Jim Phillips, former CEO of NanoMech, is objecting to a request to question him about how he operated the company, and a judge has given the approval for a petrochemical company to act as the initial bidder to purchase the bankrupt company.
In a filing Tuesday, Phillips contended that allegations that he mismanaged the company, misused corporate funds and gave himself a generous exit package when he resigned were gross mischaracterizations of the truth or outright fabrications. He also argued that any questioning would be premature, since NanoMech in Springdale is being sold.
Phillips told the court his exit from NanoMech came because of pressure from preferred shareholders and that the compensation package he received was heavily negotiated and involved, among other things, $452,000 in deferred salary. He also argued that money spent on travel was for legitimate marketing and promotional attempts to raise the company's profile and drum up potential customers.
NanoMech said in a June court filing that it hired Treliant LLC of Washington, D.C., to investigate transactions made by Phillips. Phillips stepped down as chief executive officer weeks before NanoMech's April bankruptcy filing in the U.S. Bankruptcy Court for the District of Delaware.
NanoMech said its initial findings indicate Phillips spent more than $750,000 in company funds on personal expenses, including trips for himself and his wife to the Paris Air Show and outings to Dallas and Indianapolis to attend auto races. According to the June filing, Phillips also awarded himself a compensation package valued at $500,000 when he left the company. Other claims include that the company made payments for renovations at Phillips' home and that company funds were used to buy electronics and pay for other expenses not connected to Phillips' job as CEO.
In its motion, NanoMech asked to examine Phillips under Rule 2004 of the Federal Rules of Bankruptcy Procedure. This rule requires people to answer questions, in a manner similar to a deposition, about dealings with the company, but they are allowed to have attorneys present if they wish.
Earlier this week, NanoMech asked the court to allow Vinmar International Ltd. of Houston to become the new stalking-horse bidder for NanoMech. NanoMech's largest creditor, Michaelson Capital of New York, was acting as the stalking-horse bidder, the entity that typically sets the minimum price for a company.
According to the order signed Wednesday by bankruptcy Judge John T. Dorsey, the $8 million initial bid for NanoMech remains in place along with bidding increments set at $250,000. The court also approved Vinmar making a credit bid of up to $13.08 million for NanoMech's assets.
According to court documents, after Michaelson Capital was named the stalking-horse bidder, Michaelson and Vinmar hashed out a deal to have Vinmar take up Michaelson's pre- and post-petition debt and replace Michaelson as the stalking horse.
The bid deadline for NanoMech was Wednesday, with an auction set for Friday if necessary and a hearing to approve the sale scheduled for Tuesday.
During Wednesday's hearing, NanoMech's attorney told Dorsey that P&S Global Holdings, a subsidiary of Vinmar, would act as the stalking-horse bidder. He said the deal would benefit creditors because it doesn't include proceeds from directors' and officers' insurance policies that were part of the initial plan.
The policies, valued at up to $6 million, are a type of liability insurance covering claims made against those serving on a company board or as an officer. Several creditors, including Phillips, objected to the original stalking-horse arrangement because it didn't spell out how those policies would fit into the sale, if at all.
An attorney for Phillips called the transaction "odd" and "orchestrated" and asked the judge to delay his decision.
Dorsey said he'd studied the plan and was satisfied it was appropriate.
Vinmar is a global marketing, distribution and project development company serving the petrochemical industry, according to its website. According to a 2017 news release, the company was founded in 1978 and generated $5 billion in revenue in 2016.
Founded in 2002, 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 level.
NanoMech claims $7.2 million in assets and owes nearly $19 million to its creditors, according to bankruptcy filings. Property includes $2.9 million in inventory; $3 million in intangibles and intellectual property including patents, trademarks and trade secrets; and nearly $350,000 in cash. Total liabilities stand at $18.9 million with $12.5 million owed to creditors secured by property and $6.4 million in unsecured claims. Typically secured creditors take priority and are paid first in a bankruptcy.
Business on 07/18/2019