The bankrupt owner of Newhall Land and Farming Co. may wind up with a trustee in charge of liquidating the corporation and selling off assets to the highest bidder.

On Friday, the committee of unsecured creditors submitted a request to have the U.S. Bankruptcy Court convert the Chapter 11 bankruptcy plan of LandSource Communities Development LLC to a Chapter 7 filing at a July 13 hearing in Delaware.

Judge Kevin J. Carey signed off on a reorganization plan June 1, sending it to the creditors for a vote. It will return to Carey July 13.

Chapter 11 bankruptcy allows a company to reorganize while a trustee operates the business. Under Chapter 7 bankruptcy, the business ceases operation and its assets are sold to satisfy its debts.

“The plan as constituted now doesn’t do the unsecured creditors any good,” said Louis Esbin, a Valencia bankruptcy attorney representing several companies that had contracts with Newhall Land.

The downside of a chapter 7 designation, Esbin said, is that it adds yet another layer of administration to an already labyrinthine situation.

The upside, Esbin said, is that “the trustee will be looking into every nook and cranny.”

LandSource’s business practices before and after the bankruptcy filing would be examined, he said.

The creditors committee is arguing the Chapter 11 reorganization plan violates bankruptcy law because unsecured creditors would fare better in a liquidation than through the distribution of stock they would see under the currently proposed plan.

Among the myriad unsecured creditors is the William S. Hart Union High School District, which is owed nearly $300,000, according to court documents.

Hart district spokeswoman Pat Willett could not be reached Wednesday afternoon.

LandSource – owner of Newhall Land – filed for Chapter 11 protection on June 8, 2008. At the time, the company received debtor-in-possession financing of $1.185 billion from a group of lenders led by Barclay’s Bank.

Newhall Land spokeswoman Marlee Lauffer could not be reached Wednesday.

Newhall Land officials have stood by their belief the company will emerge from bankruptcy stronger. They say the company remains likely to break ground on Newhall Ranch by 2012.

The largest project remaining on the company’s plate is the development of Newhall Ranch, a Valencia-sized community of some 20,000-homes on 15,000 acres southwest of the Interstate 5-Highway 126 junction.

If the Chapter 11 reorganization plan is approved, Lennar Corp., which was a majority owner of LandSource along with the California Public Employees’ Retirement System, will end up with 15 percent of the new stock at a cost of $140 million.

Lennar sold most of its 50-percent stake at the peak of the real-estate market for $660 million, and had a 16-percent stake in Newhall Ranch before the Chapter 11 filing.

It remains to be seen whether Carey will approve the chapter 7 switch on July 13.

“Only the guy in the black robe knows,” Esbin said. “When they were handing out crystal balls, I dropped mine.”

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