This article was first published in the October 2025 issue of the Journal of Corporate Renewal and reprinted with permission from Turnaround Management Association.
As most bankruptcy practitioners are aware, the Small Business Reorganization Act (SBRA), which went into effect on February 19, 2020, is designed to help small business debtors reorganize their debts and avoid liquidation. When subchapter V relief was added to the Bankruptcy Code, the initial debt eligibility limit was $2,725,625, but was thereafter increased to $7.5 million with the passage of the CARES Act in March 2020. While the original debt threshold was originally scheduled to return to its original level after just one year, the $7.5 million debt eligibility level was extended a number of times. However, despite widespread support for the higher ceiling, the $7.5 million debt level expired on June 21, 2024. Since June 22, 2024, the debt limit reverted to the original limit established in the SBRA, which is $3,024,725, adjusted for inflation. Discussions remain in Congress to increase the subchapter V debt eligibility limit.
In addition to qualifying for the debt eligibility, to file a subchapter V case, like all chapter 11 cases, there must be corporate authority to file the bankruptcy case, a fiduciary must be in charge of operating the debtor. Additionally, in order to qualify for subchapter V relief, among other things, the debtor must be engaged in commercial or business activities (other than primarily owning or operating a single piece of real property).
Against this backdrop, in February 2023, the very interesting subchapter V bankruptcy case of Arbah Hotel Corp. (Arbah) was filed in the United States Bankruptcy Court for the District of New Jersey.
Arbah was once an operating hotel located in North Bergen, New Jersey. Originally incorporated in 1994, Arbah, most recently known as both the Meadowlands View Hotel and the View Hotel, historically operated under various franchise and union agreements. Years prior to its Chapter 11 bankruptcy filing, the equity of Arbah was purchased by a partnership wholly owned and managed by Steven Silverberg, who also owned and controlled several other real estate companies, with holdings that included the NYU Langone Medical Center and the Citarella Gourmet Market in New York. Unfortunately, Silverberg later experienced health challenges, including cognitive issues, which ultimately resulted in his incapacity.
While the equity of Arbah was solely owned by Silverberg until May 2020, the equity was redistributed in May 2020, reducing Silverberg’s ownership in the equity of Arbah to 85%, with the remaining 15% becoming owned by Mark Wysocki.
Thereafter, in June 2022, Corinne Silverberg, Steven’s daughter, filed an order to show cause for appointment of a guardian in the New York State Supreme Court, Nassau County, seeking to appoint a guardian for her father, as an alleged incapacitated person.
The Shuttering of the Hotel
As result of the COVID-19 pandemic, beginning in 2020, Arbah suffered a significant and prolonged decline in operations, which resulted in considerable financial harm to the hotel and its operations. In or around January 2021, Wysocki, as vice president and operations manager for the corporation, determined that the hotel could no longer remain open, and it subsequently ceased operations. From thereon, Arbah maintained limited administrative and professional staffing. To continue Arbah’s limited operations, it received financial contributions from Silverberg or other entities in which Silverberg owned a legal interest.
Around January 2021, Wysocki modified Arbah’s corporate structure with the intent of reopening the hotel on a limited basis, followed by a future plan to redevelop the property. However, the hotel continued to be closed to guests and only operated with limited staff to begin renovations. The hotel, in fact, had been minimally renovated over the previous decade and had significant deferred maintenance and mechanical needs. The property also suffered from exposed asbestos, mold, and numerous water leaks.
The Guardianship Proceeding
On August 2, 2022, the Guardianship Court issued an order appointing John Newman, Esq., as the temporary guardian of Silverberg, an appointment that later became permanent. Subsequently, on January 11, 2023, the Guardianship Court entered an order appointing the Honorable Anthony F. Marano (Ret.), the former presiding justice of the Supreme Court of the State of New York, Appellate Term, Second Judicial Department for the Ninth and Tenth Judicial Districts, as the temporary receiver of Silverberg’s interests in his various entities, including Arbah. The receiver’s appointment also later became permanent.
The Arbah case demonstrates the important value that a subchapter V trustee can bring to the process. The case is also interesting simply because it deals with an intersection between bankruptcy, guardianship, and receivership, along with the interplay between and among those proceedings.
Importantly, in the guardianship proceeding, both the guardian and the receiver disputed Wysocki’s 15% share of Arbah. Additionally, after his appointment in early 2023, Marano elected to terminate all of Arbah’s remaining staff and cease Arbah’s limited remaining operations. Toward this end, the receiver determined the cost of operating the hotel—albeit on a limited basis and/or reopening the hotel—was not in the best interest of preserving the assets or Silverberg’s estate.
The Subchapter V Bankruptcy
Embroiled in litigation concerning whether he properly had a 15% interest in the equity of Arbah and faced with concerns over potential personal liability resulting from outstanding claims against Arbah, on February 24, 2023, Wysocki, in his capacity as vice president of Arbah, filed a voluntary Chapter 11 bankruptcy petition on Arbah’s behalf in the United States Bankruptcy Court for the District of New Jersey. Importantly, Wysocki elected for Arbah to be a subchapter V debtor given the fact that the total debt in the case was less than $7.5 million. Shortly after the case was filed, the Office of the United States Trustee appointed Joseph L. Schwartz, Esq., as the subchapter V trustee in Arbah’s bankruptcy case pursuant to 11 U.S.C. § 1183(a).
In response to Arbah’s bankruptcy filing, both the receiver and the guardian initially objected to the bankruptcy filing, moving to dismiss the bankruptcy petition on the basis that Wysocki was not legally authorized to file bankruptcy on behalf of Arbah and because Arbah was no longer operating. However, in accordance with his duties under the Bankruptcy Code, the Subchapter V trustee ultimately facilitated a resolution among the sparring parties, with the parties subsequently entering into a consent order in the bankruptcy case that resolved the receiver’s and the guardian’s objections and provided for a protocol for decisions by a fiduciary on behalf of Arbah and its estate going forward throughout the course of the Chapter 11 case.
The Sale of the Hotel and Property/The Plan
Shortly after his appointment, Schwartz assisted the parties in moving forward with a sale process with respect to the hotel property. Arbah, as the debtor, ultimately retained various necessary professionals in the bankruptcy case, including Acadia Lodging Brokers & Advisors, a full-service hospitality real estate boutique and advisory firm. Thereafter, Arbah filed its Chapter 11 plan, which it later amended. That plan largely called for the liquidation of Arbah’s assets, primarily the hotelproperty, and the distribution of the sale proceeds to creditors and equity.
Additionally, at or around the time the plan was filed, the receiver effectuated a confidential settlement with Wysocki in the guardianship proceeding regarding a buyout of Wysocki’s ownership interest in Arbah. Once Wysocki was out of the picture, Arbah thereafter obtained Bankruptcy Court approval for the appointment of a chief liquidation officer, Neil Bivona of RSR Consulting.
Further, during the pendency of the bankruptcy case, the receiver advised Arbah’s counsel, the subchapter V trustee, and Acadia that he had commissioned an appraisal for Arbah’s hotel and property, which estimated that the value of the hotel and property as approximately $9 million.
Liquidation Process: Stalking Horse or Private Sale?
Arbah’s bankruptcy case was further complicated because certain events needed approval from both the Guardianship Court and the Bankruptcy Court. While Acadia was assisting in marketing Arbah’s assets, ultimately, the receiver pushed Arbah to schedule a deadline to submit offers for the sale of the hotel and provided instructions for a potential auction process. With Acadia’s assistance, over 20 offers were received by Arbah for its assets, 16 of which were made by qualified vetted bidders. Three proposed stalking horse bidders were also procured, though each of them was well below several of the highest offers. Additionally, certain bids, including the proposed stalking horse offers, had contingencies and/or conditions that could have limited a competitive bidding process. Given the fact that the cost to maintain the hotel was substantial and because the property had endured damage, including flooding, a small fire, and vandalism, the receiver and the guardian made it clear that assurance of closure was a requirement for the Silverberg estate.
Eventually, the receiver required Arbah to set a deadline for bidders to submit final and best offers. Ultimately, Acadia was successful in receiving an offer of $22.5 million, with a $5 million nonrefundable deposit and a 21-day term to close, with no financing, due diligence, and/or environmental contingencies.
In August 2023, Arbah filed a motion with the Bankruptcy Court seeking approval for the $22.5 million offer, with a hearing scheduled in September 2023.
An Objection to the Sale
Shortly before the sale hearing, Corinne Silverberg, Steven Silverberg’s daughter, appeared in the bankruptcy case and asserted that Arbah’s motion to approve the proposed sale should be denied on a number of bases, including that Silverberg planned to seek her own appointment as Silverberg’s guardian in the guardianship proceeding. According to Corinne Silverberg, her objection to the proposed asset sale was made to ensure that the sale was in her father’s best interests, which is why she sought to pause the debtor’s sale efforts until the guardianship proceeding was concluded. As result of Silverberg’s incapacitated status, his daughter, as a relative, claimed to be an equity security holder of the debtor with a right to be heard under Section 1109(b) of the Bankruptcy Code.
In response, both Arbah, as the debtor, and the subchapter V trustee disputed Corinne Silverberg’s contention, arguing that she lacked standing to object to the proposed sale. After hearing argument, the Bankruptcy Court agreed with Arbah and the subchapter V trustee, overruling the younger Silverberg’s objections to the sale, determining that she lacked standing.
Further, another competitive bidder appeared at the sale hearing and made an offer slightly higher than $22.5 million. In response, the first bidder threatened to withdraw its bid and demanded the return of its $5 million deposit in the event competitive bidding was allowed to occur. Faced with this situation, the subchapter V trustee worked with Arbah, the receiver, Acadia, and the two bidders, causing the first bidder to raise its offer for Arbah’s assets to $24 million.
The Court Approves the Sale, Confirms a Plan
Given the situation, the Bankruptcy Court determined that the risk of losing the initial highest bidder, combined with the initial bidder’s increase ofits offer, outweighed the need for an auction it entered an order approving the $24 million offer, determining that the sale motion met all of the requirements of the Bankruptcy Code. Shortly thereafter, Arbah completed a closing on the sale of its hotel and property, with Corinne Silverberg later appealing the Bankruptcy Court’s Sale Order. That appeal remains pending.
Ultimately, the confirmation hearing on the plan was rescheduled. Not surprisingly, Corinne Silverberg objected to the plan asserting:
- That the debtor’s bankruptcy case was filed without authority (despite not having previously made this argument while allowing the case to proceed for over a year).
- That the receiver and the guardian supposedly lacked authority to act on the debtor’s behalf (despite the Guardianship Court issuing orders granting such authority).
- That the CLO supposedly had no authority to act for Arbah (even though the Bankruptcy Court granted the CLO such authority).
- That the plan failed to meet certain of the requirements of the Bankruptcy Code.
- That the plan purportedly lacked adequate information.
At the confirmation hearing on May 23, 2024, the Bankruptcy Court initially advised Corinne Silverberg that she likely had no standing to object to confirmation. Ultimately, after argument, she withdrew her confirmation objection, leading to the Bankruptcy Court’s confirmation of the plan on a consensual basis under 11 U.S.C. § 1191(a) and Arbah’s making of distributions under the plan.
Finally, while Corinne Silverberg’s appeal of the sale order remains pending, that appeal is likely subject to dismissal under the doctrine of equitable mootness.
Conclusion
The Arbah Hotel Corp. subchapter V bankruptcy case is interesting for a number of reasons. First, and most importantly, the case demonstrates the important value that a subchapter V trustee can bring to the process. Next, the case is interesting simply because it deals with an intersection between bankruptcy, guardianship, and receivership, along with the interplay between and among those proceedings. Additionally, the case reflects why the debt eligibility limit in subchapter V cases should be increased to at least $7.5 million, if not higher, as subchapter V represents a valuable tool for many small business debtors. Finally, the case reflects how creative lawyering and bidding process, along with a receptive bankruptcy court, can achieve a successful outcome.
Joseph L. Schwartz is a partner with Riker Danzig LLP. He is a member of the firm’s Executive Committee and chair of its Bankruptcy & Corporate Restructuring Group. He has over 25 years of experience in commercial bankruptcy and state court insolvency matters, with a focus on corporate restructurings and reorganizations. Schwartz also has substantial experience in state and federal receiverships and assignments for the benefit of creditors, as well as out-of-court corporate restructurings, turnarounds, workouts, wind-downs, dissolutions and commercial litigation.
Sabena Arora-Akarte is the principal and founder of Acadia Lodging Brokers & Advisors Inc. She has more than 25 years of hospitality real estate experience. Prior to founding Acadia, she spent eight years with Highgate Holdings, specializing in acquisitions and investment analysis. During that time, she was responsible for evaluating more than $50 billion in national and international hotel investments and transacting on more than 12,000 rooms. She has extensive experience with all aspects of lodging investment transactions including full service and select-service portfolios, resorts, timeshare, and REITs.
