Crystal Cathedral blames a few creditors for bankruptcy

GARDEN GROVE – Crystal Cathedral Ministries, an Orange County landmark and megachurch founded by television evangelist Robert H. Schuller, filed for Chapter 11 bankruptcy Monday.
The cathedral owes about about $7.5 million to unsecured creditors. The bankruptcy filing seeks court protection from its creditors.

Carol Whedon presents Rev. Schuller a box of love letters from the church members in 2005. Reverend Robert H. Schuller and members of his Crystal Cathedral Church in Garden Grove celebrated 50 years of ministry which started with a drive-in outdoor church. The megachurch filed for bankruptcy Monday.
Senior Pastor Sheila Schuller Coleman said in a statement Monday that the bankruptcy filing was a necessity because a small number of creditors chose to file lawsuits and obtained court-ordered writs to attach the church's bank accounts and assets in an attempt to get paid right away. "For these reasons, the Ministry now finds it necessary to seek the protection of a Chapter 11," she said later at a press conference.

A committee of creditors that was working with the church for the last six months declared an impasse last week, foreshadowing the bankruptcy. Jim Penner, a church board member and Schuller's son-in-law, said the cathedral's intention is to repay all vendors 100 percent.

He said the church's debt as of Monday is about $44 million.

Among the long-time vendors for the "Glory of Christmas" pageant still waiting to get paid are Krstina Oliver, who supplied camels, horses and sheep for the pageant; wardrobe manager Juliet Noriega; dry cleaner Bruce Johnson, who cleaned the actors' costumes; props manager Sharon Crabtree, and Carin Galletta, whose public relations firm provided publicity for the pageant.

Oliver, to whom the cathedral owes more than $50,000, said none of the creditors is to blame for the church's bankruptcy. "This is the church's debt,'' she said. "They brought us into it."

On Monday afternoon, standing in front the Tower of Hope, Coleman thanked the Cathedral's supporters.
"Tough times never last," she said. "This ministry has saved millions of lives. This Chapter 11 is a new chapter in our ministry."

The Cathedral, which has been a landmark and a tourist attraction with its glistening glass tower, has faced serious financial problems because of nearly a 30 percent drop in contributions. Click here to see an updated list of known creditors and how much they're owed.

The church's budget woes have forced it to lay off 140 people in a little over a year, cut 50 percent of its Hour of Power air time and even send home its orchestra and professional choir singers. The church now has a choir made entirely up of volunteers, Coleman said.

In May, the church sold land donated by John and Donna Crean in San Juan Capistrano for $22.5 million. The Cathedral also canceled its "Glory of Easter'' pageant for the first time this year and could be forced to cancel its "Glory of Christmas" pageant next month.

Coleman said the likelihood of having a "Glory of Chrismas" this year diminishes with every passing day.
Bankruptcy filings among nonprofits and religious organizations is becoming increasingly common in these tough economic times, said Craig Barbarosh, an Orange County bankruptcy attorney with the firm Pillsbury, Winthrop, Shaw and Pittman.

"Churches and synagogues rely on membership fees and donations," he said. "With the tough economy, their cash flow has suffered significantly, leading to increased foreclosures and bankruptcy filings."
The Crystal Cathedral will likely spend the coming weeks trying to figure out how to best restructure their debts, Barbarosh said.

Uncertainty looms for creditors as well. "In any bankruptcy, there is a risk that unsecured creditors stand to receive less than what they are owed," Barbarosh said.

Penner, executive producer of the "Hour of Power" and teaching pastor, said the Chapter 11 may not have been necessary had a few creditors worked more patiently with the church.

"A few didn't want to play ball," he said. "They tried to get ahead of the others. It became difficult for us to hold the coalition of vendors together."

Oliver, who was also on the committee of creditors, said the church, at the end of the 90-day moratorium, offered the creditors 30 percent of what they were owed over five years.

"We saw their financial documents," she said. "They had the money to pay us 100 percent over five years. We refused to accept it." Oliver said Penner came up with one more offer Friday after realizing that negotiations were at a standstill. "He offered to pay us 100 percent over the next 12 years," she said. "What kind of an offer is that?"

When the creditors declined that offer as well, the Cathedral filed Chapter 11 right away, Oliver said.
"Based on what I have observed in this time, the church intended to file bankruptcy from day one," she said. "This was their way of buying time."

At least two creditors, including equipment financing company PNCEF LLC., have sought and obtained court-ordered writs of attachment. A writ of attachment is a remedy under California law that allows a creditor to assert a lien on the debtor's assets until a judgment is delivered by the courts. Obtaining such a writ basically helps an unsecured creditor to elevate their status to a secured creditor during this waiting period. There is a risk that "attaching" the debtor's assets may hasten bankruptcy. If bankruptcy is filed within 90 days after the writ is levied, the attachment lien terminates automatically and the creditor goes back to unsecured status.

Coleman said she is optimistic the church will come out of the trying times, adding that the ministry is experiencing its best cash flow in 10 years.