April 25, 2007 — The trustee appointed by a federal bankruptcy court to oversee the finances of Innovative Communication Corp. (ICC) owner Jeffrey Prosser and his bankrupt companies reported to the court during a recent hearing in Pittsburgh that he is concerned the companies may not be as financially sound as he originally thought.
In fact, court documents reveal that a recent $2.2 million Vitelco dividend payment to shareholders in March was delayed because ICC officials were concerned the company would not be able to meet its payroll requirements.
In his report to Federal Bankruptcy Judge Judith Fitzgerald during the April 5 hearing, trustee Stan Springle expressed concern after learning from ICC Vice President of Finance Robert Lubana that the large Vitelco dividend payment was not made due to cash-flow concerns.
“According to Mr. Lubana, he was concerned that there was insufficient cash to make payroll at the various operating companies if he paid that dividend,” Springle’s attorney Craig Rasile testified.
ICC officials have long acknowledged that Vitelco is the corporate "cash cow" for ICC. However, Prosser and ICC officials, along with the Public Services Commission, have been adamant that Vitelco is profitable and in no risk from the bankruptcy of its parent companies. However, the recent news of the missed dividend payment and the cash-flow concerns seems to paint a different picture.
Throughout the bankruptcy proceedings, officials for Prosser's creditors, the Greenlight Companies and the Rural Telephone Finance Cooperative, have repeatedly expressed concerns that Vitelco funds were being used to fund Prosser's ongoing legal battle. Whether or not that's the case, still remains to be seen.
Determining where any of the money is going has been a difficult task for Springle, who has expressed his concern over the lack of a discernible system to manage cash flows throughout ICC.
“Clearly, the fact that there is no formal cash management system in place … that projects where the company’s next dollar will come from, and the fact that trade creditors are being stretched under payment terms, coupled with this missed dividend to the preferred shareholders, purportedly for cash-flow reasons, have actually sparked high concern by Mr. Springle that the enterprise may not be as fiscally sound as he originally thought,” Rasile said.
Complicating Springle's efforts to gather the financial information he needs to understand ICC's finances is an order issued in late March by the PSC instructing Vitelco officials not to cooperate with the trustee, claiming the federal trustee may not act without the PSC’s prior approval. (See "PSC Attorney: Innovative's Bankruptcy Trustee Must First Answer to PSC").
During the hearing, Rasile expressed his concerns that the order "has basically been used by Mr. Prosser and his professionals as an excuse for delaying, at a minimum, the trustee’s access to books …."
ICC's Redfield Responds
Asked about these issues, ICC Vice President for Corporate Affairs Holland Redfield sent a statement from the company.
“Neither ICC nor any of its subsidiaries have ever been delinquent on its payroll and have always maintained its accounts payable and creditors on a consistent basis from year to year,” the statement read. “For anyone to suggest that Vitelco, which has over $80 million in stockholders' equity and in excess of $12 million in net income, is insolvent clearly shows a lack of understanding of basic financial data.”
Regarding the absence of any cash-management system, the ICC statement said they have systems, but they may not be ones familiar to the trustee.
Redfield noted that "the system of internal controls, which includes the cash management system for ICC and its subsidiaries, including Vitelco, is audited annually by the international accounting firm of BDO Siedman LLP, the National Exchange Carrier Association (FCC) and other regulatory agencies that deal with ICC and its subsidiaries. The systems of internal controls have never been found to have a weakness that was not immediately addressed by the board and management of ICC and its subsidiaries. We find it surprising that after a few meetings, the trustee could draw the conclusions he is reported to have drawn.”
“Although our system is not the same as the ones the trustee is more familiar with, it has served our companies and our subscribers well over many years,” Redfield stated.
Just how well ratepayers' interests are being served remains to be seen. The Source has repeatedly, over the last five years, made requests for the audited financial reports Vitelco is mandated to provide annually to the PSC.
The commission has repeatedly denied or stonewalled the request; the most recent request having been tabled twice over the last 17 months.
Sale of Prosser's French Cable Companies Could be on Hold
Another concern raised by Prosser's creditors during the April 5 hearing is that the sale of Prosser's cable companies in Martinique and Guadeloupe had not yet occurred.
At a Jan. 30 hearing before Fitzgerald, Prosser's attorneys announced that the sale of these companies was complete. "The debtors are pleased to report that ITC [a French firm not further identified] has signed a memorandum of understanding for the sale of 100 percent of the stock of those two cable companies … the transaction is scheduled to close by the end of March 2007," Prosser attorney Scott Shelley said in January.
This is of concern to the creditors because the sale of the cable companies, estimated at $70 million, was to be used to pay off a portion of Prosser's debt to RTFC and Greenlight, estimated at more than $400 million.
"We have had no reports from the debtors downstream efforts regarding the sale of Martinique or Guadeloupe, which they promised the court they would have a signed agreement on by February 25th or would otherwise report to the court," RTFC attorney Tony Gerber said. "The debtors, frankly, have just gone silent. RTFC continues to be patient, waiting for the interest payments that are accruing at the rate of $30 million dollars a year and not being paid.
"While at the same time," Gerber continued, "it appears that the downstream entities don't have enough cash to meet their payments as they come due."
Prosser attorney Robert Craig said the closing of the sale to ITC was delayed because of uncertainty created by the appointment of the trustee but was now back on track. However, Craig did not provide a firm date for the completion of the sale.
Springle confirmed Craig's account, with reservations. "I, quite frankly, received conflicting information at our meeting with Mr. Prosser," Springle said. "I heard pretty much what Mr. Craig just said, which was that this transaction was on hold."
Springle went on to say he had no update on the situation because ICC, citing the PSC's recent order to not hand over control of Vitelco to the trustee, was not providing the information.
Back Talk
Share your reaction to this news with other Source readers. Please include headline, your name and city and state/country or island where you reside.
