Gloucester Engineering Co. Inc. has struck agreements with two unsecured creditors, and now they are ending their bid to force the film equipment maker into Chapter 7 liquidation.
U.S. Bankruptcy Judge Joan Feeney in Boston will conduct a hearing June 3 on a motion by Plastifar SA and Hub Technologies Inc. to dismiss the involuntary Chapter 7 case.
Meanwhile, Chairman John Sharood said Gloucester Engineering continues to seek new investors. We're in detailed discussions with a couple of parties, he said.
Sharood said the company remains in business and is taking new orders.
Obviously, once we're recapitalized, we will be in a position to be more aggressive in the marketplace, he said.
Facing cash-flow problems from a poor economy for industrial machinery, the Gloucester, Mass., company has laid off an unspecified number of workers. In January, officials told suppliers not to ship goods without first getting approval from Gloucester Engineering.
The specter of bankruptcy arose on March 23, when three creditors Plastifar, a customer from the Dominican Republic, and two Massachusetts component suppliers, Hub Technologies and Ranor Inc. filed an petition for the Chapter 7 involuntary bankruptcy. According to the filing, Gloucester Engineering owes $203,500 to Plastifar, $40,000 to Hub Technologies and $234,988 to Rancor.
Now that liquidation threat appears to be over. On April 23, Plastifar and Hub Technologies filed a motion to dismiss their Chapter 7 petition. In the court filing, they said Gloucester Engineering has $13 million total secured debt so unsecured creditors like Plastifar and Hub Technologies probably would get nothing if the company were liquidated through Chapter 7.
Sharood would not discuss details of court cases. But he said most of the secured debt is held by SMS GmbH, a German industrial conglomerate that sold Gloucester Engineering in 2007 to Sharood and Dick Murphy. Their private equity firm, Mousam Ventures LLC, led a management buyout of the machinery company.
According to the motion by Plastifar and Hub Technologies to dismiss the involuntary liquidation, lawyers representing Gloucester Engineering said numerous unsecured trade creditors have expressed their belief that a restructuring outside of bankruptcy is in the best interest of all creditors and would maximize the likely recovery to unsecured creditors.
Ranor Inc., the third creditor that filed the original Chapter 7 action, did not join the other two in seeking its dismissal. Thomas Smith, lawyer for the Westminster, Mass., firm, did not return telephone calls for this story.
Court documents spell out agreements between Gloucester Engineering and Plastifar and Hub Technologies.
Plastifar's claim is for a deposit to buy machinery. Gloucester Engineering made the equipment, but ended up selling it to a third party because of delays in getting security for the delivery to Plastifar. Now both companies agree that the purchase order will remain open, subject to cancellation by Plastifar without penalty.
Hub Technologies, based in Middleboro, Mass., will be the exclusive vendor for cooling cans to Gloucester Engineering for at least one year. Under the agreement, when Gloucester Engineering places an order, the film machinery company will pay an upfront deposit equal to Hub's cost of material and pay the balance due at delivery.
The agreements quickly drew legal sniping from a supplier of chill rolls, National Metals Finishing Corp., which claims that Gloucester Engineering owes it $173,070 for plating and polishing chill rolls. NMF of Springfield, Mass., filed an opposition to Plastifar and Hub's motion to dismiss the Chapter 7.
NMF argues that other creditors should be treated equally. The plating company's Boston lawyer, Robert Kerwin, declined to comment.
Judge Feeney has scheduled another hearing for May 20, on a motion by Gloucester Engineering and Silicone Valley Bank that would allow the bank to use cash collateral accounts for the company's reimbursement obligations on two lines of credit. The judge would have to approve that action, which was suspended by the involuntary Chapter 7 filing.
It's a fairly routine procedural part of the process to make sure we can function normally and service our customers, Sharood said.
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