Eagle Hospitality Trust units get court nod to investigate Urban Commons founders

UNITS of Eagle Hospitality Trust (EHT) have received the go-ahead from a US court to investigate Howard Wu and Taylor Woods - the co-founders of the trust's sponsor Urban Commons - on the grounds that the duo allegedly bear the most responsibility for the trust's financial troubles.

According to court documents, the EHT units, as debtors, have been authorised to take examination of Mr Wu and Mr Woods, as well as other related persons and entities. Among other things, the debtors may conduct depositions as well as issue subpoenas.

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 debtors in the court proceedings alleged that Mr Wu and Mr Woods "repeatedly abused their position" and took "full advantage of their triple insider status".

The duo controlled both EH-Reit's manager and Urban Commons. The latter was also the parent company of the master lessees of EHT's properties. They also served as the sole directors of various units holding EHT's properties.

Their positions meant that they were "effectively sitting on both sides of every transaction", the debtors argued.

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In particular, the debtors are now pressing for further details on three sets of "particularly troubling transactions".

The first is a US$2.3 million loan taken out in April last year on behalf of Urban Commons Queensway (UCQ), one of the debtor companies. This loan was taken under the US Cares Act's Paycheck Protection Programme but was taken despite a "subsequently-acknowledged lack of authority to do so". The debtors said UCQ could now be obligated on this loan despite never having received any of the proceeds.

The second relates to an US$89 million loan by EHT US1, another debtor unit, from Lodging USA Lendco. The debtors said they have not been able to determine why the loan was taken.

The principals of Lodging USA Lendco and its parent company ASAP Holdings include Frank Yuan, Norbert Yuan and Jerome Yuan.

Mr Woods and Mr Wu, or an affiliate of theirs, had acquired a portfolio of hotels from the Yuans in 2019, according to the filing.

The final relates to non-disturbance agreements (NDAs) that the debtors said burdened property holding companies within the EHT stable.

Pursuant to the NDAs, these companies guaranteed all of the master lessees' obligations under management agreements with various hotel managers.

The debtors also flagged their concern about "other instances of misconduct they do not yet know about".

An argument was made for formal discovery to complete the investigation for the benefit of the estates and their creditors.

READ MORE: EHT's sponsor dogged by payment disputes