Freedom Industries files for Chapter 11 bankruptcy
March 2014 | DEALFRONT | BANKRUPTCY & RESTRUCTURING
Financier Worldwide Magazine
Freedom Industries Inc, the chemical manufacturer whose leaky storage tank polluted the Elk River in West Virginia, filed for Chapter 11 bankruptcy protection in January to cope with the cost of the number of lawsuits that were subsequently filed against the company.
Freedom, which is wholly owned by Chemstream Holdings Inc, filed for bankruptcy protection in the US Bankruptcy Court in Charleston, West Virginia on 18 January listing assets and debt of $1m to $10m each in court documents. However, the consensus among analysts is that the company has grossly underestimated its liabilities in these filings.
According to Freedom, the volume of the lawsuits and severe payment demands from vendors since the incident on 9 January forced the company to seek protection in the US bankruptcy court. Under the terms of the bankruptcy filing most of the two dozen court cases lodged against the company will be stopped, forcing plaintiffs to vie with other creditors for a share of the company’s assets. However, despite the stay in the civil legal proceedings facing the company, Freedom will be required to endure a number of state and federal investigations as it attempts to reorganise its business and continue operating under federal law.
Anthony Majestro, an attorney acting on behalf of a number of smaller businesses suing the company, noted that his clients were considering petitioning the court hoping to collect on Freedom’s existing insurance policy.
Within the bankruptcy paperwork, Freedom noted that the company has between 200 and 999 creditors. In total Freedom’s top 20 unsecured creditors, with the exception of those parties who have begun legal proceedings against the company, are owed around $3.6m. Atlanta based FloMin Coal Inc was listed as the company’s largest creditor with a claim of $648,221.70. Silverlake Holdings LLC is the company’s next largest creditor, owed $615,954.51. D Car LLC and Archer Daniels Midland were the two next largest creditors, owed $561,518.75 and $428,768.12 respectively. The Internal Revenue Service has also indicated that it is owed more than $2.4m by Freedom relating to taxes dating back to 2001. Freedom had gross revenue of $30.7m in 2013.
Among Freedom’s major creditors is Eastman Chemical, the manufacturer that sold Freedom MCHM, the chemical that polluted the Elk River and later the local water system. Eastman has also been named as a defendant in the suit against Freedom Industries. It is alleged that the company failed to warn Freedom sufficiently of the hazards associated with using MCHM.
Freedom’s lawyers are asking for an expedited court hearing to review, among other things, the company’s request for a bankruptcy loan of up to $5m from WV Funding LLC. The loan arrangement was agreed following a court hearing which would allow Freedom Industries to continue to pay its employees and top vendors and provide funds to cover the environmental cleanup needed following the chemical spill.
The paperwork supporting the company’s bankruptcy filing offers Freedom’s ‘presently hypothesised’ explanation for what caused the chemical leak. The company noted that the severe wintery weather experienced across the US in January caused a water line to burst. The ground beneath a storage tank froze and an object of some description punctured a hole in the tank’s side, causing it to leak into the river. It is estimated that over 10,000 gallons of chemicals were spilled into the river, affecting the water supplies of around 300,000 people over nine counties.
Freedom Industries, which was created in 1986, was acquired by Pennsylvanian based company Chemstream, Inc, which blends and sells chemicals to industrial customers. On 31 December, Freedom merged with three local companies: Poca Blending, Crete Technologies and Etowah River Terminal. The chemical leak came from one of three tanks stored at a plan belonging formerly to Etowah.
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