Indiana

Judge Basil H. Lorch III ruled it's in the best interest of creditors and others for Lauth management to continue operating its bankrupt subsidiaries, despite a plea from a major lender that Lauth be removed.

The three Lauth subsidiaries that filed for Chapter 11 reorganization bankruptcy May 1 control dozens of Lauth-developed office, industrial and retail properties across the country.

"Many of the developments are only partially completed, and most are in financial distress," said a court filing by LIP Holdings, a Lauth debtor controlled by Inland American Real Estate Trust of Chicago.

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The case figures to be one of the largest bankruptcies of an Indiana commercial developer.

Inland, acting through LIP Holdings, accused Lauth managers of trying to bail out the distressed properties with collateral from healthier properties from other subsidiaries. That would benefit Lauth executives who've personally guaranteed debts of some of the properties in bankruptcy, LIP charged.

In his ruling, the judge ordered Lauth not to "cross-collateralize" any assets in bankruptcy or issue new debt.

Resop said Lauth's court filings show it paid $100,000 to a Chicago law firm for debt counseling in November, an indication Lauth contemplated filing for bankruptcy long before Inland made its move in April to take control of some Lauth-developed properties.