Bank Says Windrush Hid Cash, Judge Sides With School for Now

Windrush School won a temporary victory in U.S. Bankruptcy Court today when a judge ruled that the threatened school can continue using its bank accounts, despite claims by Wells Fargo Bank that the school engaged in "bad conduct" and concealed accounts from creditors.

The private K-8 school in El Cerrito protection Friday after the school's earlier in the week that Windrush's creditors, represented by Wells Fargo, intended to foreclose on a $13 million debt and seize the school's property. The school has defaulted on its debt payments.

Windrush says that if the 35-year-old school doesn't raise an additional $800,000 to $900,000 by this Friday it will have to close Oct. 28. If it does raise the funds, it can complete the school year, the trustees said.

The total raised as of today is $631,828, according to the school website. The amount stood at , according the Windrush Development Director Ann Root.

In papers filed in the Bankruptcy Court in Oakland, Wells Fargo said Windrush representatives "concealed throughout negotiations that it had secreted its cash" to hide it from creditors. Windrush had been negotiating with the creditors since last May on a possible restructuring of the debt.

The bank said the debt agreement established all school property and gross revenues as collateral for the $13 million that Windrush borrowed through a bond issue in 2007 to build its new library/middle school and refurbish the gym.

The attorney representing Windrush, Merle Meyers, told the court today that there was no "conspiracy" and that the school did not hide the cash. Windrush kept operating funds in accounts separate from its debt service account at Wells Fargo, which is approximately $971,000, according to the court filing from Windrush. The school's annual budget has ranged between $4 million and $5 million, according to the filing.

The operating accounts were set up a year and a half ago before the current crisis and could have been audited at any time by the bank, Meyers said. "Clearly there was no act of concealment," he told the court.

"The school lives or dies on use of this cash collateral," Meyers said.

Judge William Lafferty issued a temporary ruling in the school's favor, allowing Windrush to continue using the accounts to pay for its operations. He set a further hearing for Oct. 28 at 1:30 p.m.

The court has yet to rule on whether Windrush can remain under Chapter 11 protection, which allows it to continue operating without paying creditors if it convinces the court that it has a viable reorganization plan.

Wells Fargo said in its court filing that Windrush "has no business plan for a turn around and is in Chapter 11 only to somehow keep the school open until the end of the academic year."

Mike Buckley, the attorney representing Wells Fargo, told the court that  Windrush belongs under Chapter 7 bankruptcy status, which provides for liquidation of the debtor's assets through the sale of the collateral property and the distribution of the proceeds to creditors.

Buckley also said the pledges for contributions to the school, in addition to tuition, could be included in the collateral for the loan. Meyers said that's not true, telling the court, "They are not the bank's collateral."

Lafferty said his interim ruling today did not apply to the status of contribution pledges or tuition.

If the judge had ruled against Windrush today, its bank accounts would have been frozen, Meyers told Patch after the hearing. The funds are used to pay teachers and meet other expenses.

Head of School Ilana Kaufman and the chair of the Windrush board of trustees, Sarah Flowers, attended the hearing and said afterward that they had no comment at this time. Seated with them in the courtroom were Nina McDonald, vice chair of the board, and Enrico Hernandez, the school's director of finance.

The current crisis resulted from a drop in enrollment, from 259 at the time of the bond issue in 2007 to 165 this year, making it impossible for the school to make the payments on the debt, the trustees said.

The creditors are the bondholders, who include financial institutions and individuals who purchased the bonds as investments. Wells Fargo acts as the trustee for the bondholders.

Editor's note: We are keeping our original story about Windrush's predicament, "," in the top section of our homepage because the reader comments section has become an ongoing community forum for discussion and information about many issues involved.