02/04/2008 367 Objection Filed by U.S. Trustee (RE: related document(s)357 Motion to Approve, filed by Trustee Stephen Palmer). (Daugherty, John) (Entered: 02/04/2008)
--------------
Doc 367
In re:
Case No. 07-50934
Chapter 11
Plasticon International, Inc.
Debtor.
OBJECTION OF THE UNITED STATES TRUSTEE TO ENTRY OF A FINAL ORDER APPROVING POSTPETITION SECURED FINANCING
Richard F. Clippard, United States Trustee, by counsel, objects to the entry of an Order approving postpetition secured financing, and the proposed payment of certain expenses, and in support thereof states as follows:
1. On May 16, 2007, Plasticon International, Inc. (“Plasticon”) filed a voluntary chapter 11 petition with this Court.
2. On October 4, 2007, the Court granted the United States Trustee’s Motion to Appoint Trustee and directed the appointment of a chapter 11 trustee. Docket #262. The Court approved the United States Trustee’s appointment of Stephen Palmer (“Chapter 11 Trustee”) as trustee on December 10, 2007. Docket #271
3. Pursuant to the Chapter 11 Trustee in his Motion to Approve Postpetition Secured Financing, Docket #365, the Chapter 11 Trustee terminated the employment of all six employees of Plasticon on October 12, 2007. Furthermore, the Chapter 11 Trustee vacated Plasticon’s leased premises on November 7, 2007.
4. Mr. Palmer resigned as trustee on January 31, 2008. Docket #366.
5. As set forth below, the United States Trustee objects to the Motion for Secured Financing because it calls for the payment of certain expenses contrary to the provisions of the Bankruptcy Code and the best interests of creditors:
(a) The Motion proposes to pay health insurance for the Plasticon employees through January 31, 2008. The estate is under no legal obligation to pay for health insurance post-termination, and such payment is contrary to the interests of creditors. See In re Right Time Foods, Inc., 262 B.R. 882, 885 (Bankr. M.D. Fla. 2001) (payment of insurance premiums after termination of employees provided no benefit to estate and therefore not an administrative expense).
(b) The Motion proposes to pay four months’ rent to Eagle View One in the amount of $24,000. This figure cannot be correct. On September 27, 2007, Eagle View withdrew its Motion for Relief, indicating that Plasticon was now current on its rent obligations. Docket #235. The monthly rent was $5,662.50; therefore any obligation for the period October 1 - November 7 would be significantly less than $24,000. Upon information and belief, this proposed payment may instead be diverted to pay the rent of TelcoBlue, Inc., a corporation controlled by former Plasticon CEO James N. Turek. See Withdrawal of Motion for Relief from Stay, Docket #235 (“TelcoBlue has not paid its rent at this time.”).
(c) The Motion also proposes to pay for contract labor for “warranty work on floor at Quantrell.” Upon information and belief, this work was performed by a nonfiling subsidiary of Plasticon. The Chapter 11 Trustee provides no explanation of why Plasticon should be compelled to pay this amount versus the non-filing subsidiary.
(d) The Motion also proposes to pay a $25,000 security retainer to the Official Committee of Unsecured Creditors. The Order requiring this payment, Docket # 175, was entered under the management of the Debtor-in-Possession, who failed to pay this amount. It is inequitable to require the estate to borrow funds secured by all assets of Plasticon to fulfil this obligation.
(e) Given these irregularities, the movant should be required to establish that immediate payment of the expenses set forth in his proposed budget is in the best interests of creditors, and that such payments represent “the actual, necessary costs and expenses of preserving the estate.” 11 U.S.C. § 503(b)(1). In addition, to the extent any of these proposed payments are for obligations established outside the ordinary course of business to former management, the movant must show that such payments are “justified by the facts and circumstances of the case.” 11 U.S.C. 503(c)(3).
6. The numerous irregularities in the proposed budget raises the distinct possibility that the proposed loan is subject to undisclosed conditions, i.e., that the lender [ 1] will not make the loan unless certain expenses are paid for the benefit of Mr. Turek.
[1]Upon information and belief, a principal of the lender is Mark Driver, who was a significant shareholder of Plasticon from 2004 to 2006. The records of the Stock Transfer Agent indicate that Mr. Driver’s direct holdings of Plasticon common stock at their peak totaled 166,613,142 shares. The Stock Transfer Agent records also indicate that Mr. Driver’s direct ownership of common stock ended on December 29, 2006 when he liquidated his remaining holdings in Plasticon.
WHEREFORE, for the foregoing reasons, the United States Trustee respectfully requests that the Court deny the Chapter 11 Trustee’s Motion for Approval of Postpetition Secured Financing, and for such other and further relief as may be just and proper.
Dated: February 4, 2008
Richard F. Clippard
United States Trustee for Region 8
By Counsel
/s/ John L. Daugherty
John L. Daugherty
Assistant U.S. Trustee
100 E. Vine St., Suite 500
Lexington, KY 40507
(859) 233-2822 |
