A company is suing a corporation in an attempt to stop a hostile takeover.
Gulfco Holding Group filed a lawsuit in the Jefferson County District Court on May 9 against Prospect Capital Corp., Prospect Capital Funding L.L.C., Robert Nabholz, Robert Melman, Sebastian Cervinca and Gulf Coast Machine & Supply Co. The suit cites breach of contract, breach of covenant of good faith and fair dealing, breaches of fiduciary duties and fraud.
The lawsuit states Altus Capital Partners II L.P., which was Gulfco’s majority shareholder, successfully bid in a blind auction to acquire Gulfco’s subsidiary, Gulf Coast Machine & Supply Co. in 2012.
Gulfco funded the merger through an equity infusion of more than $29 million from shareholders and a $42 million term loan from Prospect. Altus and Gulfco did not know Prospect had also bidded on the company, the complaint said.
Prospect then began to do a number of things to take control of GCMSC, including alleging certain financial documents weren’t submitted after Gulfco made organizational changes during a weak performance period, the complaint said.
Prospect and the company’s first interest lien holder, PNC Bank, issued default notices to Gulfco and GCMSC alleging Gulfco had violated covenants. Gulfco claims Prospect has the legal authority to exercise drastic default remedies. Prospect then charged Gulfco and GCMSC increased interest amounting to $69,000 a month, the complaint said. The bank didn’t charge interest and later worked out a restructuring plan with Gulfco.
The complaint claims Prospect launched a surprise takeover Nov. 8, when it purported it was exercising its rights under Gulfco’s stock pledge in the loan agreement, ousted GCMSC’s board of directors and installed three Prospect directors. Those directors are Nabholz, Melman and Cervinca, the complaint states. Prospect then transferred 99 percent of ownership and control of GCMSC to Prospect, the complaint states.
The lawsuit states the company used a faulty corporate governance procedure and fault legal documentation to take these actions.
The complaint also states Prospect used information from GCMSC to take over the company and sought to use confidential information to better one of its own companies, which is a GCMSC competitor.
Gulfco filed Chapter 11 bankruptcy Nov. 27, to protect itself from Prospect’s actions because it instituted an automatic stay of proceedings, the claim said. The company’s board of directors were replaced with its original board.
The Delaware Bankruptcy Court, where the action was filed because Gulfco is of Delaware, announced it was going to dismiss the bankruptcy lawsuit, which means the automatic stay will end, the complaint said.
Gulfco is seeking to get both temporary and permanent injunctive relief preventing Prospect from taking any action to charge Gulfco’s ownership, operations, board of directors, stock, assets or loans. It also seeks the court to appoint a receiver to govern the company while litigation continues, and an immediate temporary restraining order preventing Prospect’s takeover once the automatic stay is lifted, the complaint states.
The company also seeks the court to force Prospect to surrender legal control of all accounts, including bank accounts that Prospect or its officers have authority over, prevent Prospect’s officers from interfering with GCMSC’s business operations, its ownership or control, prevent Prospect from exercising any default rights under the credit agreement form 2012, require Prospect and its officers to take all reasonable actions to ensure that lawful control of GCMSC is fully transferred to Gulfco and enjoin GSMSC from submitting to any further direction or control by Prospect or its officers.
Gulfco is being represented by Barbara Barron of Mehaffy Weber P.C. of Beaumont, Benesch, Friedlander Coplan & Aronoff L.L.P. of Wilmington, Del. and David W. Mellott of Cleveland, Ohio.
Jefferson County District Court Case No. B195-691
This is a report on a civil lawsuit filed at the Jefferson County District Court. The details in this report come from an original complaint filed by a plaintiff. Please note that a complaint represents an accusation by a private individual, not the government. It is not an indication of guilt, and it represents only one side of the story.