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April 10, 2006
name='1'>Commentary: The Great Asbestos Scam in Pre-Pack
Bankruptcies
In a move barely noticed
in the press, federal Judge Kathryn Ferguson recently ordered the law
firm of Gilbert, Heintz & Randolph to disgorge $9.6 million it
received working on the Congoleum asbestos bankruptcy, one of the
largest disgorgements on record, according to an op-ed in
today’s Wall
Street Journal. More extraordinary is the tale
of greed and conflicts of interest that inspired such a penalty. For 30
years, judges have sat by as the tort bar flooded courts with phony
suits, dragging some 75 companies into chapter 11. Bankruptcy judges
have proved particularly resistant to investigating swindles, fearful of
the months such probes would add to already complex proceedings. Yet the
past few years have witnessed a reversal. The facts are rolling out, and
nowhere more so than in the case of Congoleum, a leading floor
manufacturer that declared bankruptcy in late 2003. That story is a
primer in how a defendant company teamed up with its former enemies in
the trial bar in an ingenious plan to enrich both sides -- leaving
Congoleum's insurers holding the bag. Under the Congoleum pre-pack
bankruptcy plan, the lawyers would shift their asbestos claims into a
special trust that had first dibs on any money. Congoleum and its
parent, American Biltrite Inc., would contribute $250,000 in cash and a
$2.7 million promissory note -- payable 10 years down the line.
Congoleum would then breeze in and out of bankruptcy in record time, its
shareholders emerging with all of their equity and the company with a
clean bill of health.
href='http://online.wsj.com/article/SB114462608919021341-email.html'>Read
more. (Free registration required).
In a related commentary,
members of Congress should pay attention to the scandalous details that
are emerging from asbestos bankruptcy proceedings around the country,
according to an editorial in today’s
size='3'>Wall Street Journal. If Congress
really wants to help, it would fix the 1994 loophole in the Bankruptcy
Code that gives plaintiffs lawyers the leverage to foist these 'prepack'
legal schemes on companies and courts.
href='http://online.wsj.com/article/SB114462385374521304-email.html'>Read
more. (Free registration required).
name='2'>Unions Wielding More Influence in Bankruptcy
Increasingly, labor
unions, especially in recent airline bankruptcies, are trying to show
they have muscle in the bankruptcy process with the primary weapon of
threatening to strike, the Associated Press reported on Friday. From the
airline to the auto industry, unions are attempting to protect their pay
and their pensions. But some legal experts caution that unions can do as
much harm to themselves as their companies by taking a stand in
bankruptcy, while others question whether the threat of a walkout
really does carry much weight. 'While unions might not have much in the
way of power in a chapter 11 case, they have a unique kind of
influence,' said David Dykhouse, a
w:st='on'>
York
'They might not get their way, but they've been sort of taken into
account and things end up not being the way they would have been had the
union not had this role.'
href='http://abcnews.go.com/Business/wireStory?id=1818135'>Read
more.
name='3'>New Law Slashes
w:st='on'>
size='3'>Utah
Filings
w:st='on'>
size='3'>Utah
numbers dropped 79 percent during the first quarter of this year as a
result of last year's sweeping bankruptcy law, the
face='Times New Roman' size='3'>Salt Lake Tribune
size='3'>reported on Saturday. Still, most observers believe the decline
is only temporary and expect the numbers soon will return to the
historically high levels of recent years.
size='3'>'We're just seeing the results of the new bankruptcy law that
went into effect in October, but nothing has really changed,' said
Jean Lown, a professor at
w:st='on'>Utah
size='3'>State
face='Times New Roman' size='3'>University
size='3'>who has studied the reasons behind
w:st='on'>
size='3'>Utah
bankruptcy rate. 'Lenders remain as aggressive as ever, providing credit
at high interest rates to just about anyone who has a heartbeat.' During
the first three months of this year, 1,015 residents sought
bankruptcy protection. In the same three months of 2005 there were 4,861
bankruptcy petitions filed in
w:st='on'>
size='3'>Utah
were 233 petitions filed in January, 311 in February and 471 in
March.
href='http://www.sltrib.com/portlet/article/html/fragments/print_article.jsp?…'>Read
more.
w:st='on'>
name='4'>Ohio
size='3'> Among Leaders in Consumer Bankruptcy
Filings
w:st='on'>
size='3'>Ohio
the nation's top states in total consumer bankruptcies filed
in the first quarter 2006, LexisNexis announced, according to the
Cincinnati Business
Courier on Friday. Six states had more than
6,000 consumer bankruptcies in the period:
w:st='on'>
size='3'>Georgia
list with 7,869, followed by
face='Times New Roman' size='3'>Texas
size='3'>(7,245),
size='3'>Michigan
size='3'>Ohio
size='3'>Tennessee
w:st='on'>California
w:st='on'>
size='3'>Ohio
has ranked in the top 10 states for personal bankruptcy filings.
Locally, the U.S. Bankruptcy Court of the Southern District of Ohio had
a record 42,333 filings in 2004 and 60,823 last year. In March, chapter
7 and chapter 13 filings totaled 51,096 nationwide, more than double the
25,005 bankruptcies filed in January. For the first quarter, 384,285
bankruptcies were filed, with 285,535 chapter 7's and the other 98,750
chapter 13's.
href='http://www.bizjournals.com/cincinnati/stories/2006/04/03/daily57.html?t…'>Read
more.
Autos
GM
CEO Says Bankruptcy or Bailout Is Wrong Solution
General Motors Corp.
Chief Executive Officer Rick Wagoner said seeking bankruptcy protection
or a government bailout wouldn't be good options for the company, which
is threatened by a strike at its largest supplier, Bloomberg News
reported yesterday. GM, the world's largest automaker, plans to
eliminate at least 30,000
face='Times New Roman' size='3'>U.S.
size='3'>factory jobs by 2008 and has offered its 113,000 union workers
buyout or retirement packages, part of an agreement among GM, the United
Auto Workers and Delphi Corp., the bankrupt auto-parts supplier that
used to be part of GM. GM's troubles helped push
w:st='on'>
size='3'>Delphi
October.
size='3'>Delphi
20,000 union jobs. Wagoner said he doesn't expect a lengthy strike. 'A
long-term strike at Delphi would have huge ramifications for General
Motors,'' other manufacturers, the unions and
w:st='on'>
size='3'>Delphi
us, the leaders of all those groups, if we can't come to a solution that
avoids that kind of drastic action.'' Wagoner, 53, said he has no plans
to resign.
href='http://quote.bloomberg.com/apps/news?pid=10000006&sid=a.kl5eKxU8FA&refe…'>Read
more.
name='6'>Court Approves
face='Times New Roman' size='3'>Delphi
size='3'>Early-Retirement Plan
The Delphi Corporation,
the auto parts company, received bankruptcy court approval yesterday to
offer early retirement incentives to 13,000 employees as part of a plan
to cut labor costs, Bloomberg News reported Saturday. The General Motors
Corp., the former parent of Delphi, will pay for the program, including
$35,000 to any
size='3'>Delphi
early retirement. GM estimated that it might file an unsecured claim
against
size='3'>Delphi
billion to recoup some of the costs. The plan is the first step
in
size='3'>Delphi
labor costs and end money-losing contracts in an effort to avoid
estimated losses of more than $8 billion through 2010.
href='http://www.nytimes.com/2006/04/08/business/08auto.html?pagewanted=print'>Read
more.
name='7'>Bankruptcy Filing Fees Increase
The cost to file for
chapter 7 bankruptcy protection went up by $25, bringing the total cost
of filing for chapter 7, which includes a $15 trustee fee and a $39
miscellaneous fee, from $274 to $299, the Fort Wayne Journal
Gazette reported yesterday. Chapter 13 filing fees are going up $85
from $150 to $235. With the miscellaneous fee, the total is $274. In
the
size='3'>Fort Wayne
size='3'>division of the U.S. Bankruptcy Court for the Northern District
of Indiana, 8,769 bankruptcies were filed in 2005. The 12 counties that
make up the
face='Times New Roman' size='3'>Fort Wayne
division are Adams, Allen, Blackford, DeKalb, Grant,
Huntington, Jay, LaGrange, Noble, Steuben, Wells and Whitley. Statewide,
80,361 bankruptcy filings were processed last year.
href='http://www.fortwayne.com/mld/journalgazette/14301884.htm'>Read
more.
New
Law Impacts Bankruptcy Numbers and How New Mexicans File
New Mexican consumers are
filing more do-it-yourself bankruptcies under the new bankruptcy law
that took effect Oct. 17, the
size='3'>Albuquerque Journal reported
yesterday. At the same time, the total number of filings has fallen
dramatically as a result of the legislation, primarily because of the
increased difficulty associated with the process. Pro se
filings made up about 17 percent of bankruptcies filed in the state from
Oct. 17 through February, according to the U.S. Bankruptcy Court
District of New Mexico. They were previously in the 9 percent range
under the old law in recent years. Although it has been more than
five months since the new law took effect, the impact of the changes is
still unclear in virtually all ways but one. Filings have dwindled to a
trickle: 43 in November and the total increasing slightly each month
since then. There were 157 filings in February.
href='http://www.abqjournal.com/biz/449991business04-09-06.htm'>Read
more.
name='9'>Adelphia Wins Approval to Intervene in Creditor
Disputes
Removing one obstacle to
Adelphia Communications Corp.’s bankruptcy exit, a federal judge
has approved the cable giant’s request to intervene in creditor
disputes that have endangered the approval of its chapter 11
reorganization plan,
size='3'>Portfolio Media reported Friday. Late
Thursday, Judge Robert Gerber of the U.S. Bankruptcy
Court in
face='Times New Roman' size='3'>Manhattan
approved Adelphia’s proposal to broker a deal
between the warring parties that have long haunted its chapter 11
proceedings. Following a hearing, Judge Gerber ruled that the request
was “in the best interests of the debtors and their estates and
creditors,” according to court papers. Adelphia is now authorized
to submit an amended reorganization plan that contains a creditor
dispute resolution.
name='10'>Galvex Hammers Out Court Approval to Auction
Assets
Embattled Estonian steel
maker Galvex Holdings Ltd. has won judicial approval to auction off all
its assets to its lender Silver Point Capital, or a higher bidder, on
May 2, Portfolio
Media reported Friday. Judge
face='Times New Roman' size='3'>Robert D. Drain
size='3'>of the U.S. Bankruptcy Court in
w:st='on'>
size='3'>Manhattan
the bidding rules on Wednesday and set an April 30 deadline for the
submission of competing bids. Silver Point Capital has offered a bid of
$203 million, the total value of the outstanding debt, including
interest to buy all the stock of Galvex Holding’s operating units
and assets. Other bids would have to top Silver Point Capital’s by
at least $2 million. Bids would increase by at least $500,000, and if
SPC were to lose the auction, it would receive a $1-million breakup fee.
Galvex operates the largest steel galvanizing facility in Europe and is
located in
face='Times New Roman' size='3'>Tallinn
size='3'>,
size='3'>Estonia
The case is Galvex
Capital LLC, case number 06-10082-rdd, in the
U.S. Bankruptcy Court for the Southern District of New
York.
name='11'>Judge May Rule on Comair Contract
A federal bankruptcy judge said
he will rule on whether to void Comair's labor contract April 10 if
the two sides cannot come to an agreement, the Associated Press reported
Friday. U.S. Bankruptcy Court Judge Adlai Hardin
repeatedly questioned both sides on the state of negotiations, which
have continued this week but appear to be at an impasse. Comair, which
filed for bankrputcy protection along with parent company Delta Air
Lines Inc. last year, is seeking $8.9 million in wage cuts and other
savings from the attendants. Hardin noted that Comair's entire
reorganization hinges on the flight attendant contract cuts, since the
pilots' and mechanics' unions agreed to wage cuts earlier, but only if
Comair could get the $8.9 million in concessions from the flight
attendants. If the two sides do not come to a decision by April 10,
Hardin will rule on Comair's request to nullify the attendants' contract
altogether. However, he could still extend that deadline.
href='http://www.washingtonpost.com/wp-dyn/content/article/2006/04/07/AR20060…'>Read
more.
name='12'>Loss of Contracts Leads to
w:st='on'>
size='3'>Florida
Plan Firm's Bankruptcy
Community Health
Solutions of America, a health plan management firm that works with the
Florida Healthy Kids program, has filed for chapter 11 bankruptcy
protection, the Tampa
Bay Business Journal reported
Friday. The company's revenues fell from
$22.8 million in 2003 to just under $7 million in 2005, and it owes $3.7
million to creditors, according to a March 31 filing in U.S. Bankruptcy
Court in
face='Times New Roman' size='3'>Tampa
size='3'>. The bankruptcy filing said the loss of two key contracts was
responsible for most of the drop in revenue. The contracts were not
identified.
href='http://www.bizjournals.com/tampabay/stories/2006/04/10/story7.html?t=pr…'>Read
more.
name='13'>Investors Force
w:st='on'>
size='3'>California
size='3'>Mortgage Firm into Involuntary Bankruptcy
A
w:st='on'>San
Jose
highest-ranking officer have been pulled into involuntary bankruptcy
proceedings in
face='Times New Roman' size='3'>San Jose
federal court amid allegations of fraud involving
millions of dollars and phony deeds of trust, the
face='Times New Roman' size='3'>San Jose Business Journal
reported on Friday. Michael J. Schneider, president of
California Plan Inc., which has offices in
w:st='on'>San
Jose
w:st='on'>
size='3'>Sacramento
accused of misappropriating nearly $4 million from five investors over
the course of more than 10 years. All of the investors are affiliated
with the Aspromonte family of
w:st='on'>Santa
Cruz
records, Mr. Schneider represented to the Aspromontes that he would
invest their money in mortgage loans secured by real property in
exchange for collecting fees as the loan servicer. Instead, they claim,
he took their money, never lent it as promised, then doctored copies of
the properties' deeds of trust, switching their names for those of the
actual beneficiaries. Two attorneys involved in the case who spoke on
background said they fear that more investments from multiple parties
beyond the Aspromontes may be at risk. U.S. Bankruptcy Judge Marilyn
Morgan agreed at a hearing March 30 to appoint trustees in the cases,
but that process has not been completed.
href='http://sanjose.bizjournals.com/sanjose/stories/2006/04/10/story3.html?t…'>Read
more.
name='14'>Investor Smacked with Refco Derivative
Lawsuit
Two fund members have
slapped well-known investor and fund owner Jim Rogers with a fresh
lawsuit, accusing the Beeland Management Co. owner of improperly
transferring assets to unregulated futures broker Refco Inc. before it
went bankrupt, Portfolio Media reported Friday. In court papers
filed this week in
face='Times New Roman'
size='3'>Manhattan
Invest Ltd. and the
size='3'>Sulam Trust alleged that Rogers, Beeland and others have
breached their fiduciary duties to the Rogers Raw Materials Fund LP.
“The defendants violated their fiduciary duties by causing or
allowing the asset transfer to Refco CM despite, among other things,
publicly available evidence that Refco CM’s parent, Refco Inc.,
was plagued with deficient internal controls over financial
reporting,” the plaintiffs charged in the derivative suit. Dynasty
and Sulam are limited partners of the Rogers Raw Materials Fund LP, with
Beeland serving as the general partner of the fund. The members have
accused the defendants of permitting the transfer of an estimated 86
percent of the fund's assets from regulated customer accounts at Man
Financial Inc. and Harris N.A. to Refco Capital Markets Ltd.
SEC
Probes Bankrupt Biotech Company
Just a week after filing
for bankruptcy over unreliable financial results, a biotechnology
company said it has received a subpoena from the U.S. Securities and
Exchange Commission,
size='3'>Portfolio Media reported on Friday.
SeraCare Life Sciences, based in
w:st='on'>
size='3'>Oceanside
w:st='on'>
size='3'>Calif.
four of its key officers last month, including the chief executive,
chief financial officers and chairman, following an internal
investigation of an audit committee that found that a number of
quarterly financial statements were not reliable. The committee
disclosed on March 15 that it planned to restate its financial results
for the first three quarters of 2005. For the three quarters that ended
in June 2005, SeraCare had reported profits of $3 million to $5.6
million. The SEC stopped trading the SeraCare shares after that
announcement, and a week later the company faltered into chapter 11
bankruptcy protection. The company filed with the SEC that some of the
terminated officers had been served with subpoenas from federal
authorities. The SEC also requested that SeraCare produce certain
documents. The recent subpoena was now asking that the company turn over
those papers and others, according to an SEC filing. SeraCare said it
would continue to cooperate with the SEC.
name='16'>Disagreement among Unsecured Creditors Delays Winn-Dixie
Case
Disagreement between the
unsecured creditors of Winn-Dixie Stores Inc. about how to consolidate
the grocer's outstanding debts will push its bankruptcy process through
the summer into the early fall, according to recent motions filed with
the bankruptcy court, the
size='3'>Jacksonville Business Journal
size='3'>reported today. The primary sticking point for the 11-page
filing is discussion among Winn-Dixie's unsecured creditors about how to
handle the company's pre-petition debts. The debate strikes at the core
of the largest issue remaining in Winn-Dixie's bankruptcy -- deciding
how much creditors will receive in a reorganization plan. Wilmington
Trust Co., the indentured trustee of Winn-Dixie's outstanding bond
notes, called this debt consolidation 'an issue of great significance
that has yet to be resolved' in a separate March 3 filing supporting a
30-day extension of the filing deadlines. The latest motion, filed March
31 by Winn-Dixie with the U.S. Bankruptcy Court for the Middle District
of Florida, requests a fifth extension of the grocer's exclusivity and
solicitation periods by 70 days each, to June 29 for filing its
reorganization plan and to Aug. 29 for soliciting votes of creditor
support for the plan.
size='3'>Read
more.
name='17'>Pension Gap Widens Between Public and Private
Workers
While corporate giants
like Verizon, General Motors, IBM, Sears, Sprint Nextel and Tribune Co.
have recently told workers they will have to fund and manage their own
retirement accounts with a modest contribution from the company, 90
percent of the nation's government workers are still covered by a
traditional pension plan as of 1998, the most recent figures
available,
size='3'>Newsday reported on Saturday. By one
estimate, the average public pension in
w:st='on'>
size='3'>New York
face='Times New Roman' size='3'>State
offers more than twice the payout that private pensions
do. The result is a widening gulf between public employees, with
guaranteed lifetime pensions, and private employees, who are struggling
to amass any kind of retirement fund for themselves. Legislators in
several states are pushing bills to make public pensions look more like
their less-generous private cousins to stem the rising taxes, which will
likely continue to increase as the Baby Boom generation retires. The
federal Bureau of Labor Statistics says only 11 percent of private
employers still offer a traditional pension plan. The number was 61
percent as of last year among companies with 1,000 or more workers, says
Hewitt Associates -- a significant drop from 20 years ago, when it was
91 percent. And the number continues to fall -- 15 percent plan to close
pension funds to new workers this year and 6 percent will freeze
benefits to current employees.
href='http://www.newsday.com/business/ny-bzpens0409,0,6337218.story?coll=ny-b…'>Read
more.
name='18'>Skilling, Lay Risk Division by Taking Stand
While former Enron Corp.
Chairman Kenneth Lay has sat in a federal courtroom as a parade of
ex-colleagues tried to tie him to alleged crimes at the fallen energy
giant, he now faces the risk of damaging testimony from another source:
his co-defendant, former Enron President Jeffrey Skilling, the
Wall Street Journal
reported today. Skilling is expected to take the stand
today to begin his much-anticipated effort to rebut the federal
conspiracy and fraud charges against him. Lay is expected to testify
later this month. Besides the potential drama of seeing the two
principal figures in one of history's biggest business scandals finally
confront their accusers, the impression that Skilling and Lay leave with
the jury could greatly influence the verdict. While the pros and cons of
having them testify have been extensively debated, one potential
downside of the move has received relatively little attention: the
possibility that one man's testimony could be harmful to the other. Such
an occurrence could greatly increase the chances that both would be
convicted, say observers.
href='http://online.wsj.com/article/SB114461884420221205-email.html'>Read
more.
name='19'>Mutual Fund Board Rule Thrown Back to SEC
A 2004 rule requiring
that mutual fund boards be independent was thrown into limbo yesterday
by a federal appellate court, which ruled that the Securities and
Exchange Commission must reexamine the basis for its rulemaking, the
Washington Post reported yesterday. The rule, which required
that the chairman and at least three-quarters of a mutual fund's
directors to be independent of management, was one of the most
controversial regulations to emerge from the mutual fund trading
scandals, in which some funds were managed to benefit a few rather than
the majority of shareholders. The litigation arm of the U.S. Chamber of
Commerce, which has fought a multi-front battle to roll back many of the
corporate accountability laws and regulations enacted since 2002, sued
the SEC over the rule, claiming the agency had not allowed enough public
comment and had not done sufficient analysis to determine if the
benefits of the rule outweigh the costs to implement it by mutual fund
companies. The decision yesterday gives the SEC 90 days to seek public
input and perform a cost-benefit analysis, or drop the rule. SEC
Chairman Christopher Cox, a former
w:st='on'>
size='3'>California
size='3'>congressman who has been a consensus builder in his nine months
on the job, did not say yesterday whether he would support the
rule.
href='http://www.washingtonpost.com/wp-dyn/content/article/2006/04/07/AR20060…'>Read
more.
International
name='20'>Scottish Pension Scheme's Running Costs are 50 Times the
Payouts
The Scottish government
scheme set up to bail out workers whose pension funds collapse has spent
more on management consultants than it has paid out to
pensioners, the Daily
Scotsman reported yesterday. Official figures
show that the Financial Assistance Scheme has spent more than 50 times
as much on bureaucratic 'administration costs' than it has actually
given in compensation, the Scotsman reported on Saturday. The
scheme was established in 2004 to help a small number of workers,
including Scottish employees of United Engineering Forgings, whose
occupational pension schemes became insolvent. According to the
Department of Work and Pensions' own figures, the scheme has so far paid
out to fewer than 50 workers, and given only £100,000 in total. But
the running costs of the scheme far surpass that figure. In two years,
the total administrative costs of the FAS have reached £5.3
million. Included in that figure is £135,000 spent on
'consultants,' believed to be private sector IT specialists and
actuaries.
href='http://news.scotsman.com/politics.cfm?id=538392006'>Read
more.