A judge has dismissed Springdale-based NanoMech's bankruptcy at the company's request.
In an order entered Tuesday, Judge John Dorsey in the U.S. Bankruptcy Court for the District of Delaware granted the dismissal, noting it was in the best interest of the debtor, the estate and those involved. The order also dismisses all adversary cases related to the bankruptcy.
The bankruptcy began a little over a year ago when chief executive Jim Phillips retired weeks before NanoMech filed for Chapter 11 bankruptcy protection on April 15, 2019. NanoMech claimed $7.2 million in assets and owed nearly $19 million to its creditors, according to initial bankruptcy filings.
In mid-April 2020, NanoMech asked the court for the dismissal, noting in court filings that its business no longer exists after a court approved sale and that there are minimal assets to distribute to remaining creditors or to pay in ongoing court fees.
NanoMech said in court documents that it had neither the ability to maintain the Chapter 11 case nor confirm a debt reorganization plan. The Springdale company said continuing with the case will result in NanoMech simply stacking up additional administrative expenses that it wouldn't be able to pay.
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 that in Chapter 11 cases a dismissal has become a common way to end a bankruptcy. He said a discharge is typically sought in Chapter 11 cases when the company has the intent to reemerge as a business entity after it reorganizes its debts. Dismissals, Silverstein said, are common when a company sells its assets and closes its doors.
The Chapter 11 process is typically chosen, he added, because it gives the debtor more control on how it goes about the process of dealing with its assets and debts, including the sale of a company in its entirety.
"What you end up with often is no company left to discharge," Silverstein said.
Last week, Dorsey approved NanoMech's request to abandon its former corporate offices and manufacturing facility in Springdale.
NanoMech asked the court in early May for permission to abandon the property at 2447 Technology Way in Springdale. According to court documents, the property has two mortgages, one held by Arvest Bank for $1.5 million and a second held by Arkansas Economic Development Corp. for $500,000.
NanoMech argued that it was in the best interest of the estate to abandon the property, since it was unlikely a sale would bring in enough to cover the mortgages.
In April, Dorsey approved a settlement between NanoMech's officers and directors and its primary secured creditor, Michaelson Capital of New York.
The deal provides a general release to NanoMech's directors and officers. In consideration, the directors and officers' insurer will pay NanoMech $1.7 million, of which about $1.68 million will go to Michaelson and $20,000 to the NanoMech estate. The agreement also includes money allocated to pay any outstanding quarterly fees in the case.
After receiving the payment, Michaelson agreed to release NanoMech of all claims and the company's directors and officers will release Michaelson and others of all claims. The settlement resolves and eliminates disputes between the parties concerning the cause of the company's bankruptcy.
NanoMech was founded in 2002.
In late July, the court approved the sale of most of NanoMech's assets free of liens and other legal encumbrances to P&S Holdings for $8 million. The sale closed in early August. P&S is a subsidiary of Houston's Vinmar International Ltd., a global marketing, distribution and project-development company serving the petrochemical industry.
Business on 05/28/2020
CLARIFICATION: According to Springdale-based NanoMech, third party review of NanoMech’s business activities and financials which included the eight year period former Chief Executive Officer Jim Phillips led the company was performed. The post-bankruptcy board of directors’ review determined Phillips acted appropriately and there was no wrongdoing on his part, or by the pre-bankruptcy directors and officers. The timing of filings and settlement was not clear in earlier stories reporting on the bankruptcy case.