Maine Bankruptcy Judge Louis Kornreich issued an opinion today addressing the confirmation of the plan of reorganization proposed by six related companies – Irving Tanning Company; Prime Tanning Co., Inc.; Prime Tanning Corp.; Cudahy Tanning Company, Inc.; Wismo Chemical Corp.; and Prime Tanning Company, Inc. The opinion focuses on a number of objections to the proposed plan which were primarily focused on certain provisions of the plan relating to the debtor companies’ proposed use of assets (the “Self-Insurance Funds”) sequestered by the Debtors under the self-insurance provisions of the laws regulating workers’ compensation claims in Missouri and Maine.
Pursuant to the challenged portions of the plan, the debtors would be able to:
- satisfy workers’ claims under the Plan,
- use the Self-Insurance Funds for general distribution, and
- protect those charged with satisfying workers’ claims under state law with an injunction (“the Self-Insurance Channeling Injunction”)
By the terms of the plan of reorganization, the Self-Insurance Funds would be placed into a special escrow account and workers’ claims would be paid out of that account. The debtors’ plan anticipated that a surplus would remain after all worker claims were paid and that surplus would then be used to fund a general distribution.
These provisions were challenged by a number of parties, including the Missouri Department of Labor and Industrial Relations, the Missouri Private Sector Individual Self-Insurers Guaranty Corporation, the Maine Superintendent of Insurance, the Maine Self-Insurance Guaranty Association, and Acstar, the surety company that issued bonds to Prime Tanning Co., Inc. and Prime Tanning Corp. The objectors asserted that “the Debtors had no property interest in the Self-Insurance Funds upon the commencement of the cases beyond a chose in action to recover any surplus that may remain after all actual and potential workers’ claims have been satisfied under state law.” More specifically, the objectors asserted that the plan had the following fatal defects: “the Plan does not comply with the Bankruptcy Code; the Plan was not filed in good faith because the proposed use of the Self-Insurance Funds is forbidden by law; the holders of claims will not receive value which is not less than they would receive under chapter 7; the Plan was not accepted by all impaired classes; and the Plan is not feasible.”
As described in the opinion, which is embedded below, the court rejected all of the objections except for the feasibility objection. The court found that the plan was not feasible because “the Self-Insurance Funds are beyond the immediate reach of the Debtors” and, “[w]ithout those funds, the Plan will be short of cash.”