Creditors of the University of Wisconsin Oshkosh Foundation have filed challenges in U.S. Bankruptcy Court to the protected status of donor funds, raising the possibility that money earmarked for scholarships or other student-related purposes could go to satisfy debts.
The foundation “has failed to provide sufficient detail to determine whether the pledges are maintained in trust for the benefit of others,” according to Bank First National, which says it is owed almost $6 million on the Alumni Welcome and Conference Center.
“The mere fact that, on the petition date, funds are in an account set up to hold trust funds is insufficient to establish that such funds are held in trust and, thus, not property of the estate,” said David M. Pelletier, an attorney for Bank First, in a filing dated Sept. 22.
The foundation filed for bankruptcy protection in August. At the time it said it had total liabilities of $15.9 million and total assets of $14.8 million.
The foundation has asked the court to wall off most of its assets by declaring them outside the bankruptcy proceeding. If the court agrees, the foundation’s creditors would not have access to $21 million in endowments or another $5.8 million in what the foundation has described as “temporarily restricted funds.”
But Bank First says the foundation has not provided sufficient evidence that these funds are properly protected through trust agreements.
“The only documents filed by debtor in support of the trust motion are accounting records listing the amounts pledged,” Bank First said. “The debtor has recently provided some supporting documents relating to its trust arguments, however, based on an initial review of those documents they do not appear to provide proof that the funds are subject to a trust in accordance with Wisconsin law.”
Another creditor, First Business Bank, filed a similar objection to the foundation’s request. In its filing, it alleges that the foundation ”has admitted that at least some ‘trust funds’ were diverted for other purposes.” First Business lent $6.7 million for a biodigester in Rosendale that was built by the foundation.
A spokesman for the foundation disputed the banks’ position. “We believe there is sufficient evidence to support our position on this issue and look forward to presenting our facts to the bankruptcy court,” he said.
Both banks have also complained, to differing degrees, about the foundation’s plans for handling certain of its assets. They say they are not sure where the foundation is getting the money it wants to spend to generate payments to debtors.
First Business is arguing against the foundation’s request to continue paying the mortgage on the residence of the UW Oshkosh chancellor.
“Does the UW Oshkosh pay rent for the use of the residence? If not, why not?,” the bank asked in court papers. “The chancellor’s residence appears to be of little or no value to the debtor’s estate, and the estate should not be burdened by continued adequate protection payments especially if the user of the property – the UW System – is not paying to occupy the space.”
Photo: The UW Oshkosh Foundation maintains offices in the Alumni Welcome and Conference Center, on which it owes almost $6 million. Copyright 2017 Miles Maguire.