Cristol “believes it is in the best interest of the estate and all parties to appoint an examiner at this time to examine, negotiate and supervise a sale of debtors’ assets,” the order said.

The order added that if Fontainebleau Las Vegas’s Chapter 11 case had to be converted to a Chapter 7 liquidation, a trustee would have to be appointed and “would be required to expend a significant amount of time to obtain counsel (to) familiarize himself or herself with this case” before the property could be sold.

The judge plans to hear arguments about appointing an examiner Wednesday.

A group of term lenders have asked the judge to convert the bankruptcy case to a liquidation, arguing that there has been meaningful progress in talks to get the Strip project restarted. Cristol will hold a hearing on that motion on Oct. 28.

The term lenders argue that a trustee needs to be appointed to manage a sale of the property because of “pervasive conflicts of interest that exists among the debtors on the one hand, and their principals, officers, managers, affiliates and related parties on the other hand.”

The term lenders believe the lack of progress in negotiations means there is no longer any hope of completing the project under Chapter 11 protection and a sale of the stalled multibillion-dollar project is the only way for creditors to “realize any meaningful value” from the project.

Construction on the mixed-use project is 70 percent complete and it has been estimated at least another $1.5 billion will be needed to complete it.

The term lenders, including Los Angeles-based Canyon Capital Advisors, which recently acquired the Greek Isles; New York-based Carlyle Group, and Guggenheim Investment Management, hold more than $1 billion in loans.

Attorneys for the project’s developer have told the court that it is holding talks on selling the project, but Cristol’s order said “the record in this case indicates that the parties to these proceedings are not cooperating with one another.”

Fontainebleau officials declined to comment on Cristol’s Thursday order.

Cristol said the term lenders’ opinion on an examiner appointment “should be given substantial weight” since they are the holders of the largest secured claims and have liens on $16 million in cash collateral that has been used since the company filed for Chapter 11 bankruptcy protection in June.

Nancy Rapoport, a bankruptcy law professor at the University of Nevada, Las Vegas, said the judge’s decision to seek to appoint an examiner is unusual.

“It’s an unusual approach but bankruptcy courts are courts of equity, so they can do it,” Rapoport said.

An examiner would be given limited powers to conduct whatever business the court directs. If the judge appoints a trustee, however, that person would replace the company’s current management and have leeway to liquidate the company and act on his own.

The Fontainebleau Las Vegas has been in court-ordered mediation with its creditors to try to get the project under way again under new ownership.

The Review-Journal reported in July that Apollo Management, which owns half of Harrah’s Entertainment, was interested in the project.

A Penn National Gaming executive said Wednesday the company is considering acquiring the project, although the company said it would be “a tough project” because of the money needed to finish.

“Clearly we’re looking at it,” Chief Financial Officer William Clifford said during an investors meeting. “We’re looking at a lot of properties in Las Vegas.”

He added the project, which sits on 24 acres on the corner of Las Vegas and Riviera boulevards, “is worth about zero right now.”

Contact reporter Arnold M. Knightly at aknightly@reviewjournal.com or 702-477-3893.

Reuters contributed to this report.