The U.S. trustee is objecting to a proposed settlement in the bankruptcy case of Springdale-based NanoMech, contending the deal leaves more than $100,000 in unpaid quarterly fees and isn't proposed in good faith.
The proposed settlement provides a general release to the directors and officers of the nanotechnology manufacturer. In consideration, the directors and officers' insurer will pay NanoMech $1.7 million, of which $1.68 million will go to the company's largest creditor, Michaelson Capital of New York's secured claim, and $20,000 will go to the NanoMech estate.
Bankruptcy Judge John Dorsey must still approve the settlement deal, and a hearing is slated for April 7.
According to a filing Friday in the U.S. Bankruptcy Court for the District of Delaware, Andrew R. Vara, U.S. trustee for Region 3, argued that NanoMech owes at least $111,984 in outstanding quarterly fees, and the settlement does not comply with earlier debtor in possession orders requiring that money be put aside to pay those fees.
"If the parties are unwilling to appropriately address the Debtor's chapter 11 administrative expenses, the Court should deny the Motion and convert the case to one under chapter 7," the filing stated.
In a Chapter 11 filing, a company seeks to reorganize its debt, while in Chapter 7 a company seeks to liquidate its debt.
In the filing, Vara notes that NanoMech has paid less than 22% of the fees it owes and hasn't paid quarterly fees since October. Vara contends that in earlier conversations with NanoMech, the company said it was negotiating a settlement that would bring in money to pay its administrative expenses. The trustee calculates the estate has about $3,000 in cash and $293,000 in unpaid administrative expenses, including quarterly fees, according to the document.
"The U.S. Trustee raised the outstanding quarterly fees with Debtor's counsel while giving the parties breathing room to settle the D&O claims," Vara wrote in the filing. "Apparently, no good deed goes unpunished: Michaelson now seeks to liquidate those claims without reserving for statutory fees on the transactions it orchestrated in this case, and to dismiss the Debtor's case forthwith."
Chief Executive Officer Jim Phillips retired weeks before NanoMech filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the District of Delaware in April. NanoMech claimed $7.2 million in assets and owed nearly $19 million to its creditors, according to initial bankruptcy filings.
The proposed settlement agreement finds no fault with Phillips' handling of the company or with any of the company's directors. In earlier filings, NanoMech asked the court for permission to claw back more than $576,000 paid to Phillips as part of a severance agreement.
NanoMech said in earlier court filings that certain stakeholders had raised questions about Phillips' leadership and actions as CEO. NanoMech said its investigations show Phillips spent company funds on personal expenses, including lavish trips, and also awarded himself a compensation package the company could not afford.
Phillips argued through court filings that the trips were all for legitimate business reasons and that NanoMech's allegations are gross mischaracterizations of the truth or outright fabrications.
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 03/31/2020
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.