied by the court on Sep 17.

On Aug 27, a preliminary injunction (PI) order was filed. This order prevented Wu and Woods from transferring, encumbering or otherwise disposing of the US$2.4 million or assets of equivalent value. The PI order also required Wu and Woods to account for such funds or assets.

Although the PI order was effective immediately upon its entry, Wu and Woods have not yet shown that they have frozen their assets in compliance with the PI order; nor have they shown any accounting for such assets.

On Oct 21, when Wu and Woods filed a "preliminary account" of these PPP funds, these accounts appeared to "simply trace the PPP funds, rather than identify and preserve" the amount of US$2.4 million and account for those assets.

Wu and Woods had also claimed that they have "no other assets". But the court opinion expressed scepticism that each of them had no assets - including houses, cars, bank accounts and personal properties - when they provided a US$10 million deposit in connection with their unqualified bid for certain EHT assets.

Separately, the Delaware courts on Monday also announced that Judge Sontchi will retire effective Jun 30, 2022. He will then commence service as an International Judge of the Singapore International Commercial Court, focusing on insolvency matters.

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