Creditors of bankrupt Katy Industries filed a lawsuit that could disrupt the sale of the Maryland Heights cleaning and storage supply manufacturer to two investment firms, the St. Louis Post Dispatch reported yesterday. Unsecured creditors of Katy Industries filed the suit in Delaware bankruptcy court a day after Chicago-based Victory Park Capital Advisors LLC and Los Angeles-based Highview Capital LLC announced a $63 million deal to purchase Katy’s assets and rename the company American Plastics. Victory Park acquired a controlling stake in the company last year and Katy filed for chapter 11 protection in May. The unsecured creditors who filed suit this week say that loans Victory Park made to Katy were more like equity investments because, among other things, Katy did not make any repayments and Victory Park took part in management afterwards. As a secured creditor, Victory Park is in line for repayment before unsecured business customer and suppliers. Secured creditors also have the option to bid on assets that were pledged as collateral for its loans. The unsecured creditors are asking a judge to disallow repayment of some loans from the bankrupt Katy to secured creditors like Victory Park and to subordinate their claims below trade creditors “to offset specific harm that non-insider trade creditors have suffered on account of the inequitable conduct of Victory Park.” Katy Industries, now American Plastics, owns brands that include Huskee plastic trash bins, Wilen cleaning supplies and Contico plastic containers and shelving.
