The Bottom Line:
A shipyard and ship repair business in Washington State became insolvent after a failed acquisition. When it could not achieve a plan of reorganization under Chapter 11, Stapleton Group was appointed off-panel Chapter 11 Trustee by the Tacoma, Washington Bankruptcy Court. The company’s secured creditor and Pierce County, whose ferry was in the process of being repaired by the company, had petitioned the court to appoint a trustee.
Within a week as Trustee, we recommended converting the case to Chapter 7 with a limited operating order based on the company’s financial affairs, significant outstanding obligations and limited assets. We built consensus among the parties involved to successfully guide the company through completion of Pierce County’s ferry within two months, in time for its busy summer season, by:
- Negotiating $1.5 million in funding from the company’s surety.
- Working with the company’s landlord to continue operating despite rent payment defaults.
- Communicating with the labor unions, including union representatives and the union steward, to address employees’ concerns and keep them from walking out.
- Overseeing the company’s CFO and accounting team to produce budgets to complete ferry and monthly operating reports.
We then completed an orderly wind-down of the business:
- Sold a mobile shipyard repair service based in Tacoma, Washington.
- Closed the company’s shipyard in Bellingham, Washington.
- Collected all outstanding accounts receivables.
- Recovered approximately $900,000 from the company’s D&O policy for claims related to the failed acquisition leading to the company’s bankruptcy filing.
- Managed the marketing and sale of certain assets.
- Oversaw accounting: UST reporting requirements, coordination and completion of final tax returns.
- Responded to numerous creditor inquiries.
The Business Issue:
The company had operated its shipyard in Washington State for 18 years, specializing in a variety of ship repair services for government agencies, when it agreed to purchase the largest West Coast shipyard and two dry docks in San Francisco for the price of $1 and assumption of a $38 million pension fund liability. The company later learned the acquired facility would require substantial investment to become operational. The company’s cash flow became strained and it entered Chapter 11.
Genesis of Stapleton’s Engagement:
Stapleton Group was appointed Trustee when the company owed over $800,000 in critical obligations, including past-due payroll taxes, excise taxes, pension payments and ALMA workers compensation insurance payments. Counsel involved in the matter recommended us based on our successful track-record of: managing high-intensity operating companies through bankruptcies; understanding of contracts; maximizing recoveries from remaining assets; managing creditor inquiries; and, coordinating the orderly wind-down of businesses.
Obstacles and Stapleton’s Solutions:
- The insolvent company could not pay vendors to fulfill its contract with Pierce County and a key vendor was at risk of missing its payroll. The contract was backstopped by a surety bond. The municipality-landlord and surety provider were dubious of the company’s ability to complete the project.
- Stapleton expediently obtained approvals for all pending disbursements and processed timely payments to vendors to get the mission-critical project completed.
- Stapleton proactively developed a relationship with the parties involved and built consensus resulting in operating and funding plans under the limited operating order.
- Stapleton established cash controls and procedures and paid all critical employee obligations related to health and welfare, insurance and pension benefits for the boilermaker and machinist CBA workers.
- Stapleton managed the company’s GM, CFO and remaining accounting staff to produce reliable periodic reports throughout the completion of the project.
- The shipyard’s municipality-landlord was owed back-rent and had the right to evict the company.
- Stapleton proactively established communications with the landlord.
- Stapleton included rent payments in its operating budget and obtained approval from the surety to make these payments to satisfy the landlord during the limited operating period.
- Stapleton oversaw management of personnel to clean-up the shipyard and return it to the landlord in fair condition.
- Employees threatened a walk-out during the limited operating period when no nobody would commit to paying their significant accrued vacation, threatening the company’s ability to complete Pierce County’s ferry as contracted.
- Stapleton met with the Labor Union Business Representative and the Shop Steward to hear their concerns, understand their demands and assess the gravity of a full-staff walk-out.
- By reviewing the collective-bargaining agreements, Stapleton calculated the full burden of paying accrued vacation to bargaining and non-bargaining employees.
- Stapleton provided the accrued vacation calculation and communicated the failure-to-complete risk to Pierce County and the surety.
- Stapleton ultimately obtained approval from Pierce County and the surety to fund the accrued vacation obligations to avoid a walk-out and the Pierce County’s essential ferry was completed on time.
- The secured creditor’s collateral included contract receivables, FF&E and dry-dock assets.
- Stapleton assisted with the secured creditor’s recovery by collecting outstanding contract receivables.
- Stapleton assisted in negotiations with prospective going-concern buyers in an attempt to sell the shipyard operation in-place to preserve jobs.
- When a going-concern sale failed, Stapleton assisted with the sale of remaining assets to private buyers and at a public auction.