Last year Creative Loafing Inc. of Tampa, Florida, bought the Reader and our sister paper, D.C.’s Washington City Paper. Two months ago, CLI, which borrowed $40 million to make the deal, filed for Chapter 11 bankruptcy to reorganize. Earlier this month, CLI asked the bankruptcy court for permission to hire Skyway Capital Partners as “financial advisors.” Skyway’s president, Brian Crino, is a former Chicagoan who played a central role in pulling together the financing that made the 2007 purchase happen.

Hire Skyway? No way, says Creative Loafing’s biggest creditor. In a brief filed with the court this week, Atalaya Capital Management, which lent CLI $30 million it wants to retrieve, asserts that Crino and other Skyway principals have an equity interest in CLI that would compromise the objectivity of any advice they offer.

What’s more, Skyway’s “proposed duties reach far beyond a financial advisor and suggest that Skyway will also serve as an investment banker and potential broker for the sale” of CLI. In a recent post I described Crino’s reward for those duties: at least $250,000 if he raises the capital Creative Loafing needs to keep going — and at least $600,000 if he brings in a sale. Atalaya calls these terms “lavish,” “exorbitant,” and “outrageous” — the latter because in Atalaya’s view Skyway would be entitled to a “success fee” if CLI were sold even if it had nothing to do with the sale.  For instance, “the Debtors [CLI] would be obligated to pay a Sale Transaction Success Fee even if Atalaya bought the business of the Debtors” in a bankruptcy sale. As Atalaya sees it, CLI money going into Crino’s wallet would be money that belongs in its own.

The Atalaya brief also questions Skyway’s competence: “Skyway Capital advised the Debtors [CLI] in connection with the 2007 acquisition of the Chicago and Washington, DC newspaper operations. Less than two years later, the value of the combined operations of the Debtors is less than the sales price.”

(H/t Steve Fennessy, who’s kept a close eye on the bankruptcy litigation and alerted me to Atalaya’s latest move.)