CR 94-135 Ion Electronics Plan Of Reorganization
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July 11, 1994 0 P K \ ~ Councll Report 94-135
ION ELECTRONICS PLAN OF REORGANIZATION
Proposed Action.
Staff recommends approval of the following action: Authorize
execution of a Bankruptcy Court Creditor's ballot acceptinq Ion
Electronics Plan of Reorqanizaton.
Overview
In 1985 the city of Hopkins loaned Ion Electronics $159,000 to
assist in the start-up of their company. These funds were
received by the City as a result of a grant from the State of
Minnesota for the purpose of loaning it to Ion.
Ion Electronics, in accordance with the loan agreement, made
interest-only payments until two years ago. At that time they
experienced financial problems as a result of a law suit and
stopped making payments. Even though they have been found
innocent of any wrong doing in conjunction with this legal
~ action, from a financial perspective it has forced them into a
bankruptcy reorganization situation.
Community Development staff is now asking the city Council to
approve execution of a ballot accepting the Ion Electronics Plan
of Reorganization. This Plan is basically in the same form as
previously considered by the Council in May 1994.
Primary Issues to Consider
o What is the impact of the action being requested by staff?
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CJaltle~D.
Dirrctor g & Economic Development
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CR94-135
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. Primary Issues to Consider
0 What is the impact of the action being requested by staff?
The bankruptcy statement reflects that Ion owes the City of
Hopkins $125,000.
In accordance with the bankruptcy plan of reorganization,
unsecured creditors, such as the City of Hopkins, will
receive approximately 40-50 cents for each dollar owed.
Under this section the city will receive approximately
$62,500 of the $125,000 of debt owed by Ion. Payment is
proposed to start in May of 1996 and be spread over a five
year period.
The remaining amount owed the city would be placed into
subordinated class of unsecured lenders. The city will also
receive approximately 20 cents on the dollar for the $61,000
balance of the debt allocated to this group if funds are
available after paying the other secured and unsecured
debtors.
In conclusion, the Council needs to be aware that the City
will only receive repayment of funds under the bankruptcy
e reorganization plan if the following occurs:
- Ion is able to survive the financial problems they have
been experiencing and stay in business
- Ion generates a profit sufficient to pay creditors in
accordance with the reorganization plan.
Alternatives
The HRA has the following alternatives regarding this issue:
0 Approve the action as recommended by staff. This will
allow for the city to accept the Debtors Plan of
Reorganization.
0 Reject the Debtors Plan of Reorganization. Legal
action will be required to change the plan as relates
to the city of Hopkins. This could be costly to the
city and may not produce much in positive results.
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