Print edition: 
A U.S. Bankruptcy Court judge on Thursday denied a Wichita bank's motion to procedurally uncouple itself from its lending partners in the Rainbows United bankruptcy.
Judge Robert Nugent then urged Rainbows to tweak its reorganization plan to allow lead lender Emprise Bank and its partners in a nearly $4 million loan package to vote separately on the plan.
However, the ruling may prove unnecessary, said Wichita attorney Ed Nazar, representing Rainbows. Unsecured creditors are overwhelmingly approving the reorganization plan in a mail vote, which could render Emprise's vote meaningless, Nazar said.
The ruling is the latest development in the legal tussle between Emprise and Equity Bank, one of its lending partners in the Rainbows case.
The crux of the reorganization plan is an extension of time to repay the original $2.3 million pre-petition loan, the subject of the ongoing creditor vote.
Emprise is Rainbows' lead lender for pre- and post-bankruptcy petition loans. The post-petition loan is a $1.5 million line of credit to keep Rainbows open during bankruptcy.
The pre-petition loan has been paid down to $2.1 million, Nazar said.
Equity bought into the pre-petition loan for $333,333 but indicated to Emprise officials that it wants to oppose the proposed reorganization plan, which Emprise officials support.
Nugent said Thursday that under Kansas law, only the promissory note holder in the Rainbows lending consortium — Emprise — is legally a creditor of the nonprofit.
Secondary lenders aren't considered creditors under Kansas law, and thus aren't eligible to vote on the reorganization plan, Nugent said.
Nugent refused to step into what he called a potential breach of contract dispute between Emprise and Equity, raised by the latter in a March 3 court filing.
In it, Equity officials claim that Emprise agreed to a $500,000 loan modification and applied proceeds from collateral securing the pre-petition loan to the post-petition line of credit, which will be paid off when Rainbows closes later this month on the sale of property at 251 S. Whittier.
Emprise attorney Karl Swartz told Nugent those claims "are without merit and I think Equity knows that."
Wichita attorney Mark Lazzo, representing Equity, acknowledged to Nugent that his client has no voting rights in the reorganization decision.
He indicated that Equity still believes Emprise failed to keep them posted about changes in the pre-petition loan.
"We don't want to affect our rights included in any of our agreements with Emprise," Lazzo said.
