Brown Publishing Co., the bankrupt former owner of Dan's Papers in the Hamptons, Wall Street's summer retreat, had its liquidation plan approved in federal court.

U.S. Bankruptcy Judge Dorothy Eisenberg said today in Central Islip, New York, that she will confirm the Chapter 11 plan after noting that creditors with unsecured claims who voted to approve it will recover a small amount of money.

"I'm surprised to find the numerous acceptances filed with this court," Eisenberg said at the conclusion of a more than five-hour hearing. "Apparently the creditors believe this is the best plan possible."

The Cincinnati-based company sold most of its assets last year for about $27 million. Brown Publishing's former top executives, including Chief Executive Officer Roy Brown, had submitted a winning bid at an auction, then dropped it because they "lacked the financial ability to close," according to court papers.

Brown Publishing's secured lenders, led by PNC Bank, made a bid based on the amount they were owed and won the assets. Dan's Papers, based in Bridgehampton, New York, was sold separately to Isis Venture Partners LLC.

Economic Recession

Brown Publishing filed for Chapter 11 creditor protection in April 2010, citing a decline in advertising revenue resulting from the economic recession. It then operated 15 daily and 32 weekly newspapers, as well as business publications and free shopping guides. The company listed $94 million of assets and $104.6 million of liabilities.

The liquidation plan included a settlement agreement between the committee of creditors with unsecured claims, the secured lenders and the debtor.

The committee had filed a complaint claiming that a $75 million secured loan to Brown Publishing in 2007 was a "fraudulent conveyance." In the settlement, the first-lien lenders will pay $1.32 million to a liquidating trust for the payment of unsecured claims and administrative expenses. The recovery on $38 million of general unsecured claims is estimated at 0.7 percent.

The principal objection at today's hearing was from Keith Evans, who had worked for Brown Publishing after it acquired his company. He sued the publisher in Texas state court and was in turn sued by the company in New York over claims for compensation. His lawyer, Patrick Collins, argued against an injunction in the plan that would prevent him from proceeding with his claims against Brown.

Eisenberg granted Evans's request to remove the injunction.