The former chief executive officer of bankrupt NanoMech is objecting to plans to sell the company, contending they improperly include valuable insurance policies and aren't designed to maximize the tech company's selling price.
Last month, NanoMech in Springdale presented a preliminary plan to the court to sell the company at auction in June. The plan calls for the company's largest creditor, Michaelson Capital Co. of New York, to act as the so-called stalking horse bidder in an auction, making a $9 million initial bid for the company's assets along with assumed liabilities.
In a filing Friday, an attorney representing James Phillips, the former top executive at NanoMech, argued the company's directors and officers insurance policies, valued at as much as $7 million, should not be lumped in with the company's other assets.
Phillips argues they are not the property of the estate, or transferable and that he has priority interest in the proceeds. Directors and officers policies, commonly called D&O policies, are a type of liability insurance covering claims made against those serving on a company board or as an officer.
Joshua Silverstein, a professor at the W.H. Bowen School of Law at the University of Arkansas at Little Rock who researches and writes about bankruptcy law, said in response to email questions that there is a major split in bankruptcy courts regarding if liability and other types of insurance are part of the bankruptcy estate. Some key factors involving liability insurance in a bankruptcy proceeding include who owns the policy, who receives the proceeds of the policy and the type of coverage provided.
The filing also contends the plan does not allow for maximum value of NanoMech, since it's not being properly marketed and doesn't allow for time to identify potential strategic bidders or to provide due diligence to potential bidders who might have questions or concerns.
NanoMech develops nanotechnology for use in machining and manufacturing, lubrication, packaging, biomedical implant coatings, and the development of specialty chemicals. Nanotechnology is the manipulation of matter at the atomic and molecular scale. Phillips retired weeks before the bankruptcy filing.
NanoMech filed for Chapter 11 bankruptcy protection in a Delaware court in April. In initial filings, NanoMech claimed between 100 and 199 creditors, between $10 million and $50 million in assets and between $10 million and $50 million in debt.
Filings showed debts including $8.9 million to Michaelson Capital; $2 million to Waring and Carmen Partridge Foundation of Texas; $1.5 million to Arvest; $1 million to investor Daniel Carroll; and $1 million to the Arkansas Economic Development Commission.
Recently two creditors filed limited objections to the plan for the tech company's post-petition financing, contending it fails to provide the creditors with adequate protection. Arvest Bank and Carroll contend plans setting up financing for NanoMech during the bankruptcy process are unclear and allows for liens that take priority over secured creditors. In a bankruptcy, secured creditors are typically backed by collateral and have priority in their claims.
NanoMech's chief restructuring officer, attorney Benjamin Waisbren, has said the tech company can operate as a going concern if it's properly capitalized. He said NanoMech was woefully undercapitalized and was on the verge of collapse just days before the company's board of directors opted to seek bankruptcy protection.
Business on 05/11/2019
CORRECTION: Jim Phillips joined Springdale-based NanoMech in 2008 as company chairman, became its chief executive officer, and stepped down last month. An earlier version of this story incorrectly described his initial position with the company.