Chapter 11 Reorganization

Frequently Asked Questions

(updated weekly)

Chapter 11 Reorganization

A filing for Bankruptcy can take many forms, including a Chapter 11 Reorganization. A Chapter 11 Reorganization allows us to create a plan of reorganization (a new business plan) and show the court how CCC plans to effectuate the plan. This option allows us to maintain the day-to-day operations of our Club without interruption so that members and others can continue to enjoy our amenities.

Continental Country Club filed a Chapter 11 Petition for Bankruptcy Protection on Tuesday, February 9th, 2021 in the U.S. Bankruptcy Court in the District of Arizona.

The Board’s decision to take this step relied on a three-pronged financial problem that was accelerated after the October 30th preliminary ruling of finding CCC in contempt for having not maintained Lake Elaine consistent with a 1990 Consent Decree, discussed below. The Board had to consider “how” it could meet the obligations and fill the lake to a level that, according to experts, has never been sustainable. The Court also imposed on CCC a $700/day fine until water began flowing into the lake at which point the fine would be reduced to $500/day until the lake was filled. Fixing the lake to accommodate the mandated water level would require extensive work including repairs to the dam, repairs to the liner between the 6,835 and 6,845 levels or the possible replacement of the entire liner, and sinkhole repairs. The required work would require Engineers, Contractors, and time. The work and fines until the lake was filled amounted to a lot of money that our Association does not have.

While the pending contempt order and associated fines were the catalyst for this action, there were also underlying considerations including an October 21 obligation to pay a $600,000 balloon payment incurred when funds were borrowed to install a new golf course irrigation system in October 2011.

We also have aging facilities that require upkeep with an insignificant amount of reserves. Our clubhouse is over 50 years old and the other amenities require maintenance and repair. A draft reserve study has been received and is under review that shows that millions of dollars are needed over the next 10 years and through 2050.

Finally, CCC’s boards have struggled to make ends meet for years, while trying to honor their pledge made in 2013 not to raise dues again for eight years. With huge increases in minimum wage, increasing expenses related to repairing, replacing and maintaining facilities, and rising water costs, along with the contempt action, sanctions, and order, and after exploring all other options, there was no other possible decision. We view this as an action being led by forces out of our control and hope it can be an opportunity to strengthen our Association’s financial position for years to come.

After the October 30th preliminary ruling, the board studied and reviewed all possibilities, along with speaking with several professionals and our attorneys. Unfortunately, this was the only possible conclusion, and once decided, needed to be acted upon quickly. The January newsletter provided to homeowners did reference that bankruptcy was an option that was being considered.

For the most part, most of our Members should not be affected by this petition. We will keep our facilities open and our employees will be working to ensure “business as usual”.

Values may be negatively affected in the short term, but it is not anticipated to affect them in the long term. As with any kind of public HOA restructuring, the CCC bankruptcy could create some market uncertainty on the impacted houses, however this kind of impact should be short-lived and was inevitable given CCC’s financial condition and potential Lake Elaine liabilities that must be addressed under the court’s recent preliminary ruling.

This is a distinct possibility, but we cannot answer this question with any degree of certainty until we are able to better estimate our costs and liabilities after seeking bankruptcy protection.

This is a distinct possibility, but we cannot answer this question with any degree of certainty until we are able to better estimate our costs and liabilities after seeking bankruptcy protection.

Currently there are formal, legal procedures that are taking place. Once we have a clearer vision of the next steps, we will share them with you. Over the next few weeks, statements and schedules will be filed with the Bankruptcy Court and work will commence on a proposed plan of reorganization.

Not currently. Beyond the potential Lake Elaine obligations, we have a 50-year-old building, and numerous amenities. There are constant ongoing repairs and improvements required for these assets that must be addressed. CCC also has a balloon payment due in October, for $600,000 that will need to be restructured. The intent in filing Chapter 11 Reorganization is to give CCC the opportunity to develop a reorganization plan and develop a solid financial footing for the future.

This notice is part of CCC’s Chapter 11 Reorganization as communicated in Jon Held’s e-communication to our members last Wednesday, 2/10. The e-communication was emailed to all members for whom we have an e-mail address. If we don’t have an e-mail address on file for you, it was mailed to you via USPS. You can check your email on file by logging into the Owners Portal on the Membership Page of our website. In the Owners Portal you can update your email address.

As we are early in the process, it is difficult to estimate when this will be known. Any assessments would be incorporated into a reorganization plan that will be submitted to the court and ultimately will require approval by the homeowners pursuant to the CC&R’s.

As the CC&Rs are currently written, townhome and condos have the right to vote on special assessments and on annual assessment increases of over 20%. As stated at the 2/12/21 meeting, the Board is taking ALL homeowners concerns regarding voting equality seriously and plans to include the townhomes and condos in all future votes, if legally possible

The filing for Chapter 11 reorganization stays those fines. An automatic stay is a provision in the bankruptcy law that temporarily prevents creditors, collections agencies, government entities, and individuals from pursuing Continental for amounts owed.

Lake Elaine

Continental Country Club owns a tract of land which contains a man-made lake (“Lake Elaine”) built by the original developer of Continental. In the late 1980’s, a group of homeowners filed a class action lawsuit against the successor developer of Continental Country Club, as well as Continental, pertaining to ongoing problems with Lake Elaine. The plaintiffs alleged claims for nuisance, breach of covenant, misrepresentation (advertising and representations by the developer) and sought injunctive relief.

In 1990, the developer (who also controlled Continental, which was not independently represented by legal counsel), entered into a Stipulated Settlement Agreement and Judgment (“Consent Decree”) providing, among other things, for the immediate reconstruction and restoration of Lake Elaine, and for the lake to subsequently be maintained at a water level of 6,845 feet above sea level.

The developer defendant filed for bankruptcy after the Consent Decree was entered and its insurance carrier covered the cost of reconstructing and restoring Lake Elaine. Plaintiffs also unilaterally released the developer defendant from the Consent Decree. Continental was thereafter left as the sole defendant under the Consent Decree.

In 2017, some current lakefront property owners on or near the Lake (successor class members) brought a contempt action against Continental, alleging non-compliance with the 1990 Consent Decree and seeking to force Continental to reconstruct Lake Elaine.

  • The Judge determined that Continental was in contempt, indicating that its failure to plan to reconstruct Lake Elaine is not a justifiable “inability to comply” defense.
  • The Judge ordered Continental to refill and thereafter maintain Lake Elaine at a full water level of 6,845 feet above sea level, as provided in the 1990 Consent Decree, despite the fact that the uncontroverted testimony established that the Lake had never been able to physically hold water at that water level due to various geological conditions that exist and even though it was uncontroverted that Continental did not have the funds to reconstruct or restore the lake.
  • The Judge imposed a sanction on Continental of $700/day, commencing February 2021, until such time as Continental begins refilling the lake, and which time the fine would be reduced to $500/day until the Lake was filled to 6,845 feet (even though the uncontroverted testimony established that Continental did not have the funds to reconstruct Lake Elaine, and that even if Continental had the funds it would take at least two years to engineer, develop plans, hire a contractor, and perform the reconstruction before water could begin to fill the lake).

There is a misconception regarding the lake usage. Because the property is owned by the Association, all members are entitled to use it. If our homeowners support an interest in doing so, the Association can help set up the appropriate infrastructure to allow our members to use rowboats, paddle boats, and canoes on the lake. Anything without a keel or an engine can be used, and with a small dock, you can fish to your heart’s desire. Its catch and release of course. This could be an opportunity for our members.

This is a matter that will be handled through the reorganization process.

Continental Country Club

Continental Country Club has 2,395 owners. Membership in Continental is a result of home ownership. All Single-Family homes governed by the CC&Rs are obligated to pay an annual lot assessment. The CC&Rs govern 1,210 single family homes. This includes CC&Rs enforcement on the property, common area maintenance, amenities access and social activities. The remaining properties consist of Townhomes, Condos and timeshares. These properties have individual property management companies who handles their CC&R enforcement and day-to-day operation. The owners of these properties are also obligated to pay annual assessments to CCC based on their respective CC&Rs. Continental is responsible for those owners’ access to amenities and common area maintenance.

The original clubhouse was built in 1960. There were several additions made in the 1970’s. There is no definite date as to when the clubhouse pool was built; however, there is a 1979 photograph showing the pool and the two adjacent tennis courts.

This anomaly resulted in 1994. Back then, the increase had to be approved in each single-family subdivision. It was approved in some subdivisions, but not in others, as some subdivisions expressed strong discontent with increasing the assessment because they did not see value in the use of amenities. That resulted in two levels. We have compensated by charging usage fees and not giving golf discounts to those who do not pay the full amount. These homeowners are known as Associate members. In 2006 Continental Country Club succeeded in unifying (11) different sets of CC&Rs for individual single-family subdivisions. However, the CC&Rs needed to be combined with the assessments at the amounts approved by each individual subdivision at that time. The Board approved a two-tier membership now known as Associate and Full Membership to account for the difference in assessment levels. These membership tiers are subdivision specific. Associate Members have the option to upgrade on an annual basis to full members, although full members do not have the option to become associate members.

The Wyndham Timeshares (125 units) are Full Members of Continental just like all other owners. They pay the full membership dues and receive the same benefits. Wyndham also contributes 50% of the cost of running the Fitness Center and pays for all Capital Improvements at Bear Paw + 60% of the operational day-to-day costs.

Homeowners have a duty to pay their annual dues and this holds true even while in a Chapter 11 reorganization.

All owners of lots subject to the declaration are required to be members of Continental Country Club, Inc., per the recorded declaration.  The restrictions contained in a declaration are covenants that run with the land and cannot be terminated by the owner.