Major Parties Involved In Columbia BK Will Not Profit As Much
As Planned
Recent efforts by a
number of parties interested in the future of Columbia Aircraft
have brought some (allegedly) much-needed scrutiny to those
involved in the conduct of the bankruptcy of that
once-up-and-coming GA manufacturer.
Concerned that companies involved in the sales and bankruptcy
process were profiting, excessively, in this process, and that a
number of conflicts and questions needed to be answered, creditors
and bidders have gone to court. In so doing, the most
recent of a number of legal actions seems to have pared down
the costs that will ultimately be incurred in the bankruptcy
process by what is left of its assets and solved another of
associated concerns.
Two firms, in particular, are the object of these
actions... ING Financial Markets, LLC, and Bridge Associates,
LLC.
Concerns about ING/Bridge's compensation were brought up weeks
ago by Granger Whitelaw and others, who noted that the packages
that these companies negotiated "seemed a bit too heavily weighted
in their favor." Scrutiny of Bridge was the first to necessitate
modification of their contracts as objections filed against
the company threatened their future involvement in the
proceedings.
One of the more intriguing items (of several) brought to light
was the Official Unsecured Creditors Committee's concerns about the
potential for conflicts of interest. The Committee noted that, "The
Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and the
Local Rules of this District provide a system for hiring
professionals, and a form for making disclosures. In this case the
disclosures made are not in the form, and are frankly confusing.
Also, the Committee is aware that Carl Young, the Chief
Reorganization Officer of the Debtor and one of the directors of
Bridge, has had a past relationship with the Ministry of Finance in
Malaysia in a prior case. That should have been disclosed since the
Ministry is both an owner and creditor in this case."
Whitelaw Pushes Bridge Objection and Prevails In Modifying
Bridge's Compensation
According to recent
matters before the court, objections spearheaded by potential
bidder Whitelaw, were substantially involved in the eventual
settlement of concerns about Bridge... resulting in a new agreement
that will eliminate the formerly considerable 'success fee' had
Columbia been sold successfully, and significant changes in further
business practices. Among these changes included diminishment in
the hourly fees billed by Bridge, which will be paid monthly at 80%
of billed amount (with 20% holdback), pending the court's ultimate
approval of such fees. The new agreement also only provides
indemnity for corporate officers under Columbia's articles and
bylaws, while Bridge, itself, must obtain relief from stay to
pursue a claim for indemnity. Additionally; 'preference claims'
against Bridge are preserved and Bridge must fully disclose its
prior work for the finance ministry of Malaysia. Finally; Bridge
compensation is ultimately subject to court approval.
For the moment, these actions would seem to have the potential
to save creditors in this matter a great deal of money when/if the
matter finally comes to a resolution.
ING Comes Under Scrutiny, As Well
Recent objections filed by the Official Unsecured Creditors
Committee to the Employment Of ING Financial Markets And Assumption
Of
Engagement Agreement were filed before the court, alleging that
"ING's work in this case from its initial engagement has been poor,
and ING does not deserve additional compensation beyond the
$206,259 it has already received from the Debtor."
The Committee also expressed a number of significant
reservations, claiming that:
- ING lacks expertise in dealing with troubled companies, and has
failed to provide essential guidance that a turnaround consultant
or other financial advisor would have provided to the Debtor on a
prompt basis.
- ING, most likely due to its lack of expertise, delayed too long
in determining the critical nature of the finances of the Debtor
and the need to sell the Debtor.
- Once the decision was made to sell the Debtor, ING spent three
months in preparing the "Confidential Information Memorandum" (the
"Book"), with which to contact purchasers. As a result, the
Debtor's financial situation became even more grave while ING
produced the Book, which is not terribly impressive and does not
adequately explain the value of the Debtor to potential
customers.
- ING, again due to its lack of experience, refused to stand up
to the owners of the Debtor and demand that they provide sufficient
financing both pre- and post-filing to keep the Debtor from falling
into a situation where the smallest problem resulted in a fatal
blow to the Debtor, that ING be allowed to contact the Debtor's
closest competitor, which is a logical purchaser for the business,
and that the purchaser be allowed to resell the Debtor immediately.
The excuse that this allowed the owners to "save face" is
insufficient.
- ING, again due to its lack of experience, sought to obtain an
investment in the Debtor or a stock purchase when it should have
been clear that any purchaser would be unwilling to assume the
massive obligations and debt liabilities of the Debtor, and instead
pursue a sale of the assets alone, which is what Cessna eventually
offered and what ING admittedly did not discuss with any other
potential buyer.
-
ING refused to set a
value on the Debtor that was reasonable and would attract bidders,
and referred potential purchasers to the balance sheet, which
admittedly did not include the most valuable asset of the Debtor:
its FAA certification of the planes.
- ING entered into a bad deal with Cessna which has created a
situation where the Debtor has to keep the entire workforce
employed but does not have enough work for them to do and enough
inventory to keep them busy, so money is being expended without
return. Furthermore, the Cessna agreement provides only a small
payment for the intangible assets including the FAA certification,
that the sale is based upon inventory value which is inevitably
going to drop and lower the sale price, and is on a short time
frame that may have discouraged other bidders by restricting the
time allowed to do due diligence.
The Committee's Counsel opined, in a November 6th filing that,
"The result of these missteps by ING is to put the Debtor in a
position where it is run out of cash and can barely operate, while
still spending enormous sums of money all to the loss of the
unsecured creditors. Furthermore, it is resulted in a sale much too
late in the game, when it should have been clearly apparent who the
most likely bidders were and that a sale was necessary months ago
which would have reduced the loss and led to a greater return to
unsecured creditors. By the Committee's calculation, the sale to
Cessna on the current terms will result in a distribution to
unsecured creditors of approximately $2 million on $70 million in
debt. The Committee does not regard the efforts of ING as being a
success, and instead feels that ING's efforts in finding a buyer
are worthless and should not be compensated.
"The Debtor's terms of employment with ING, providing for the
greater of a commission or flat fee, is unreasonable. If the
company had been sold earlier this year, the Committee believes
that the one and a half percent commission on the sale may have
been greater than the flat fee. However, since it has been delayed
so long, and because of the greater loss, the value of the company
has fallen and the flat fee of $1,150,000 will be the presumptive
payment. Based on the concerns and problems the Committee has noted
above, the Committee obviously believes that payment is excessive,
and the court should reject compensation on that basis.
"Assumption of the contract with ING, providing for this flat
fee, should also be denied. The fee is much too high, especially
considering that unsecured creditors are likely to see only a minor
dividend from this case. The fee of over one million dollars is
truly burdensome to the estate, and the assumption of the contract
should be denied on that ground. Durkin v. Benedor Corp. (In re
G.I. Indus.), 204 3rd 1276, 1282 (9th Cir. 2000). In re Orion
Pictures Corp. v. Showtime Networks (In re Orion Pictures Corp.), 4
F. 3rd 1095, 1099 (2nd Cir. 1993).
"For all the reasons stated herein, the court should deny the
Application. The Committee would suggest that ING be employed as
consultant to handle due diligence, and ING paid a reasonable fee,
on an hourly basis, for services connected to the provision of
documents and other information needed by potential bidders for the
company. In the alternative, the Court should allow the one and a
half percent fee, but only for such sum as paid in excess of the
Cessna bid already before the Court."
Concerns about ING (as expressed above) are scheduled to be
heard before the court on November 13th...
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