Attorneys are flying in from as far as New York to attend a courthouse hearing in Beaumont, as the fight to stop a hostile takeover of Gulf Coast Machine & Supply prepares to enter the next phase of litigation.
As previously reported, on May 9 Gulfco Holding Group filed suit against Prospect Capital, Prospect Capital Funding, Robert Nabholz, Robert Melman, Sebastian Cervinca and Gulf Coast Machine & Supply, accusing the defendants of breach of contract and fraud.
Court records show that numerous filings in the case have been sealed. However, the suit will move past concealed paper arguments and enter the oral stage with all-day hearings set for Tuesday, Nov. 25.
An amended notice of oral hearings, filed Nov. 19, states the following motions will be heard:
- Gulf Coast Machine and Prospect’s motion to realign parties;
- Defendants’ motion for protective order and motion concerning disclosure of already produced documents; and
- and Defendants motion to compel Altus Capital Partners and Gulfco to produce documents and for sanctions.
According to the original petition, in 2012 Altus, which was Gulfco’s majority shareholder, successfully bid in a blind auction to acquire Gulfco’s subsidiary, Gulf Coast Machine.
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 bid on the company.
The suit alleges Prospect then began to do a number of things to take control of Gulf Coast Machine, including alleging certain financial documents weren’t submitted after Gulfco made organizational changes during a weak performance period.
Prospect and the company’s first interest lien holder, PNC Bank, issued default notices to Gulfco and Gulf Coast Machine 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 bank didn’t charge interest and later worked out a restructuring plan with Gulfco.
On Nov. 8, 2013, Prospect launched a surprise takeover when it purported it was exercising its rights under Gulfco’s stock pledge in the loan agreement, ousted Gulf Coast Machine’s board of directors and installed three Prospect directors.
Those directors are defendants Nabholz, Melman and Cervinca.
The lawsuit claims Prospect then transferred 99 percent of ownership and control of GCMSC to Prospect, using a faulty corporate governance procedure and fault legal documentation.
In its suit, Gulfco asserts Prospect used information from Gulf Coast Machine to take over the company and sought to use confidential information to better one of its own competing companies.
In order to protect itself from Prospect’s actions, Gulfco filed Chapter 11 bankruptcy on Nov. 27, 2013.
According to the suit, a Delaware Bankruptcy Court announced it was going to dismiss the bankruptcy lawsuit, which will end the automatic stay, forcing the company to seek injunctive relief.
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 Gulf Coast Machine’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 Gulf Coast Machine is fully transferred to Gulfco and enjoin Gulf Coast Machine from submitting to any further direction or control by Prospect or its officers.
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 represent Gulfco.
Judge Gary Sanderson, 60th District Court, is presiding over the case.
Jefferson County District Court case No. B195-691