By JAMES FINK
jfink@bizjournals.com | 716-541-1611

The bankruptcy issues hovering over British developer Bashar Issa may have spread across the Atlantic Ocean to a federal courtroom in downtown Buffalo, but they shouldn't affect the proposed sale of the mothballed Statler Towers to local interests.

However, that doesn't mean the sale will actually go through.

"There are significant hurdles with the Statler," said Robert Knoer, attorney for Statler City LLC, an investment group that offered to buy the it. "Everyone is acting in good faith. We are speaking with everyone who has an interest. Am I confident there will be a closing? No."

Chief Justice Carl Bucki of U.S. Bankruptcy Court, Western District, on Oct. 14 allowed the rarely seen Chapter 15 bankruptcy proceedings to continue with a provision: The legal action must not interfere with the pending sale of the 18-story building to Statler City LLC. The group, headed by local businessmen Mark Croce and James Eagan, offered $200,000, plus $500,000 in back taxes. The sale was announced in August and is scheduled to close by Nov. 15.

The five-year-old Chapter 15 provisions under the federal bankruptcy code cover international dealings - in this case, bankruptcy actions brought against Issa in England. Since its inception, there have been only seven Chapter 15 cases heard in local bankruptcy courts, mostly for Canadian real estate matters.

The motions in Bucki's court focused on providing trustees in both the United Kingdom and Buffalo access to Issa's financial records.

"It is not intended to have any impact on the (Statler) sale whatsoever," said Bernard Schenkler, a Damon Morey partner who is representing U.K. trustees Kevin Mawer and Richard Hill.

Creditors have brought legal action against Issa and his British development companies. Similar proceedings are under way in Buffalo where his BSC Buff Development LLC was placed into involuntary Chapter 11 protection 18 months ago. The Statler was sold as part of the Chapter 11 proceedings.

"We believe there are other assets that have nothing to do with the Statler," Schenkler said during the 30-minute court proceedings last week.

Knoer said he had no objection to the Chapter 15 matters concerning Issa, as long as there is no impact on his clients' planned purchase.

Bucki agreed and insisted all legal documents remove a potential sale of the Statler from future actions.

"It (the Chapter 15 filing) wishes to explore various potential assets that may exist," Bucki said. "I have no idea if they do exist. It may be there are no assets. I don't know. If it turns out there are assets, so be it."

Knoer said Statler City is halfway through the due-diligence period for closing the Statler deal. Due diligence expires Nov. 15.

Statler City, in late August, put $200,000 into an escrow account but risks forfeiting $100,000 if it backs away from the deal.

Knoer also confirmed that he and his clients are talking with Buffalo officials about waiving or reducing some of the back taxes and penalties owed on the building. Several issues must be addressed before his clients ultimately determine if they will buy the landmark, he said.

Last week, Gov. David Paterson said new historic tax-credit programs may help the Statler deal. Croce, Eagan and Knoer were standing a few feet from Paterson when he made the announcement.

Bucki's ruling that the Statler be kept separate from the search for Issa's other assets helps, Knoer said.

"It clarifies things," he said. "But we still have a long way to go with our due diligence."

Croce and Eagan have been mum about their plans for the Statler and its nearly 780,000 square feet of space. Sources said a multi-phased, mixed-use development may be in the works.

"We're only halfway through," Eagan said.

Issa made a big splash when he bought the Statler in 2006, pledging to make $100 million worth of improvements. Only a fraction of the proposed improvements were made after Issa faced legal and financial problems locally and in England.

After one sale fell through last winter, Bucki ordered the Statler to be vacated and mothballed. It's been closed since January.

According to court documents filed in Manchester, England, Issa allegedly has assets of $27.04 million and liabilities of $108.5 million. He is reportedly living in Dubai.