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The court threw the ball back into the bank's lap, saying it needed to negotiate with the company and unsecured creditors committee, or else face the prospect of the case converting to Chapter 7. Without funds to cover payroll and other obligations, the company ceased operations and sent employees home on Sept. 4.
The debtors in the case included USFLOW and its four subsidiaries, Mutual Manufacturing and Supply Company, Bertsch Company, Piping and Equipment Supply Company, and Plotkin Brothers Supply, Inc.
As of this August, USFLOW had 760 employees at 50 stocking locations in 17 states from Minneapolis to Florida, with the bulk of its business in Michigan, Ohio and Georgia. The company also provided technical support and system solutions, as well as pump and mechanical seal repair services to industrial process and OEM accounts.
According to information at the USFLOW Web site, the company was self-insured, so health insurance and any life insurance coverage were no longer available after the first few days of September. Company paychecks were not honored at the beginning of the month either.
For the 12 months to August, USFLOW reported gross revenues of $265 million. As of Aug. 12, the company reported total book value assets of $69 million and liabilities of $123 million.
USFLOW said its business, like others in the industry, has been significantly impacted by the economic downturn and, in particular, the recession in the construction sector. The diminished demand for products distributed and serviced by USFLOW resulted in diminished cash flow, making it difficult to service debt and pay suppliers and other operating expenses. The company started discussing options with its bank and lenders in late 2002, and started actively marketing its business lines in early 2003, following the hiring of a chief restructuring officer.
On Sept. 10, the court authorized limited operations, by the trustee, for the purpose of conducting the liquidation of the debtors. On Sept. 17, the trustee filed certain motions to approve the sale of the debtors' assets, by auction, on an expedited basis and for other relief. The auction sale of the debtors' assets was scheduled for Sept. 29 in Grand Rapids.
Attempted sale and road to 7
Up to the conversion to a Chapter 7 case, negotiations took place for the sale of the assets of the individual business units. According to court records, this included an asset purchase agreement for Plotkin Brothers to its former owners for about $2 million. McJunkin Corporation, a competitor based in Charleston, WV, filed a motion to block the sale and requesting more time for due diligence, saying it was interested in acquiring both Plotkin and Mutual, as well as other subsidiaries that may be for sale. McJunkin's attorney raised concerns that the sale procedure to a stalking horse buyer, an interested party, "create a playing field as level as an Appalachian Mountain road."
In a subsequent filings and a court hearing, concerns were raised by the unsecured creditors committee that several former owners were involved in purchase negotiations, including the sale of Mutual for $15.9 million to a group of insiders. At a court hearing on Sept. 3, the unsecured creditors committee expressed concerns that the bank was extracting too high a fee. According to testimony, it appears the companies were purchased in 1999 for a total of $110 million. The