U.S. Bankruptcy Court Chief Judge M. Bruce McCullough yesterday put Le-Nature's into bankruptcy, freeing a phalanx of lawyers and financial advisers to begin the monumental task of determining what can be salvaged of the corrupted Latrobe bottled water producer.
His decision came after a 75-minute hearing featuring nearly two dozen lawyers and two judges who navigated uncertain waters as they transferred jurisdiction of the case from a state court in Delaware to federal court in Pittsburgh without letting founder and former president Gregory Podlucky back in the front door.
Mr. Podlucky was evicted Oct. 27 after the company's minority shareholders presented evidence of widespread accounting fraud and document destruction implicating Mr. Podlucky. U.S. Attorney Mary Beth Buchanan and federal postal inspectors have launched a criminal investigation into the company.
Debt Wire yesterday reported that two safes were found at the company that contained watches, jewelry and a considerable amount of cash, a report the Post-Gazette confirmed through a party involved in the case.
Delaware Court of Chancery Judge Leo E. Strine Jr.'s Oct. 27 order appointed Kroll Zolfo Cooper as custodian to run the company. But he didn't give the New York restructuring firm authority to take Le-Nature's into bankruptcy without first getting permission from Mr. Podlucky and three other inside directors who control Le-Nature's board. Judge Strine readily gave Kroll that authority yesterday in a telephone call piped into Judge McCullough's court room.
"I believe very strongly the custodian ought to be in charge of the company at this point," Judge Strine said.
Paul M. Basta, a New York attorney representing Kroll, said the custodian found the situation at the company "far worse than imagined" when it took control. He cited "widespread document destruction" at a company that kept two sets of books and has less than $1 million in cash on hand. Le-Nature's has nearly $750 million in bank and bond debt, lease obligations and other liabilities.
Le-Nature's "reported revenue of $275 million to the outside world when it had [revenue of] $32 million," Mr. Basta said.
Four Pittsburgh creditors who are owed $1.4 million began involuntary bankruptcy proceedings against the company Wednesday, forcing the issue of where the case would be heard. During yesterday's hearing, lawyers and Judge McCullough wrestled with theoretical notions of who controls Le-Nature's.
"We're in a bit of a corporate governance mess," Mr. Basta said.
Judge McCullough's order puts Le-Nature's into Chapter 11 bankruptcy, which gives companies protection from creditors as they seek to reorganize. However, attorneys acknowledged yesterday they may not be able to save the company, jeopardizing the jobs of about 200 employees.
Mr. Basta said he will ask Judge McCullough on Tuesday to approve short-term financing and other orders necessary for the company to continue operating, including paying employees. He told the judge the company would come back a week or so later with a better assessment of whether the company can survive or should be liquidated.
Len Boselovic can be reached at email@example.com or 412-263-1941.