Bankruptcy for Johnson turning into liquidation

Home builder M.W. Johnson Construction of Lakeville is headed for liquidation in U.S. Bankruptcy Court in St. Paul after a courtroom setback, its attorney said Wednesday.

M.W. Johnson, one of the state's largest locally owned home builders, filed for Chapter 11 bankruptcy protection in June, citing slow home sales and its inability to secure additional financing.

The company lost a battle Wednesday in court when it failed to get judicial approval to hire a real estate broker with strong family ties to M.W. Johnson Construction.

As a result, the firm is now proposing that real estate sales commissions for liquidating the firm's assets be channeled through its banks rather than a real estate broker, said debtor attorney Michael Meyer of Minneapolis firm Ravich, Meyer, Kirkman, McGrath, Nauman & Tansey.

After planned auctions of the firm's houses and empty lots next week, the two Johnson companies will be well along the path to liquidation, Meyer said.

The two firms -- M.W. Johnson Construction Inc., based in Minnesota, and M.W. Johnson Construction of Florida Inc. -- filed separate Chapter 11 petitions, but the cases are moving through bankruptcy court in parallel proceedings, Meyer said.

On Wednesday, M.W. Johnson Construction had sought to have real estate broker Four Sale Real Estate, a firm with family ties to the bankrupt firm, oversee the sale of its real estate inventory in Minnesota, Wisconsin and Florida. But U.S. Trustee Habbo Fokkena said the appointment would be improper: some members of the Johnson family are officers of both companies, and would thus be paid twice.

Meyer said M.W. Johnson strongly objected to Fokkena's statement.

U.S. Bankruptcy Judge Robert Kressel did not rule on the issue, but he did rule against an earlier, similar request by M.W. Johnson Construction to appoint as its real estate broker another company, M.W. Johnson & Associates, that also was operated by members of the Johnson family. Kressel said that M.W. Johnson & Associates did not qualify because it was a creditor of M.W. Johnson Construction.

Meyer said the judge's disqualification of M.W. Johnson & Associates meant that, "by implication," Four Sale Real Estate would not be acceptable, either.

"So we found another way to do it" by using the banks instead of a real estate brokerage to sell off the bankrupt firm's assets, Meyer said.

M.W. Johnson Construction was Minnesota's 11th-largest home builder in 2007, based on gross revenue, according to the Builders Association of the Twin Cities. The company had gross revenue of $41.4 million and built and closed on 177 houses.

Steve Alexander • 612-673-4553