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Financial plan for historic church is flawed, court says

The judge in the Charles Street African Methodist Episcopal Church bankruptcy case has rejected the historic Boston congregation’s plan for financial reorganization, calling instead for a revised proposal.

In his long-awaited decision, US Bankruptcy Judge Frank J. Bailey also dismissed calls from bankers to simply foreclose on $5 million in real estate loans the church has been unable to repay.

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Bailey ruled that Charles Street’s plan would leave the church “at best on the edge of insolvency for two decades — a congregation living for its debt,’’ according to court documents.

The judge suggested a number of ways in which the church might resolve its debts with the bank, including repaying less than the full amount it owes. He also suggested that the church relinquish some properties it owns but can’t afford to renovate and move forward with a plan to raise $1.5 million from donors led by a Bain Capital partner, Stephen Pagliuca.

“Charles Street is very pleased with the decisions of the bankruptcy court today, which make clear that the church will not be foreclosed upon and give the church every opportunity to restructure and go forward on a strong basis,’’ Ross Martin, the church’s attorney, said in a statement.

The decision is the latest twist in a high-profile case that started in February 2012, when OneUnited Bank threatened to foreclose on the Roxbury church property over the delinquent loans.

A swell of community pressure could not persuade OneUnited executives to negotiate with Charles Street AME, so the church filed for bankruptcy protection to stave off an auction of its sanctuary.

A judge ruled that Charles Street’s plan would leave the church ‘at best on the edge of insolvency for two decades.’

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In a statement, the bank said it was “reviewing the orders of the Bankruptcy Court including the Judge’s denial of the church’s Chapter 11 plan. We look forward to a final resolution of this matter for the benefit of the greater community.”

The judge called financial projections in the church’s reorganization plan “unrealistic.” He cited budget gaps for the church ranging from $215,000 to $375,000 per year for the foreseeable future. However, he rejected the bank’s assertion that various errors in financial reporting by the church were purposefully deceptive.

“Bad accounting is sometimes just bad accounting,’’ Bailey wrote.

In addition, the judge said the church’s umbrella organization, the First Episcopal District of Philadelphia, should not be released from its guarantee on the church’s loan to build the nearby Roxbury Renaissance Center. That means the bank can still separately pursue legal action against the district church.

The judge appointed an examiner to monitor the finances of the church and urged the bank and the church, both prominent black institutions in the community, to negotiate. Citing the church’s mission, Bailey said the court would “indulge all reasonable efforts to ensure reorganization.”

Beth Healy can be reached at Beth.Healy@globe.com.
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