PBGC is an independent agency of the U.S. government which pays monthly retirement benefits to workers who are subjects of failed or terminated pension plans.
Hardwick discontinued its plan after changes in the economy made its pension upkeep detrimental for the company to continue operations.
It was PBGC’s demand for a payment in excess of $4 million last December, which caused the company to file for bankruptcy protection.
Hardwick said it tried to negotiate the debt in good faith until PBGC suddenly demanded the payment with threat of a lien.
PBGC responded it had tried to work with Hardwick.
PBGC’s objection comes in the wake of Jones’ agreement to purchase the company for $2 million.
Jones and Hardwick made the announcement March 19. That was same day a motion was filed with the U.S. Bankruptcy Court which, with approval, would set up the track for a likely approved sale.
The motion would allow Hardwick to be sold to Jones who would “not assume any liabilities or obligations of or relating to [Hardwick] or the business, including without limitation liabilities relating to products, employees or environmental matters.”
Approval of that would effectively deny PBGC the ability to claim the funds it says it is owed from what would be the former Hardwick Clothes after a purchase by Jones.
The corporation is asking the court to deny Hardwick’s motion to authorize the sale “of substantially all estate assets free and clear of liens, claims, rights, interests and encumbrances,” approving stalking horse expense reimbursements and procedures and authorizing assumption and assignment of executory contracts and unexpired leases.
“Stalking horse” expenses involve the expenses incurred by the successful buyer related to negotiating the sales agreement.
The argument PBGC is making is — in layman’s terms — the sale is fixed in Jones’ favor and prevents PBGC from being able to recoup the funds they claim to be owed.
The hearing on Hardwick’s motion is scheduled to be heard Thursday in U.S Bankruptcy Court in Chattanooga.
This is the first serious objection submitted to the court from any debtor since the proceedings to protect the company began.
The court had already approved extending the “exclusivity period” which gives a longer window of protection for Hardwick as it seeks to form a plan to reorganize — that plan now being the sale of the company to Jones.
PBGC is arguing the bidding procedures in the motion should not be approved “because various terms included in the bid procedures will have the effect of chilling the bidding process.”
The corporation says the bidding procedure’s requirements that any competing bid must exceed the proposed purchase price of $100,000 plus an expense reimbursement fee ($200,000) “is excessive.”
The expense reimbursement fee is a financial price that is generally awarded by the court to an initial bidder in the event it is outbid in an auction.
PBGC’s second argument is there is “no evidence of any efforts to market [Hardwick’s] assets], and the bid procedures provide insufficient time to adequately conduct a marketing process prior to the auction.”
That translates into PBGC’s belief Hardwick never attempted to sell any of its assets and the proposed schedule does not allow enough time to place the company’s assets on the market for potential buyers to do their homework before placing a bid.
The auction, according to the proposed bidding schedule, would be held May 1 should the court approve the original motion.
PBGC also says an asset purchase agreement has not been finalized “so as to make it impossible for prospective bidders to submit a competing bid” even though a prospective bidder may wish to offer a higher purchase price but not assume all contracts or liabilities.
An asset purchase agreement was signed by Hardwick President Tommy Hopper and Jones CaptialCorp Senior Vice President Joe Mason on March 18 and filed with Harwick’s motion of sale.
It does not have listings of specific assets that would be in the deal.
PBGC says the proposed agreement will “chill the bidding process by not providing potential purchasers sufficient time to conduct the due diligence necessary to submit a competing bid.
“These flaws in the bid procedures will substantially harm creditors because they will limit the number of prospective bidders, decrease competition at auction and will result in a lower sale price,” the objection reads.
PBGC in its motion summary asks that the expense reimbursement fee of $200,000 as stated be reduced, an extention of the time allowed to be able to place Hardwick’s assets on the open market be extended and the asset purchase agreement with Jones be finalized “so that it details all assets and contracts being purchased or assumed by Jones with specificity and clarity before [Hardwick] begins soliciting competing bids,” and proposed bidding procedures be changed to “allow potential purchasers more time to conduct the due diligence necessary to submit a competing bid.”
The hearing will begin at 10 a.m. Thuresday at the U.S. Bankruptcy Court in Courtroom A with U.S. Bankruptcy Judge Shelley D. Rucker presiding.