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A New York judge on Wednesday approved an offer for bankrupt Council Travel Service Inc. after it was raised by more than 50 percent and issues were resolved regarding the ownership relationship between the buyer and the seller. STA Acquisition Corp. increased its bid to $13.25 million in cash and assumed liabilities from an initial $8.6 million. Judge Robert Gerber approved the auction sale in the U.S. Bankruptcy Court for the Southern District of New York. STA sweetened its prefiling offer due to fears that a thwarted sale might lead to liquidation, said Council Travel’s lawyer, Schuyler Carroll at Olshan Grundman Frome Rosenzweig & Wolosky in New York. Gerber is expected to sign a consensual sale order by April 1 or April 2 and the deal is expected to close shortly thereafter. The sale won Gerber’s go-ahead because he wanted to save the debtor from almost certain liquidation. Unsecured creditors challenged the pending acquisition of a majority interest in bankrupt Irish travel agency, usitWorld plc., by STA affiliate, STA Travel Inc. UsitWorld owns 100 percent of Council Travel’s stock. “We challenged the bid because they’re selling the assets to an entity that, in effect, already owns its assets but there’s no prohibtion against selling a company out of bankruptcy to an insider as long as there’s fair consideration,” said Gerard Catalanello, who represents the unsecured creditors at Brown Raysman Millstein Felder & Steiner in New York. “But Judge Gerber approved the higher price because he was so concerned that the debtor was about to collapse without the sale, and nobody else came forward with a formal offer.” The STA affiliate is seeking to acquire usitWorld out of bankruptcy. Council Travel claims that it filed for Chapter 11 in New York on Feb. 5 primarily due to its problems with usitWorld after several airlines refused to issue any more tickets due to Council Travel’s non-payment. In its offer for Council Travel, STA also agreed to assume about $4.65 million in liabilities for such things as lease and post-petition obligations. Five parties showed interest in the sale but only STA filed a formal bid, Carroll said. “Gerber approved the sale, even though there may be overlapping ownership, because we shopped the company very, very heavily and nobody else was willing to buy,” Carroll said. New York-based Council Travel, which operates 77 travel agencies nationwide that book international student travel, won Gerber’s earlier approval for $500,000 in debtor-in-possession funding from STA and had already gone through $300,000 of that, he said. The DIP will be credited against STA’s sale price. The price includes $2 million in cash, $6.6 million in assumed liabilities in leases, $1.3 million for current claims, up to $850,000 assumed for employee health plan and another $2.5 million assumed for other claims, Carroll said. Gerber gave the final approval because the debtor was not able to meet its operating expenses and was headed for liquidation by the end of the month, Catalanello said. The creditors expect to push for a plan of liquidation after the sale is approved and the debtor’s assets and liabilities are adequatedly sorted out, he said. “The debtor was selling airline tickets and some of the major airlines shut off their source of revenue when they refused to issue them any more tickets,” he said. The overbidding was scheduled to begin at $400,000 with increments of $100,000 and a break-up fee of $375,000 if an offer bested STA’s bid, records show. Carroll, Robert Grossman, Jeffrey Vanacore, Beth Green and James Drew are lead debtor counsel at Olshan Grundman while Catalanello, Jay Gottlieb and James Vincequerra represent the unsecured creditors at Brown Raysman. Council Travel reported $200 million in annual revenue and 470 employees. Copyright (c)2002 TDD, LLC. All rights reserved.

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