In re Eddington Thread Mfg. Co., Inc.
| Decision Date | 17 May 1995 |
| Docket Number | Bankruptcy No. 92-23608 SR. |
| Citation | 181 BR 826 |
| Parties | In re EDDINGTON THREAD MANUFACTURING CO., INC., Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Mark J. Packel, Duane, Morris & Heckscher, Philadelphia, PA.
Dennis Helf, Grim, Biehn, Thatcher & Helf, Quakertown, PA.
Allen B. Dubroff, Astor Weiss Kaplan & Rosenblum, Philadelphia, PA.
Kevin P. Callahan, Office of U.S. Trustee, Philadelphia, PA.
Lewis H. Gold, Adelman Lavine Gold and Levin, Philadelphia, PA.
Pace Reich, Clark, Ladner, Fortenbaugh & Young, Philadelphia, PA.
Regina Stango Kelbon, Blank, Rome, Comisky & McCauley, Philadelphia, PA.
Lynne P. Fox, Amalgamated Clothing and Textile Workers Union, Philadelphia, PA.
David S. Hope, Stradley Ronon Stevens & Young, Philadelphia, PA.
Introduction.
Max Berger ("Berger") and Irving Tannenbaum ("I. Tannenbaum"), sometimes collectively referred to herein as the "Plan Proponents," are before the Court seeking confirmation under Bankruptcy Code Section 1129(b) of their Modified Second Amended Plan of Reorganization (the "Plan") for the above Chapter 11 debtor, Eddington Thread Manufacturing Co., Inc., (the "Debtor"). Confirmation is supported by the Official Committee of Unsecured Creditors (the "Committee"), as well as by the Debtor's principal secured creditor, Corestates Bank, N.A., formerly known as Bucks County Bank & Trust Co. (the "Bank"). Confirmation is opposed by unsecured creditor Herman Tannenbaum ("H. Tannenbaum"), and equity interest holder Sylvia Teich ("Teich"), sometimes collectively referred to herein as the "Objectors." Hearings to consider confirmation of the Plan were held on March 29, 1995 and April 6, 1995. On the basis of the record presented, and after consideration of the arguments of the parties as expressed in post-hearing memoranda of law, the Plan will be confirmed.
Background.
The Debtor is a closely held corporation which manufactures thread and pre-wound bobbins. The present shareholders of the Debtor are Plan Proponents Berger and I. Tannenbaum, along with Martin Tannenbaum and Teich. The Debtor operates currently at plants located in Bensalem, Pennsylvania and Worcester, Massachusetts and employs approximately 100 people. The Debtor rents both of its plants. The Massachusetts facility is leased from an unrelated entity, however, the Debtor's Bensalem operation is conducted in premises owned by the Eddington Thread Manufacturing Company, a Partnership (the "Bensalem Landlord"), an entity owned in part by Plan Proponent I. Tannenbaum. Both realty leases were "deemed" rejected during the pendency of this Chapter 11 case, although the Plan Proponents' Second Amended Disclosure Statement (the "Disclosure Statement") recites the Plan Proponents' belief that they will be able to enter into satisfactory new leases with each Landlord.
The Debtor's present financial difficulties stem from a steady decline in its revenues from a high of $8,384,491 for the period ended September 30, 1990 to just under $5,000,000 for the period ended September 12, 1992. In this respect, the Disclosure Statement recites that "decreased gross revenues resulted in a loss in profitability in 1992 which triggered the loan defaults and subsequent Chapter 11 filing." (On September 19, 1992).
The Debtor's assets consist primarily of accounts receivable, inventory, and equipment having an alleged aggregate fair market value, as of August 31, 1994, of $3,100,000, and a liquidation value on the same date of $1,322,600.1 The Debtor's liabilities consist of the Bank's secured claim (encumbering all assets) in the approximate amount of $680,000, unpaid post-petition payables of approximately $760,000, other Chapter 11 administrative expenses of approximately $60,000 and general pre-petition unsecured claims (per the Debtor's Schedules) of approximately $950,000.2
The Plan now before the Court follows lengthy and oft times acrimonious competition among the Plan Proponents and the Objectors over the right to control the future affairs of the Debtor. In this respect, the Court notes an apparent inter-generational dispute among the members of the Tannenbaum family, with Plan Proponents Berger and I. Tannenbaum, along with Martin Tannenbaum and Linda Liebman aligned on one side, versus Teich and her nephew, unsecured creditor, H. Tannenbaum, aligned on the other side.
Since the commencement of this Chapter 11 case, the Debtor has filed no less than four proposed reorganization plans. H. Tannenbaum has likewise filed two. The most recent H. Tannenbaum reorganization plan, which had proposed a 35 cent dividend to unsecured creditors, had in fact proceeded to the point of a confirmation hearing in May 1994. That confirmation hearing was canceled after the Court approved a request by two unsecured creditors to change their vote and reject the H. Tannenbaum Plan. This request was prompted by indications from the Debtor that it was prepared to offer a higher dividend to general unsecured creditors in a yet to be filed amendment to its then pending plan. The vote change left H. Tannenbaum with insufficient votes to attain confirmation of his Plan. The proposed higher dividend to unsecured creditors (45 cents) is a feature of the instant Plan of the Plan Proponents.
Certain questionable events occurred during the pendency of this Chapter 11 case which warrant mention. Most notable among these is the Debtor's relationship with an entity known as Eastwood Yarn Corporation, ("Eastwood"). The Debtor and Eastwood have a substantial and apparently symbiotic business relationship pursuant to which yarn owned by Eastwood is shipped in its raw state to the Debtor's facilities, where it is then either processed by the Debtor and sold to Eastwood's customers, or purchased by the Debtor for processing and sale to its own customers. These transactions could and historically did result in accounts payable being owed by the Debtor to Eastwood. In a mix-up, attributed by the Debtor basically to inadvertence by the Debtor and/or its accountant, a large volume of transactions with Eastwood (in the net negative amount of $579,969.99) went unrecorded over a period of almost one year during the Chapter 11 case. The consequence of this in the year it was discovered and given effect, via amended operating reports, was to convert the Debtor's then modest operating profit to a substantial operating loss, and to in turn increase its cumulative net deficit from approximately $5,000 to approximately $505,000.
Other disturbing facts included 1) the Debtor's retention of Berger as its Chief Operating Officer during the pendency of this case without prior Court approval and 2) the Debtor's post-petition procurement of certain outside accounting services, apparently without full disclosure of the accountant's separate ties to the Plan Proponents and/or creditor entities affiliated with the Plan Proponents.
The Plan now before the Court establishes the following five classes in addition to claims of administration:
The proposed treatment of the aforesaid classes under the Plan may be summarized, as follows:
i) Secured Claim of the Bank.
Payment of $18,000 per month with a final "balloon" payment of all outstanding principal, interest and expenses on December 31, 1996.
ii) Secured Claim of Linda Liebman.
Total payment of $43,531.51 in twelve (12) equal installments payable every four (4) months.
iii) General Unsecured Claims
Payment of 45% cash dividend on effective date, or 20% cash dividend on effective date with additional 50% cash dividend payable in monthly installments commencing four months after effective date and payable every fourth month thereafter.
iv) Bensalem Landlord, I. Tannenbaum and Eastwood Yarn.
The Bensalem Landlord holds a pre-petition rent claim in the amount of $50,958, I. Tannenbaum holds a claim for unsecured loans to the Debtor in the sum of $302,578, Eastwood Yarn holds a pre-petition unsecured trade claim in the amount of $88,433.06. All three claims are to be paid under the Plan in twelve (12) equal installments payable every four (4) months commencing on the fourth month anniversary of the effective date.
v) Stockholder Interests.
Extinguished under the Plan.
Administrative claims are to be paid at or about the time of confirmation of the Plan with the exception of the large ($579,868.99) post-petition payable to Eastwood which is to be paid in twelve equal installments, payable every four months commencing on the four month anniversary of the effective date of the Plan.
The Plan Proponents estimate that cash in the amount of $215,000 will be necessary to make payments on the effective date, after giving due consideration to the elections of general unsecured creditors in Class C. On this point, Berger testified at the Confirmation Hearing that the source of the $250,000 in funds necessary for the payments due on the Plan's effective date, plus a small working capital infusion for the reorganized Debtor, will be $100,000 which Berger personally has on hand, and an additional $150,000 which he intends to borrow from National Penn Bank. In this respect, Berger intends to loan one-half of the foregoing $250,000 to I. Tannenbaum. The two, in turn, then propose to loan the entire $250,000 to the Debtor. With respect to the National Penn Bank loan, Thomas Doyle, a community banking relationship manager for National Penn Bank testified at the Confirmation Hearing as to that Bank's willingness to loan Berger the funds in question. A fully executed copy of a commitment letter for the proposed loan from National Penn Bank was also introduced by the Plan Proponents as Exhibit...
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