In re Heldor Industries, Inc.

• Decision Date: 06 September 1991
• Docket Number: Bankruptcy No. 90-35602.
• Citation: 131 BR 578
• Parties: In re HELDOR INDUSTRIES, INC., a Connecticut Corporation, Debtor.
• Court: U.S. Bankruptcy Court — District of New Jersey

131 B.R. 578 (1991)

In re HELDOR INDUSTRIES, INC., a Connecticut Corporation, Debtor.

Bankruptcy No. 90-35602.

United States Bankruptcy Court, D. New Jersey.

September 6, 1991.

COPYRIGHT MATERIAL OMITTED

Frank J. Vecchione, Crummy, Del Deo, Dolan, Griffinger & Vecchione, Newark, N.J., for debtor.

Peter Sarasohn, Ravin, Sarasohn, Cook, Baumgarten, Fisch & Baime, Roseland, N.J., for Creditors Committee.

Allan S. Brilliant, Skadden, Arps, Slate, Meagher & Flom, Chicago, Ill., for New Bank of New England, N.A.

Rachel Jeanne Lehr, Office of Atty. Gen. of N.J., Trenton, N.J., for Dept. of Environmental Protection.

Barbara H. Katz, Schatz & Schatz, Ribicoff & Kotkin, Hartford, Conn., for HI Acquisition Corp. and Aqua Fab Industries, Inc.

Stephen B. McNally, Sills, Cummis, Zuckerman, Radin, Tischman, Enstein & Gross. P.A., Newark, N.J., for One Cory Road Associates.

MEMORANDUM OPINION

STEPHEN A. STRIPP, Bankruptcy Judge.

This opinion addresses an objection by the New Jersey Department of Environmental Protection ("DEP") to a proposed settlement involving distribution of the proceeds of a sale of substantially all of the Debtor's assets. Under the settlement, most of the sale proceeds would be paid to New Bank of New England, N.A. ("The Bank"), which had a lien on virtually all of the Debtor's assets. The balance of the sale proceeds would be used to pay expenses of administering the bankruptcy case. The DEP objects because nothing would be set aside from the sale proceeds for compliance with the Environmental Cleanup Responsibility Act, N.J.S.A. 13:1K-6 et seq. ("ECRA"). This court has jurisdiction under 28 U.S.C. §§ 1334(a) and 151. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (K), (N) and (O). This shall constitute the court's findings of fact and conclusions of law.

I. FINDINGS OF FACT

The Debtor's principal business was the manufacture and sale of prefabricated swimming pool packages and related products. It leased premises across the country for use in its operations, including two in New Jersey. Its corporate headquarters and a manufacturing operation were located in Morristown, New Jersey on real property leased from One Cory Road Associates ("Cory"). Another manufacturing operation was located in Robbinsville, New Jersey, on property which the Debtor leased from another landlord. The Debtor suffered large losses during 1989 and 1990, due primarily to a softening of demand for its products. The Debtor filed a petition for reorganization under chapter 11 of title 11, United States Code (the Bankruptcy Code) on December 7, 1990, and has remained a debtor in possession.

The Bank was owed more than $10,000,000 on the petition date, and was secured by liens on virtually all of the Debtor's assets. Shortly after the petition was filed the court authorized the Bank to loan the Debtor an additional $500,000, which was also secured by liens on all of the Debtor's assets. It had apparently been clear for some time, however, that the Debtor would not be able to remain in business. After attempting to sell its business for over six months, the Debtor reached an agreement on January 24, 1991 to sell substantially all of its assets to HI Acquisition Corp. ("HI"), with payment of the purchase price guaranteed by HI's parent, Aqua Fab Industries, Inc. ("Aqua Fab").

When the Bank learned that the price to be paid for the Debtor's assets would be approximately $3,000,000 less than the amount due to the Bank, the relationship between the Bank and the Debtor became adversarial. The Debtor applied to the court for approval of the sale agreement under Code subsections 363(b) and (f), and the Bank objected on several grounds. It considered the purchase price to be inadequate. The Bank also objected because the sale agreement required that the Debtor comply with ECRA. The Official Unsecured Creditors Committee ("the Committee") objected for the same reasons. A hearing was held on February 14, 1991, and the court denied the Debtor's application for failure to comply with Code subsection 363(f).¹ The court therefore did not rule on the objections to the provisions requiring compliance with ECRA. The Debtor then continued to negotiate with HI and Aqua Fab, and to search for other prospective purchasers. The Bank simultaneously retained a consultant for advice as to how to realize the best price for the Debtor's assets. The consultant advised the Bank that acceptance of the offer by HI and Aqua Fab, to which the Bank had objected and which the court had disapproved, would yield the highest available price. The Bank therefore urged the Debtor, HI and Aqua Fab to enter into a new sale agreement, which they did. The new agreement (hereinafter "the amended sale agreement") differed in some respects from the original sale agreement. Unlike the original sale agreement, the amended sale agreement did not contain terms requiring that the Debtor must comply with ECRA. The Bank consented to the amended sale agreement.

Meanwhile, the Committee filed a complaint against the Bank seeking to recover preferential and fraudulent transfers and to subordinate the Bank's claim.² When the court scheduled a hearing on the Debtor's application for approval of the amended sale agreement, the Committee filed an objection. The hearing on the amended sale agreement took place on March 25, 26 and 27, 1991. As a result of extensive negotiations, the parties reached a settlement of the Committee's objection to the sale and of its complaint against the Bank. The terms of the proposed settlement, which requires court approval, were read into the record on March 26, 1991. On March 27, 1991, the court made required findings 1) that the sale was in the best interests of the Debtor, the estate and its creditors, 2) that adequate notice of the sale was provided, 3) that the purchaser was in good faith, and 4) that the purchase price was fair value in that it was the best price which could be obtained for the Debtor's assets under the circumstances.³ The court entered an order approving the sale on March 27, 1991.

The DEP received notice and opportunity for a hearing on any objections which it might wish to file to the proposed sale. The DEP received notice that the amended sale agreement did not contain terms requiring compliance with ECRA. The DEP, however, did not file or otherwise raise any objection to the sale. The order approving the sale provided in pertinent part that the Debtor's assets were sold free and clear of all liens, claims, restrictions and other interests, with exceptions not relevant here. The order also provided that the purchaser is not assuming any liabilities or obligations which accrued on or before March 26, 1991, including:

(b) claims related to pollution or other adverse effects upon human health or the environment, including, but not limited to, the release in connection with any of Debtor\'s (or its predecessors\') operations or any of the Acquired Assets of a hazardous substance, pollutant, contaminant, or other substance regulated under any local, state or federal law, ordinance or regulation, and claims related to Debtor\'s (or its predecessors\') failure to comply with any such law, statute, regulation or ordinance. . . .

The DEP was served with a copy of this order on the date of its entry. No appeal was filed. The Debtor, HI and Aqua Fab then closed the sale. The sale proceeds of approximately $7,100,000 have been held in escrow pending approval of the settlement.

The parties to the settlement agreement are the Debtor, the Committee, the Bank, HI and Aqua Fab. The terms which were read into the record on March 26, 1991 were reduced to writing. The primary terms of the settlement agreement are as follows:

· The Debtor and the Committee will exchange releases with the Bank, and the Committee's complaint against the Bank shall be dismissed with prejudice.

· The Debtor, the Committee, their professionals and all creditors waive any right to surcharge the Bank under Code subsection 506(c) for costs of preserving and disposing of the Bank's collateral.

· The court must have approved the sale agreement.

· The estate shall retain $1,153,000 from the sale proceeds, and shall create three funds: $500,000 for fees and expenses of professionals incurred in administering the estate; $517,000 for other administrative expenses through the closing adjustment date of March 26, 1991; and $136,000 for administrative expenses after the closing adjustment date. If the amount of such funds exceeds the total administrative expenses chargeable thereto, any excess will be turned over to the Bank.

· The balance of the sale proceeds, approximately $6,047,000, shall be paid to the Bank in satisfaction of the secured portion of its claim against the Debtor.⁴

· All accounts receivable not purchased by HI (i.e. those more than 120 days old and those sent out for collection) are abandoned to the Bank. The Bank has the right to retain the first $400,000 collected thereon. If there are any further collections, the Bank shall retain 60% and the estate⁵ shall receive 40%.

· All causes of action to recover preferences, fraudulent transfers and other transfers under the avoiding powers of Code sections 544 through 549 shall remain vested in the estate. The first $400,000 recovered shall remain in the estate. If there are any further recoveries, the estate shall retain 60% and the Bank shall receive 40%.

· HI shall provide the Debtor and the Bank office space, utilities and phone services for three months, and computer services for two months, at HI's Morristown facility at no charge for purposes of winding down the administration of the estate.

· If the settlement agreement is not approved, the sale of assets shall not be affected. The parties other than the purchaser shall then be returned to their respective positions immediately preceding March 26, 1991, the date of the settlement agreement.

On the Debtor's application, ...