In re White Motor Credit Corp., Bankruptcy No. B80-3360.

• Decision Date: 13 August 1981
• Docket Number: Bankruptcy No. B80-3360.
• Citation: 14 B.R. 584
• Parties: In re the WHITE MOTOR CREDIT CORPORATION, White Motor Corporation, Gemini Mfg. Co., White Motor Corporation of Canada Limited, the White Motor Credit Corporation of Canada Limited, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

14 B.R. 584

In re the WHITE MOTOR CREDIT CORPORATION, White Motor Corporation, Gemini Mfg. Co., White Motor Corporation of Canada Limited, the White Motor Credit Corporation of Canada Limited, Debtors.

Bankruptcy No. B80-3360.

United States Bankruptcy Court, N.D. Ohio.

August 13, 1981.

Michael J. Crames, P.C., Herbert S. Edelman, P.C., Levin & Weintraub, New York City, for debtors.

Eli Manos, Mansour, Gavin, Gerlack & Manos, Cleveland, Ohio, for Equity Securities Holder Committee.

Forrest B. Weinberg, Hahn, Loeser, Freedheim, Dean & Wellman, Cleveland, Ohio, for Creditors Committee of White Motor Corp.

MEMORANDUM ORDER RE HEARING TO CONSIDER AGREEMENT WITH AB VOLVO

MARK SCHLACHET, Bankruptcy Judge.

This matter arises upon (a) the application of certain debtors (sometimes referred to as a "debtor") for a hearing to consider a sale of substantially all of the operating assets of White Motor Corporation ("White" or "White Motor") and Gemini Manufacturing Co. ("Gemini"), and (b) the application relating to such sale filed by the Official Creditors' Committee of Gemini. Although the scheduling of a hearing is ordinarily a routine matter, such action herein has most serious implications and has required hearing time, including substantial testimony and argument, on June 15, July 9 and July 21, 1981.

FACTS

The factual background of this matter may be stated as follows:

1. On September 4, 1980, White Motor and certain of its affiliates, including subsidiaries Gemini and White Motor Credit Corporation ("White Credit"), each filed with the Court a petition under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"). Pursuant to an order of the Court the chapter 11 cases are being jointly administered for procedural purposes only.

2. At the time of the filing of the chapter 11 petitions, the principal and sole business of White Motor was the manufacture and distribution of (i) heavy trucks and related components and (ii) farm equipment and related implements. At the time of the filing of its chapter 11 petition, the principal and sole business of Gemini was the manufacture of certain components related to the trucks manufactured by White Motor and its affiliates. At the time of the filing of its chapter 11 petition, the principal and sole business of White Credit was the financing of wholesale and retail sales of the above-described trucks, farm equipment and related components manufactured by its affiliates.

3. Prior to the commencement of the chapter 11 cases, White Farm Equipment Company, a White subsidiary, had terminated manufacturing activities. By order dated December 10, 1980, as supplemented by order dated December 17, 1980, the Court authorized the sale of the capital stock of that debtor and certain related assets and properties to TIC Investment Corporation ("TIC").

4. By order dated March 14, 1981 the Court authorized the sale of the truck manufacturing operations of The White Motor Corporation of Canada Ltd., ("White Motor — Canada") to Nova and Bow Valley Industries, Ltd. Similarly, by order dated March 14, 1981 the Court authorized the sale of the farm manufacturing operations of White Motor-Canada to a joint venture company consisting of TIC and Linamar Machine, Ltd. In addition, by order dated April 22, 1981, the Court authorized the sale of White Motor's Australian subsidiary to Silchester Holdings Pty., Ltd.

5. On or about November 21, 1980, White Motor filed with the Court its schedules of assets and liabilities and statement of financial affairs as at the date it filed its chapter 11 petition. The schedule of assets reflects total assets of $597,866,577. The schedule of liabilities reflects obligations to general unsecured creditors in the aggregate amount of $525,836,570 and to secured creditors in the aggregated amount of $8,240,080 and liabilities to claimants entitled to priority under the Bankruptcy Code in the aggregate amount of $7,632,488.

6. Since the commencement of the chapter 11 cases, White Motor and Gemini have continued to operate their respective businesses and manage their properties in accordance with Section 1108 of the Bankruptcy Code. The statement of operations filed by White Motor for the period ended December 31, 1980 indicates that it incurred losses of $8.3 million during the month of December of 1980. The statement of operations filed by White Motor for the period ended March 31, 1981 reflects that it incurred a net loss of $5 million during the month of March alone and a net loss of $10.7 million from January 1, 1981 through the end of March. It should be noted that the above described losses as reflected in White Motor's financial statements are actually understated since those statements have not been adjusted to exclude the earnings of White Credit during the relevant periods.

7. White's current market penetration is alleged to be 2% as compared with pre-petition levels in excess of 5%; significant accounts have lately turned to competitors to fill their needs for diesel trucks, including fleets thereof; the dealer network has indicated an erosion of confidence in White, while valued employees continue to leave the debtors' employ; losses for 1981 on a "stand-alone" basis are estimated to exceed $40 million with any return to profitability subject to both questionable assumptions and factors (e.g. lower interest rates and general market recovery) over which White has no control.

8. As indicated above, White Motor has incurred significant losses in excess of $33 million since the filing date and management forecasts that such losses will continue.

9. On June 9, 1981, White Motor, Gemini and White Motor International, Inc. entered into an agreement with AB Volvo for the sale of substantially all those debtors' truck manufacturing operations to a subsidiary of AB Volvo. The conditions precedent to the obligations of AB Volvo under this purchase agreement include (a) the entry of an order which unconditionally approves the agreement and the transaction contemplated by it and (b) consummation of the sale no later than August 31, 1981. Accordingly, unless the Volvo transaction is approved by the Court at a time which will permit the closing to take place by August 31, 1981, AB Volvo may withdraw its offer to purchase the truck manufacturing operations of White Motor and its affiliates.

10. As of the date hereof, it does not appear that any other purchaser has come forward with a serious offer to acquire the truck manufacturing operations of White Motor and the related entities.

11. The creditors of White and Gemini include vendors, trade suppliers, holders of public debt, both senior and junior, various lending institutions, employees, pensioners and others. These interests are divergent and indicate varying and opposing preferences as to the future course of debtors' activities.

12. At the hearing held on June 15, 1981, White Motor and Gemini informed the Court that they intended to apply for an order scheduling a hearing to consider the Volvo transaction. At that time, the Indenture Trustee for the subordinated debentureholders of White Motor objected to the proposed application until such time as the Court has determined whether it is appropriate to consider a sale of substantially all of a debtor's assets prior to the filing and/or confirmation of a plan of reorganization. The Court directed all interested parties to address those issues at a hearing scheduled for July 9, 1981.

13. Subsequently, the Official Creditors' Committee of Gemini filed an application with the Court for an order establishing the procedures upon which the Volvo sale might be considered, such procedure to include a determination of whether a plan or plans of reorganization for White Motor and Gemini or their affiliates must be filed or confirmed prior to or concurrent with approval of a sale of substantially all the assets of White Motor and Gemini. As noted above, if such a procedure is established, it is likely that the Volvo agreement will expire before the Court has an opportunity to consider whether such sale would be in the best interests of creditors of White Motor and affiliated debtors.

14. By order dated May 29, 1981, this Court appointed an Official Committee to represent the interests of equity security holders, which committee has since retained counsel and otherwise functioned as a full participant in these reorganization proceedings. By order dated August 8, 1981, the Court appointed an Official Creditors Committee to represent employees, present and former, which committee has since retained counsel and otherwise functioned as a full participant in these reorganization proceedings. The UAW was appointed to the Official Creditors' Committee of White Motor Corp. and has been active in these proceedings.

15. On April 8, 1981, upon request of Lazard Freres & Co., debtor's investment banker, the Court advised that a transaction with Volvo of the sort now contemplated should be proposed within the context of a plan of reorganization. A similar communication was provided debtor's counsel in May, 1981.

16. Volvo has at all relevant times been indifferent as to the format in which its contemplated asset purchases should be placed before the Court and interested parties.

17. Debtor has had ample opportunity to propose a plan of reorganization premised on the Volvo transaction. This is particularly true in light of 11 U.S.C. § 1129(a)(11), permitting confirmation of a reorganization plan notwithstanding the likelihood of further liquidation or reorganization. See also Section 1127, making liberal provision for plan modification.

18. The Volvo transaction involves a liquidation of all of the assets of Gemini and substantially all of the operating assets of the White Motor Corp.

19. The Official Creditors' Committee of Gemini, subordinated debt, equity security holders, and SEC oppose, absent a showing of emergency, consideration of the Volvo...