Dec. 20, 2006 — An arm of the U.S. Justice Department has moved against Innovative Communication Corp. owner Jeffrey Prosser in the seemingly endless bankruptcy cases involving, indirectly, Vitelco, the V.I. phone company.
The government unit is the U.S. Trustee, a self-described "watchdog" of the bankruptcy courts. It is part of the U.S. Department of Justice and is separate from the U.S. Bankruptcy Courts, which are part of the judicial system.
The U.S. Trustee moved on Dec. 19 that a case trustee be appointed to manage Prosser's business operations until the bankruptcy case is concluded. The presiding judge, Judith K. Fitzgerald, has already indicated her positive interest in such an appointment.
The judge will decide, presumably in a few weeks, and after a hearing, if such a government-imposed manager is a good idea. If she does she will then order the U.S. Trustee to appoint the case trustee. (The U.S. Trustee deals with all bankruptcies, while a case trustee deals with a single case or group of cases.)
The U.S. Trustee for the southeast United States is Felicia S. Turner, headquartered in Atlanta. Her motion filed with the bankruptcy court was noteworthy because of the directness of the language, for example:
"Virtually no progress has been made in these cases since [they]… were filed almost a year ago…The Debtors [i.e. Prosser and his companies] have done little more than repeatedly request continuances and then fail to meet the extended deadlines Additionally, since Debtors' management has completely lost the trust of its creditors and other parties in interest, no progress will ever be made in these cases if Debtors' management remains in control of estate assets ."
Turner continues: "Thus while some level of acrimony is to be expected in these circumstances, these cases have been paralyzed by such acrimony. This paralysis combined with the allegation of the Debtors creditors regarding the Debtors alleged breach of their fiduciary responsibilities to their creditors is sufficient justification for the appointment of a chapter 11 trustee…."
The appointment of a case trustee, according to the Justice Department publication Bankruptcy Basics, is "a rarity in a chapter 11 case the court, on motion by a party in interest or the U.S. Trustee, shall order the appointment for cause, including fraud, dishonesty, incompetence, or gross mismanagement or if such an appointment is in the interest of creditors, any equity security holders, and other interests of the estate." (The estate being the property subject to the bankruptcy proceedings.)
The U.S. Trustee's motion, like several others over the past few months, has nibbled away at the secrecy of these proceedings in that it disclosed the size of the "discounted" settlement that Prosser had once worked out with his main adversaries. The settlement then collapsed, twice, when Prosser could not come up with the needed funding. That settlement now moot was set at $402 million.
The $402 million dealt only with debts Prosser and companies owe to his longtime bankers, the Virginia-based Rural Telephone Finance Cooperative, and to the one-time minority stockholders in the predecessor firm to Innovative Communications Co., represented by the Greenlight companies.
In addition, Prosser's group owes about $85 million to a group of Vitelco's preferred stockholders and another $60 million or so to the U.S. Treasury.
The full set of undiscounted debts, including unpaid interest and extensive legal bills, has been estimated as exceeding $800 million.
Meanwhile, on Dec. 19, both RTFC and Greenlight filed separate (and mutually-supporting) motions with the bankruptcy court seeking the appointment of a bankruptcy trustee in another manner. These two organizations asked the judge to transfer the case from the relatively pro-debtor chapter 11 of the Bankruptcy Code, where it is now, to the harsher chapter 7 of the Code, which would entail the selection of such a trustee.
In their briefs, the two major creditors contended that Prosser should not continue to manage the bankrupt properties on the grounds of "irrefutable conflicts of interest" since he is the sole shareholder of the firms. "Prosser," RTFC argued, "should not be allowed to stay in control of this chapter 11 process through his insider-domination of the corporate Debtors."
A reading of the three briefs by the U.S. Trustee, RTFC, and Greenlight indicate that while the last two knew of each other's actions, there was no indication that the U.S. Trustee was aware of the RTFC-Greenlight filings or vice-versa.
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