Allstate Financial Group Evicted from Third Club, Company Liquidating

Allstate Financial Group, which is involved in a Chapter 7 liquidation, was evicted from the last of its three health clubs late last week. 

Allstate Financial Group, Woodinville, Washington, has been evicted from its third club, the Bethany Sport & Spa in Portland, Oregon, according to a report on Oregonlive.com

Earlier this year, Allstate, which is a member billing services company for health clubs and had owned three health clubs, was evicted from its two other clubs: the Hawthorn Sport & Spa in Hillsboro, Oregon, and the Riverplace Sport & Spa in Portland. The evictions occurred after Allstate Financial Group, which is owned by John Michael, filed for Chapter 11 on Jan. 5 in the U.S. Bankruptcy Court for Western Washington. The judge converted the filing to a Chapter 7 liquidation on April 1. Under this chapter of the Bankruptcy Code, the debtor's nonexempt property is sold and the proceeds are distributed to creditors. John Peterson was appointed as Chapter 7 trustee for Allstate, according to court filings.

Allstate took over the leases for the three clubs in 2013 when the then-owner, former NFL player Sam Adams, ran into financial difficulties. Michael had told OregonLive at that time that Allstate had been a lender to Adams. Adams has since been charged with criminal wage theft and fraud related to operation of the clubs.

The Bethany Sport & Spa was closed over the weekend but the landlord, Central Bethany Development, reopened it today as Bethany Athletic Club, according to OregonLive.com. 

Allstate owes Barratt Holdings LLC, Spokane, Washington, more than $16.5 million on 119 equipment leases, many of which are delinquent, some by more than one year, according to a May 15 court filing by Daniel J. Fallon, president of McCallen & Sons Inc. McCallen & Sons is the court-appointed general receiver over Barratt, which was a creditor to Allstate Financial and is now being liquidated itself. Fallon contends that his investigation shows that Allstate "acted as a lender with respect to certain Clubs by obtaining financing from Barratt (appearing as lessee or guarantor of the Lease) or from other sources, and passing the financing on to the Club (which would thereby become obligated to Allstate, which was in tum obligated to Barratt). At times, Allstate, or its principal John Michael, would take an ownership interest in the Clubs as part of a workout when the Club defaulted under its loans to Allstate."

Fallon also states in the filing that in late 2014 or early 2015, Allstate "assigned many or all of its Billing Services Agreements to a newly-formed related entity, AFG Group, LLC ("AFG"), a North Carolina limited liability company also owned by the Debtors. AFG appears to perform many of the same functions as Allstate with respect to the Clubs."

In December, Barratt entered into a Forebearance Agreement with Allstate Financial, readjusting the obligations and noting Allstate Financial would begin repaying the debt on March 25, but Allstate failed to do so, according to the court document. 

Fallon notes that part of his company's responsibility is to repossess the leased equipment from the clubs that have defaulted on their leases, but much of that equipment is in storage units or "locked up by landlords for the Clubs' failure to pay rent," and some of the landlords and storage facilities have demanded storage fees from the receiver.

"Meanwhile, those items of Leased Property are generating no income. Barratt's receivership estate is therefore diminishing in value while the Receiver is unable to liquidate assets," the filing notes. 

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