Solyndra bankruptcy trustee proposes taking over if execs keep invoking Fifth
WILMINGTON, Del. (Legal Newsline) Ã¯Â¿Â½ U.S. bankruptcy trustee Roberta DeAngelis proposes to take over management of solar panel maker Solyndra if its leaders keep pleading Fifth Amendment privilege against self incrimination.
On Sept. 30, she asked Bankruptcy Judge Mary Walrath to appoint a trustee over chief executive Brian Harrison and chief financial officer W.G. Stover.
In the alternative, she recommended conversion of Solyndra's intricate Chapter 11 rescue into a simple Chapter 7 liquidation.
"Management's invocation of the First Amendment does not excuse them from performing their fundamental disclosure and reporting duties under the bankruptcy code," staff trial attorney Jane Leamy wrote for DeAngelis.
"A debtor in possession has a duty to inform creditors, the United States, and the court about its finances and the circumstances leading to its bankruptcy," Leamy wrote.
The motion throws a wrench into an auction Solyndra plans to hold on Oct. 28.
Harrison and Stover expect the auction to attract bidders with enough capital to bring back hundreds of workers and resume manufacturing.
Harrison and Stover refused to answer questions on Sept. 23, at a Congressional committee hearing on a $535 million loan the Department of Energy guaranteed.
Leamy wrote that the executives have also refused to answer a number of other questions, including whether they submitted accurate information to investors, creditors and others.
According to Leamy, they refused to answer when they realized Solyndra wasn't profitable.
They also refused to answer whether the board discussed its unprofitability and whether they paid management bonuses after they realized their poor financial condition, Leamy alleges. She also states that they refused to answer whether they have a plan to repay the loan they obtained from the government.
Solyndra counsel Benjamin Schwartz refused to answer similar questions at an initial bankruptcy interview on Sept. 15, Leamy wrote.
"The debtors subsequently provided copies of certain contracts specifically requested by the United States trustee but further clarification of the debtors' contracts is still needed," she wrote.
She wrote that creditors can't independently apprise themselves of Solyndra's liabilities or evaluate whether additional assets might be brought into the estate.
"Although courts apply a presumption that a debtor should remain in possession, they do so based on the notion that a debtor is generally best equipped to oversee the company's reorganization," Leamy wrote.
"Here, debtors intend a quick sale and not reorganization."
She expressed doubt about their ability to prepare and verify schedules and statements.
Solyndra deepened her doubt on the same day by asking Walrath to delay the deadline for schedules and statements from Oct. 6 to Oct. 31.
Solyndra shut down factories in Fremont, Calif., on Aug. 31, terminating about 900 employees.
Employee Peter Kohlstadt filed a class action in federal court at San Francisco on Sept. 2, claiming Solyndra should have provided 60 days notice to employees.
Solyndra filed a Chapter 11 petition on Sept. 6, with an affidavit from Stover stating that an over supply of solar panels dramatically reduced prices worldwide.
Kohlstadt wrote that Solyndra reduced prices to remain competitive.
He wrote that reduction and elimination of subsidies and incentives for solar energy, particularly in Europe, negatively impacted the availability of capital.
He also wrote that Solyndra restructured the debt in February, providing a $75 million infusion but leaving $784 million in secured debt and that Solyndra raised $75 million in July, through sales of inventory and accounts receivable.
He wrote that Solyndra negotiated with existing investors and the Department of Energy for bridge financing to allow time to find a new source of capital.
He wrote that no one would fund the capital requirements in light of the size and structure of the debt.
He wrote that on Aug. 30, Solyndra was informed the bridge financing wouldn't occur.
"Without the bridge financing, Solyndra was unable to continue operations," Kohlstadt wrote.
Solyndra's petition stopped Kohlstadt's employee action in San Francisco, so he opened an adversary proceeding in bankruptcy court.
His lawyers have joined a committee representing unsecured creditors.