Flagship Resort: Atlantic City Timeshare Insider Acquisition in Chapter 11

Flagship Resort Development Corporation, Atlantic City's largest non-casino hospitality provider, filed for Chapter 11 bankruptcy on May 10, 2025, in the U.S. Bankruptcy Court for the District of New Jersey (Case No. 25-15047). The filing came weeks after a New Jersey Appellate Court upheld a $1 million jury verdict against the company for deceptive sales practices on April 14, 2025, with a class action seeking over $100 million pending.

The case concluded on October 2, 2025, when Judge Jerrold N. Poslusny, Jr. confirmed the Fourth Amended Plan of Liquidation through cramdown via the Confirmation Order after general unsecured creditors holding $54.9 million in claims voted unanimously to reject the plan. The sale to AC Boardwalk Investments, LLC—an entity wholly owned by former co-CEOs Kevin Jones and Roxanne Passarella—closed for $5 million in cash plus assumption of approximately $40.5 million in receivables financing obligations. Lawsuit plaintiffs appealed the confirmation order on October 16, 2025, but the U.S. District Court dismissed the appeal without prejudice on November 25, 2025 after appellants failed to comply with Rule 8009 designation requirements.

Atlantic City Timeshare Portfolio

Flagship has operated in Atlantic City's timeshare market since 1992, with 794 units across three properties:

According to the First Day Declaration of CFO Cherie Parks, these units translated into approximately 37,000 timeshare intervals—approximately 33,000 sold to deeded owners and over 4,000 still available for sale. The company sold approximately 50 timeshare units per week during high season, with 40% of annual sales going to existing owners upgrading to better intervals.

The Debtor's ownership structure added complexity to the restructuring. In December 2011, FantaSea Resort Group's Employee Stock Ownership Plan (ESOP Trust) purchased an 80% interest in Flagship's parent company, FantaSea Resorts Group, Inc., for $29 million. This ESOP transaction severed the historical affiliation between the Debtor and the management companies that service the properties. As of the petition date, the management companies—Boardwalk Management, LLC and its subsidiaries—were owned 50% each by Kevin Jones and Roxanne Passarella, who also served as co-CEOs of the Debtor until resigning from the Board on April 25, 2025. This conflict of interest led to the appointment of Edward Phillips of Getzler Henrich & Associates as Conflicts Chief Restructuring Officer (CCRO), with authority to make decisions on insider transactions without Board approval.

Deceptive Sales Practices Litigation

The bankruptcy followed litigation. In October 2022, a New Jersey Superior Court jury awarded $1,069,285 to 19 consumers against FantaSea Resorts (the brand under which Flagship operated) for violations of the New Jersey Real Estate Timeshare Act (RETA) and Consumer Fraud Act (CFA).

The company admitted to knowingly false statements and withholding key sales documents until after purchase. After trebling damages and awarding counsel fees, the trial court entered judgment totaling $1,668,423.88—including $641,571 in compensatory damages and $996,013 in attorney fees enhanced by 25% based on the "extreme risk" plaintiffs' counsel took in prosecuting the case. Evidence showed systematic overcharging: one plaintiff paid over $17,000 for five one-week stays over 10 years compared to $3,965 for non-owners, while sales representatives misled consumers into believing timeshares were appreciating investments.

The New Jersey Appellate Division confirmed that Consumer Fraud Act claims are not preempted by the Real Estate Timeshare Act, upholding the verdict on April 14, 2025—less than a month before the bankruptcy filing. The Debtor posted a $1,775,000 cash deposit in lieu of a supersedeas bond and filed a petition for certification to the New Jersey Supreme Court. Twelve additional plaintiffs filed similar claims in the Castellanos litigation in 2023, with trial scheduled for September 2025 before the bankruptcy filing. A putative class action filed April 27, 2023, sought over $100 million on behalf of potentially 10,000+ consumers. The court certified the class on July 23, 2024.

Financial Deterioration

Multiple factors contributed to Flagship's distress. According to the First Day Declaration, the company's primary revenue source was arbitrage—the difference between interest rates charged to timeshare purchasers and rates paid to receivables lenders. Three factors reduced these margins: COVID-19 pandemic and rising interest rates reduced consumer appetite for timeshares, forcing the Debtor to lower rates on its own paper to attract purchasers; bank interest rates increased, narrowing spreads; and timeshare defaults approached 40%, leaving the Debtor obligated to lenders even when purchasers defaulted.

The defaults occurred in a broader industry context. Timeshare loans are typically financed at high-interest rates ranging from 12% to 19%, and given little resale value—and no resale value if there is an outstanding loan—timeshare members often face limited exit options. Average maintenance fees reached $1,480 in 2024, a 17.5% increase from the prior year, with total cost of ownership exceeding $100,000 over 20 years when factoring in financing, maintenance fee increases, and assessments.

As of the petition date, Flagship carried secured and unsecured obligations:

The secured debt was backed by hypothecated consumer notes and mortgages—a financing structure where the pool of consumer notes is assigned to the lender as collateral, with the lender making a revolving loan at floating rates. Colebrook Financial, a lender specializing in the timeshare industry, had extended and increased its loan to Flagship to $20 million in 2022.

Stalking Horse Sale and Insider Acquisition

Before filing, Flagship explored alternatives. According to the First Day Declaration, the company contacted numerous strategic buyers over a nine-month period beginning in July 2024, executing four non-disclosure agreements and conducting due diligence with interested parties. No third-party transaction materialized.

On April 25, 2025—weeks before the filing—two directors resigned from Flagship's Board: Kevin Jones and Roxanne Passarella. They immediately formed AC Boardwalk Investments, LLC, which submitted the stalking horse bid. The bid offered $5 million in cash plus assumption of approximately $40.5 million in receivables financing obligations.

Sales to insiders are subject to heightened scrutiny. To address governance concerns, the Debtor established a two-person Restructuring Committee led by independent Board member Jim Casey. The DIP lenders—Banc of California and Colebrook—provided DIP financing up to $5.6 million, conditioned on the stalking horse agreement being in place. AC Boardwalk Investments emerged as the only qualified bidder at the August 5, 2025 auction.

Case Timeline and Global Settlement

The Official Committee of Unsecured Creditors was appointed on May 30, 2025, with members including Flagship Condominium Association, Royal Suites Interval Owners Association, and Michael Lantych as class representative. The Committee retained Cole Schotz P.C. as counsel and IslandDundon LLC as financial advisor. Warren J. Martin Jr., ranked Band 1 in New Jersey Bankruptcy by Chambers USA 2025, served as the Debtor's lead counsel at Porzio, Bromberg & Newman, P.C.

The Global Settlement, approved on August 8, 2025, resolved all outstanding objections and created the framework for unsecured creditor distributions. The Unsecured Creditor Fund of $400,000-$480,000 was sourced from: $181,000 in professional fee savings, $121,000 in budgeted cash, $250,000-$330,000 in unused DIP funds, and $150,000 in insider/management contribution. Professional fee caps totaled $2,336,400, with Debtor professionals capped at $1,201,400, Committee professionals at $475,000, and prepetition secured party professionals at $660,000. The secured lenders agreed to backstop a minimum $250,000 wind-down reserve. The Debtor released AC Boardwalk, Jones, Passarella, and the Management Companies from all claims, subject to the releases becoming effective only after the $150,000 contribution was funded. In exchange for the settlement, the Committee waived rights to challenge prepetition debt and liens, released potential avoidance actions against Banc of California and Colebrook, and agreed to support the sale transaction and plan.

Plan Confirmation Through Cramdown

The bankruptcy court confirmed the Fourth Amended Plan of Liquidation on October 2, 2025. The plan was confirmed via cramdown under Section 1129(b) after Class 7 (Other General Unsecured Claims) voted to reject. According to the Kroll Restructuring Administration voting certification, the voting results were:

The Class 7 rejection—with $54.9 million in claims voting unanimously against the plan—triggered the cramdown analysis. In a Chapter 7 liquidation alternative, unsecured creditors would receive zero recovery according to the Debtor's financial advisor, and the plan's $400,000-$480,000 distribution pool provided approximately 4.5% to 5.3% recovery on non-litigation unsecured claims.

The Plan included opt-out third-party releases—creditors who did not affirmatively opt out were deemed to have consented to release claims against "Release Parties," including Jones, Passarella, and the Management Companies. Both the U.S. Trustee and the Lawsuit Plaintiffs objected, arguing that opt-out mechanisms don't constitute consent post-Harrington v. Purdue Pharma L.P. (Supreme Court 2024). The Debtor defended the releases as necessary to secure the insider contribution and global settlement. The court reviewed conflicting post-Purdue precedent, including the In re Smallhold decision (finding opt-out releases cannot be consensual) and the In re Goal decision (holding consent can be implied under Wellness International v. Sharif). At the September 18, 2025 decision hearing, Judge Poslusny sided with Goal, finding the opt-out mechanism permissible where notice was clear and unambiguous.

The court's cramdown analysis found that "Class 7 is the only impaired class to vote against the plan... there is no other class of claims that are similarly situated, and for that reason I determine that the plan does not unfairly discriminate." The plan was deemed "fair and equitable because no junior classes to Class 7 and 8 are receiving any property under the plan." The court sustained certain U.S. Trustee objections in part, requiring removal of "former" from the Released Party definition, clarifying language limiting exculpation to conduct "between the petition date and the effective date," and adding references to continuation of the automatic stay under Section 362(c).

Section 363(o) Consumer Fraud Dispute

A dispute developed over Section 363(o) of the Bankruptcy Code, which provides that purchasers of consumer credit transactions take assets subject to all claims and defenses related to those transactions.

The Lawsuit Plaintiffs argued that Section 363 "cannot cleanse claims for consumer fraud" and that Congress specifically mandated protection for consumer fraud claims in 363 sales. They submitted a declaration showing the timeshare transactions are subject to the Truth in Lending Act. The Debtor countered that Section 363(o) only applies to "consumer credit transactions" under TILA, and that the Code of Federal Regulations makes clear that timeshares—as recreational facilities—are not dwellings or residences subject to TILA protections. The purchaser stated it would NOT close if the sale order changed to include claims Section 363(o) protects.

On October 23, 2025, Judge Poslusny denied the Lawsuit Plaintiffs' motion for reconsideration on two grounds. First, the motion was time-barred due to delay—the court found the months of delay between the time the lawsuit plaintiffs first had the opportunity to review the sale order language and raising objections, combined with prejudice to all parties if the sale order were altered or rescinded, weighed against the lawsuit plaintiffs. Second, the Section 363(o) issue was deemed not ripe for determination, as no pending action against the purchaser existed and relief was sought from a potential harm that may or may not occur.

The sale order's "no successor liability" language in paragraphs 22 and 23 remained intact, insulating AC Boardwalk Investments from the Palmer, Castellanos, and Lantych litigation.

Post-Confirmation Status

The Lawsuit Plaintiffs filed a Notice of Appeal to the District Court on October 16, 2025 (Case No. 25-CV-16733-CPO). However, appellants failed to comply with Federal Rule of Bankruptcy Procedure 8009, which requires filing a designation of items for the record on appeal and a statement of issues within 14 days. The Clerk certified this failure on November 21, 2025. On November 25, 2025, District Judge Christine P. O'Hearn dismissed the appeal without prejudice, granting appellants 30 days to cure the Rule 8009 deficiencies. If not cured by late December 2025, the dismissal automatically converts to with prejudice—effectively ending the appeal. As of mid-December 2025, no cure has been filed.

Plan Administrator Joseph J. DiPasquale continues overseeing the estate wind-down. Administrative expense disputes have emerged, including a motion by Concord Servicing, LLC—the loan servicer for Flagship's timeshare notes—seeking $179,881.53 for post-petition services from May through October 2025. Concord alleged the Debtor breached assumed servicing agreements, and the court granted the administrative expense claim on December 3, 2025. The August 2025 Monthly Operating Report showed the estate's financial position: beginning cash of $321,948 declined to $35,622 by month-end, with a net loss of $626,723. DIP proceeds of $575,000 were drawn during the month, and professional fees totaled $304,887.

The sale was deemed free and clear of successor liability for AC Boardwalk Investments.

Industry Context

While the timeshare industry reported 77% occupancy rates in 2023—higher than the 63% average for U.S. hotels—and supported 423,713 jobs with $86 billion in economic output, the hypothecation structure—where consumer notes are pledged but not sold to lenders, leaving default risk with the debtor—can create capital structure stress when consumer credit performance weakens. Flagship's 40% default rate coincided with margin compression.

Frequently Asked Questions

Why did Flagship Resort Development file for bankruptcy?

Flagship filed chapter 11 after consumer fraud litigation (including a $1.67 million judgment and $100+ million class action), 40% timeshare default rates, and margin compression from rising bank interest rates that narrowed the spread between lender rates and consumer financing rates.

Who purchased Flagship's assets?

AC Boardwalk Investments, LLC, an entity wholly owned by former co-CEOs Kevin Jones and Roxanne Passarella, purchased the assets for $5 million cash plus assumption of approximately $40.5 million in receivables financing obligations. They resigned from the Board weeks before filing and formed the stalking horse entity.

What was the recovery for unsecured creditors?

General unsecured creditors holding $54.9 million in claims received 4.5% to 5.3% recovery from a $400,000-$480,000 distribution pool, despite voting unanimously to reject the plan. The plan was confirmed through cramdown.

What is the Palmer verdict?

In October 2022, a New Jersey jury awarded $1,069,285 to 19 consumers for violations of the New Jersey Real Estate Timeshare Act and Consumer Fraud Act. After trebling damages and attorney fees, the total judgment was $1,668,423.88. The New Jersey Appellate Division upheld the verdict on April 14, 2025.

What is the Lantych class action?

A putative class action filed April 27, 2023, seeking over $100 million on behalf of potentially 10,000+ consumers alleging similar deceptive sales practices. The class was certified on July 23, 2024.

How did the court handle third-party releases post-Purdue Pharma?

The court approved opt-out third-party releases, siding with the In re Goal decision over In re Smallhold. Judge Poslusny found opt-out releases permissible where notice was clear and unambiguous, and parties had the opportunity to opt out.

What properties were included in the sale?

Three properties totaling 794 units and approximately 37,000 timeshare intervals: Flagship Resort (440+ units in Atlantic City), Atlantic Palace (~292 units on the Boardwalk), and La Sammana Resort (62 units in Brigantine).

What was the Section 363(o) dispute about?

Lawsuit plaintiffs argued Section 363(o) protects consumer fraud claims from being extinguished in 363 sales. The court found the motion time-barred and the issue not ripe, leaving the sale order's "no successor liability" language intact.

What happened to the appeal?

The appeal was dismissed without prejudice on November 25, 2025 after appellants failed to comply with Rule 8009 designation requirements. If not cured by late December 2025, the dismissal converts to with prejudice.

What was the Global Settlement?

The August 2025 settlement created a $400,000-$480,000 unsecured creditor fund from professional fee savings, budgeted cash, unused DIP funds, and a $150,000 insider contribution. In exchange, the Committee waived rights to challenge prepetition debt and released potential avoidance actions.

For more analysis of hospitality sector restructurings, see the ElevenFlo bankruptcy blog.