Bankruptcy Watch: DAMIS Holdings and the Cost of Installing Governance at the Petition Date
- Arun Singh
- Aug 20
- 13 min read
DAMIS Holdings Bankruptcy Filing Overview
DAMIS Holdings LLC and 89 affiliated debtors filed Chapter 11 Bankruptcy on June 4, 2026, in the U.S. Bankruptcy Court for the District of New Jersey, jointly administered under Case No. 26-16439 before Chief Judge Christine M. Gravelle. The debtors reported $100 million to $500 million in assets and $500 million to $1 billion in liabilities.
DAMIS is the commercial, residential and industrial real estate arm of the enterprise controlled by brothers Michael and David Shabsels. Formed in 2009, it owns, leases and operates approximately 55 properties across 23 states, spanning hotels and lodging, leisure and resort assets, multifamily, retail, office, medical office and industrial property. The DAMIS debtors are indirect subsidiaries of SIMAD Holdings Ltd., the British Virgin Islands parent whose summer camp portfolio is the subject of separately administered Chapter 11 cases that SPE Specialists has covered previously.
The filing was made without a restructuring plan, no plan support agreement, and no contingency planning. What makes the case instructive is not the absence of preparation but what the debtors had to do in its place.
On the petition date, the chief restructuring officer removed the Shabsels brothers from all decision-making authority. Two disinterested directors had been seated immediately before the filing to replace them in governance matters. The debtors were unable to obtain the brothers' signatures to relinquish authority over the company's bank accounts, and asked the court to direct the banks to install a single signatory across all 95 accounts. The debtors also reported that they were unaware of any deposit account control agreement with any secured party.
Each of those steps is a recognized restructuring tool. Taken together at the petition date, they describe governance and cash control being constructed after the loss of both.
Case Snapshot
DAMIS Holdings LLC and 89 affiliated debtors, Case No. 26-16439 (Bankr. D.N.J.), before Chief Judge Christine M. Gravelle
Approximately 55 properties in 23 states; 18 held in fee and the remainder held through leasehold interests under 99-year ground leases
Approximately 744 direct employees, with many on-site workers engaged through third-party managers including CBRE, InSite Realty Partners and Simpson Properties as employer of record
Approximately $10.3 million of cash on hand as reported in the first day declaration, against mortgage service, payroll and operating requirements
Debtors represented by Faegre Drinker Biddle & Reath LLP, with a chief restructuring officer and counsel separate from those retained in the SIMAD cases
Ninety-five bank accounts, no known deposit account control agreements, and cash collateral relief pursued separately for each secured party rather than through a single omnibus order
The Structure the Portfolio Was Built On
Understanding the governance problem requires understanding how the properties were acquired, because the structure determined where control and cash actually sat.
The eighteen fee-owned properties were acquired between 2016 and 2022, each encumbered by a mortgage. The larger group of leased properties was assembled through a standardized multi-step process that the restructuring officer's declaration illustrates with a hypothetical ten million dollar acquisition.
A non-debtor fee holder contracts with the third-party seller and pays the full purchase price. The DAMIS debtors are not party to that contract.
The non-debtor fee holder then sells to two DAMIS entities: a LandCo taking the buildings, improvements and related rights, and an OpCo taking the rights under existing tenant leases. Both interests are subject to a 99-year ground lease. In the illustration, the two DAMIS entities pay eight million dollars in aggregate, less than the fee holder paid the original seller.
Both closings occur simultaneously so that the combined proceeds fund the seller. The DAMIS entities borrow against the interests they acquire through a leasehold mortgage, typically at 65 to 75 percent of purchase price, with other DAMIS debtors, non-debtor affiliates or the brothers as guarantors or pledgors. The non-debtor fee holder separately borrows against the fee interest, typically at 40 percent of purchase price.
After closing, rent received by the LandCo and OpCo services the leasehold mortgage, and ground rent paid up to the fee holder services the fee mortgage.
Two features of that arrangement matter for anyone evaluating a comparable structure.
First, the aggregate debt across both tiers approaches the original purchase price, and a single property-level rent stream services all of it. The leasehold mortgagee and the fee-level lender are looking at the same tenant payments from different positions in the structure.
Second, the fee interests are held by non-debtor entities that are not controlled by the DAMIS debtors but are owned, directly or indirectly, by the Shabsels brothers, by family trusts for their benefit, or by Leeton Real Estate, Inc., an entity controlled by a longstanding business partner. The landlord under the ground lease and the tenant under it were therefore affiliated. That is not an incidental feature of a few transactions. It is how the portfolio was assembled.
Prepetition Capital Structure
Figures below are drawn from the first day declaration and are described there as preliminary and subject to revision. Schedules of assets and liabilities had not been filed as of this writing.
Obligation | Amount | Notes |
Fee and leasehold mortgages | ~$466M | Aggregate principal outstanding across the owned and ground-leased portfolio; holders and servicers still being confirmed against title reports |
Merchant cash advance obligations | ~$134M | Guaranteed across DAMIS entities, SIMAD entities, non-debtor affiliates and the Shabsels brothers personally |
General unsecured obligations | ~$52M | Primarily trade payables and individual unsecured loans, many personally guaranteed |
SBA economic injury disaster loans | ~$1.1M | Fourteen DAMIS debtors, individual loans of roughly $35,000 to $180,000 |
Fee-level CMBS debt | ~$81.75M | Sits outside the DAMIS estate at the non-debtor fee holder level, across three identified securitization pools |
Key Dates and Events
Date | Event |
2009 | DAMIS Holdings LLC formed; portfolio assembled over roughly the following fifteen years |
2016 to 2022 | The eighteen fee-owned properties are acquired |
Dec. 2025 | Parent SIMAD Holdings Ltd. completes a secured bond offering on the Tel Aviv Stock Exchange |
Late May 2026 | Parent discloses that nearly $34 million was transferred to entities controlled by the Shabsels brothers; audit committee demands repayment |
May 31, 2026 | Parent misses the first interest payment on its Series A debentures |
Days before filing | Certain DAMIS debtors default on MCA obligations; several MCA lenders begin sweeping the debtors' bank accounts |
Petition date | Two disinterested directors are seated and the CRO removes the brothers from decision-making authority |
June 4, 2026 | DAMIS Holdings LLC and 89 affiliated debtors file Chapter 11 in the District of New Jersey (Case No. 26-16439) |
June 12, 2026 | First day hearing; a funder serves a notice on a major retail tenant directing rent to be paid to it rather than to the debtors |
June 16 and 22, 2026 | Cash collateral hearings, including emergency relief for the Rocking Horse Ranch and Splashdown Beach debtors |
July 17, 2026 | Section 341 meeting of creditors |
July 23, 2026 | Status conference and final hearing on certain first day motions |
Aug. 12 and 26, 2026 | Omnibus hearings |
What the Cash Collateral Fight Reveals
With roughly $10.3 million on hand, substantially all of which may constitute collateral for one or more lenders, the debtors could not spend money without authority under section 363(c)(2). The relief they sought was unusually granular. Rather than one omnibus order, they pursued a standalone order for DAMIS Holdings and a separate order for each secured party, with cash use contained within the applicable LandCo and OpCo silo.
Two positions taken in that process are worth noting for their general application.
The debtors reported that they were unaware of any deposit account control agreement with any secured party. A control agreement is the mechanism Article 9 generally requires to perfect a non-possessory security interest in a deposit account. Without one, a secured party that is not itself the depository bank faces a difficult path to establishing a perfected interest in the debtors' cash. For the merchant cash advance lenders the exposure compounds, because a security interest that attached or was perfected within 90 days before the petition date falls within the preference window under section 547 and may be avoidable regardless of perfection.
On adequate protection, the debtors argued that leasehold mortgages originated at 65 to 75 percent of value imply an equity cushion of 25 to 35 percent, above the threshold courts have generally treated as sufficient. The debtors acknowledged that independent appraisals were not complete and argued the cushion should be presumed until shown otherwise. Whether that holds depends on appraisals the estate had not yet obtained.
Secured lenders responded along predictable but instructive lines. One bank holding seven leasehold mortgage loans totaling approximately $89.5 million in original principal argued that its prepetition interest in rents continues postpetition under section 552(b)(2), so that replacement liens on those same rents offer it nothing it does not already hold. It sought property-level budgets with approval rights, segregation of rents by property with no commingling or intercompany transfers, and an express bar on using its collateral to pay junior creditors. Another lender, administrative agent on a $28 million shopping center loan, moved to prohibit any use of its cash collateral and to compel an accounting, flagging a $421,000 transfer out of a property-level debtor's account three days before the petition date. Two other lenders consented only to narrowly capped one-week use of cash to cover payroll at a resort and a water park, reserving all other rights.
The common thread is that every lender asked for the same thing: property-level segregation, documented flows, and a bar on cash crossing entity lines. Those are the controls that separateness is supposed to provide before a filing rather than after one.
Postpetition Conduct by the Funders
The most aggressive conduct in the early case came from the merchant cash advance lenders, and it illustrates a practical risk that is easy to underestimate when reviewing a financing document.
One funder swept an operating account to a negative balance as the property entered peak season. On June 12, another funder, through counsel, served a notice under section 9-406 of the Uniform Commercial Code directly on a major national retail tenant, asserting that the debtors' accounts belonged to the funder and directing the tenant to remit rent to it rather than to the debtors on an asserted debt of approximately $637,812.
The debtors responded by notifying the funders in writing that the conduct violated the automatic stay, engaging their claims agent to advise more than 300 tenants that rent remained payable only to the debtors, and moving the court to restate and enforce the stay. They identified non-compliant lenders on the record and reserved the right to seek sanctions and recovery of improperly swept funds.
The lesson is not that revenue-based financing is inappropriate. It is that a counterparty holding automated withdrawal rights across many operating accounts, and asserting ownership of receivables, can interrupt a property's cash collection quickly, including by contacting tenants directly. Whether the assertion is ultimately valid is decided later. The operational disruption is immediate.
Why the Entity Structure Matters
This case presents the separateness question from both directions at once, which is unusual and makes it useful.
Several facts pull toward treating the estates and entities as entangled. A lender's $50 million loan named both a SIMAD entity and DAMIS Holdings as co-borrowers. A U.S. entity named SIMAD Holdings LLC, distinct from the British Virgin Islands parent, appears as co-obligor or pledgor on multiple DAMIS mortgage facilities. A resort loan is jointly guaranteed by both brothers and both holding companies. The merchant cash advance obligations are guaranteed across DAMIS entities, SIMAD entities, non-debtor affiliates and the brothers individually. Cash management ran centrally through DAMIS Holdings. Creditors with claims against both estates, and bondholders facing any shortfall on the camp side, have an evident interest in pooling.
Other facts pull toward separateness. The estates are separately administered, with distinct restructuring officers, separate counsel and different lead cases. The SIMAD debtors represented affirmatively that their cash would not flow to DAMIS Holdings or its affiliates. DAMIS cash is largely siloed within each LandCo and OpCo pairing, with intercompany activity recorded as journal entries rather than as cash transfers. And the parties defending separateness most actively are creditors rather than the debtors. Secured lenders demanded property-level segregation. The CMBS trustees objected to any inference of substantive consolidation and offered documentary proof that each ground tenant debtor is a separate entity.
That last point deserves emphasis. Substantive consolidation is an equitable remedy applied sparingly, and courts examining it generally look to whether creditors dealt with the entities as a single economic unit and whether the entities' affairs are so entangled that separating them would be prohibitively difficult. The outcome is fact-specific, and nothing here predicts how any court would rule. What the record does show is that the entities most likely to withstand a consolidation argument are the ones whose separateness is documented in the transaction files and enforced in the cash arrangements, and that the parties who benefit from that documentation are the ones who insisted on it at origination.
The fee-level structure sharpens the same point. Three pools of non-debtor fee mortgages were refinanced into CMBS conduit trusts, representing roughly $81.75 million of debt sitting outside the DAMIS estate. Their existence surfaced through an objection filed by the affected trustees rather than through a comprehensive disclosure, and additional pools may exist. Each affected ground tenant debtor therefore carries at least three significant creditors: its leasehold mortgagee, the fee-level trust, and the holder of mortgages and assignments of leases and rents against the fee owner. Where the fee owner is an affiliate of the sponsor, the questions that follow are predictable. Was the ground lease negotiated at arm's length? Is ground rent actually being applied to service the fee-level debt? One secured lender has already raised the affiliate relationship as a live litigation concern.
These elements do not eliminate market risk. But they preserve optionality, slow escalation, and create earlier intervention opportunities.
The Governance Timing Problem
The disinterested directors seated in this case are experienced restructuring professionals, and the decision to seat them was plainly the right one.
Directors appointed on the eve of a filing inherit a record they had no ability to shape. By the petition date the collateral had been pledged, the ground leases had been signed with affiliated landlords, the guarantees had been extended across entity lines, the advances had been taken from dozens of funders, and the transfers now under investigation had already been made. What independent governance can do at that point is preserve value, investigate, and negotiate. What it cannot do is decline the transactions that created the problem.
Contrast the functions an independent director or manager ordinarily performs when the role exists from origination. Reserved matters typically require independent consent before an entity pledges its assets, guarantees affiliate obligations, transfers cash to an affiliate, or files a voluntary bankruptcy petition. Where the counterparty on the other side of a transaction is an affiliate of the sponsor, that consent requirement is the mechanism through which the transaction gets examined by someone without a stake in the outcome. Related-party transfers, repeat pledges of the same collateral, and financings drawn against revenue already committed elsewhere are precisely the categories these provisions are designed to reach.
None of this is a claim that independent governance would have prevented these filings. It would not have. Market conditions, a parent-level bond default, and the decisions of controlling owners are not within an independent director's power to control, and no governance mechanism makes an entity bankruptcy-proof. The narrower and more defensible claim is about visibility and sequence. A structure in which no single participant could see the consolidated obligation is a structure in which no participant could intervene early. The debtors here have said they intend to engage a forensic accountant to examine prepetition intercompany transactions. That examination is the reconstruction of information that contemporaneous independent oversight would have generated as the transactions occurred.
A Broader Pattern Lenders and Sponsors Should Note
The DAMIS record is a detailed illustration of a pattern that recurs in leveraged real estate platforms assembled through many small acquisitions.
The structure was legally sophisticated. Paired LandCo and OpCo entities, ground leases, property-level financing, and a non-debtor fee holder are all recognized techniques with legitimate purposes, including risk isolation and financing efficiency. The structure was also, by the debtors' own account, opaque enough that valuations underpinning the mortgages remained under active investigation at the first-day stage and title reports were still being reviewed to confirm who held which liens.
For lenders, the practical implication concerns diligence scope. Underwriting a leasehold interest requires understanding the fee-level debt above it, who holds the fee, whether that holder is affiliated with the sponsor, and whether the ground rent servicing the fee debt derives from the same tenant payments securing the leasehold mortgage. Where the answer to the affiliation question is yes, the arm's-length character of the ground lease becomes a diligence item rather than an assumption. Traditional lien searches may not disclose the full picture where filings are recorded under unfamiliar entity names or are silent as to cross-guarantees.
For sponsors, the implication concerns the timing of governance rather than its existence. Independent oversight adopted at origination costs relatively little and produces a contemporaneous record. Independent oversight adopted at the petition date costs a great deal and produces a forensic investigation.
Final Thought:
Governance installed at the petition date can preserve value. Only governance installed at origination can decline the transaction.
Building Resilient Structures
At SPE Specialists, we analyze cases like DAMIS Holdings because they show what separateness looks like when it is tested rather than described. Thoughtful SPE structuring, independent director and independent manager oversight with meaningful reserved matters, disciplined control over related-party transactions, and clear documentation of entity-level separateness can support earlier intervention when a platform's capital structure comes under pressure.
Note on Sources and Case Status
This article was prepared on August 17, 2026, while the DAMIS Holdings cases remain active and in early stages. Several qualifications apply.
Preliminary figures. Capital structure amounts are drawn from the first day declaration and secondary summaries of it, and are described in the declaration as preliminary and subject to revision. Schedules of assets and liabilities had not been filed. Property valuations remained under investigation and independent appraisals were not complete. There is much to still be discovered.
Characterization of claims. The debtors' description of any party as secured was made for descriptive convenience and does not constitute an admission as to the validity, existence or extent of any lien or security interest.
Allegations are not findings nor is it an assumption of guilt. The transfers, suspicious wire activity, affiliate dealings and conflicts described above reflect company disclosures, creditor allegations and press reporting. They have not been adjudicated. No court has entered a judgment of fraud, breach of fiduciary duty, or avoidance in these cases, and the Shabsels brothers have not been criminally charged. Investigations do not establish guilt or liability.
Substantive consolidation. Whether the DAMIS and SIMAD estates, or any entities within them, should be substantively consolidated is unresolved. Substantive consolidation is a fact-specific equitable remedy, and nothing in this article should be read as predicting an outcome.
Incomplete disclosure of the fee-level structure. The three identified CMBS pools surfaced through a creditor objection rather than a comprehensive filing. Additional pools may exist. Reporting has also referenced a larger figure of CMBS loan exposure connected to the enterprise than the amount reflected in the three identified pools.
Identification of parties. Certain funders and affiliated non-debtor entities are identified in press reporting or on belief rather than confirmed in the court record. Where this article describes a party's position, it reflects filings and reporting available as of the date above.
This article is provided for general informational and educational purposes. It is not legal advice, and it does not create an attorney-client or advisory relationship. Bankruptcy and creditors' rights outcomes are fact-specific, jurisdiction-specific, and dependent on the governing organizational, financing and lease documents. Readers evaluating a specific matter should consult qualified counsel and review the underlying court record, which is available through the claims agent.
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