Slemons Imports Sale Rejected : Hearing: A judge blocks group’s purchase of the bankrupt Newport Beach agency, while chief creditor sets a Monday deadline.

The proposed sale of Jim Slemons Imports to Las Vegas-based Fletcher Jones Management Group for $11.5 million was rejected Wednesday in federal bankruptcy court, leaving the fate of one of the nation’s largest Mercedes-Benz dealerships in doubt.

The ruling by bankruptcy Judge John Wilson came at the end of a nearly four-hour hearing during which attorneys for Newport Beach-based Slemons Imports and its chief creditor, Tokai Credit Corp., argued unsuccessfully for the sale.

Officials at Slemons Imports could not be reached for comment after Wednesday’s ruling.

But the dealership’s bankruptcy attorney, Jeffrey Broker of the Irvine firm of Winthrop, Lobel & Broker, said that Slemons Imports “probably cannot go on much longer” if Tokai follows through with its plan to cut off its credit.

Tokai, in documents filed with the court, has said that it will refuse to extend credit to Slemons Imports after Monday. The finance company loans money to Slemons to purchase autos from Mercedes-Benz.

Terms of the proposed sale called for the Jones organization to pay $2.5 million cash and issue a 10-year, $9-million note to acquire the assets and franchise of Jim Slemons Imports.

Tokai would have received $1.5 million of the cash and would have been named beneficiary of the note. The remaining $1 million in cash would have been used to pay federal, state and local taxes.

Jones would have leased back the Newport Beach dealership facility from another Slemons company, Jim Slemons Investments, for about $100,000 a month. Because Slemons Investments is not part of the bankruptcy filing, none of the rent would have to be used to pay off Slemons Imports debt.

David Gill, chief attorney for the unsecured creditors, argued that the proposal would have left his clients with empty pockets.

Broker said Wednesday that Tokai consistently has refused to work out a deal with the unsecured creditors committee. In addition to its claim on the assets of Slemons Imports, Tokai has liens against a number of properties owned by Slemons and by his other businesses and might foreclose on them to help recover money that it is owed, Broker said.

“This looks like a situation of Tokai and the unsecured creditors playing chicken,” he declared.

Broker said Wilson told attorneys that he was swayed by the unsecured creditors’ claims that the proposed sale would leave them out in the cold.

Slemons Imports filed for Chapter 11 bankruptcy reorganization on Aug. 9, listing $22 million in liabilities and $17 million in assets. About $15 million of that debt is owned to Tokai.