Gloucester Engineering Co. Inc.'s insolvent subsidiary in Austria has drawn two potential buyers, including Blue Wolf Capital Management LLC, the New York private equity firm that recently loaned money to the U.S. parent company.
Raoul Wagner, bankruptcy trustee for Gloucester Engineering Europe GmbH, said he has received offers for the assets from Blue Wolf and Switzerland-based Swiss Winding Inventing AG.
Swiss Winding Inventing is a holding company set up by Carlos Martinez, who founded film winding equipment maker Wintech Winding Technology AG. He is also chairman of Swiss Winding Performance, a manufacturer of high-performance film winders.
Wagner was appointed by the Austrian Commercial Court in Vienna.
The latest episode in the Gloucester Engineering saga came at the Austria Trend Hotel Rathauspark in Vienna on May 21. Chairman John Sharood attended a meeting that Wagner held with the council of creditors to discuss the sale. Sharood argued that the sale should be delayed because the Austrian operation has retained intellectual property, including technical drawings, which must be returned to the headquarters in Gloucester, Mass.
The creditors meeting got livened up when Austrian authorities arrived to question Sharood about movements of funds from Gloucester Engineering Europe to the U.S. parent at the end of last year. Wagner said that these may have violated Austrian Capital Maintenance Rules (Verbotene Einlagenruckgewähr), which say that only profits, not assets, can be taken out of a limited company, known as a GmbH.
Sharood met with the Austrian district attorney, the Staatsanwalt, who was accompanied by three police officers from the white collar crime unit.
Sharood said he was not detained by the officials, and he has since returned to the United States. He insisted he has done nothing wrong. “I went over on purpose to talk to them. When the trustee made these allegations against me, I was concerned that I needed to have an opportunity to refute the allegations,” he said.
The Staatsanwalt has yet to rule whether there is any case. A specialized accounting lawyer will be appointed to investigate the Austrian firm's accounts, a process that may take some months.
Sharood confirmed that Blue Wolf does want to buy the assets of Gloucester Engineering Europe. The sales-approval decision in Vienna was postponed for three weeks following Sharood's questions about the intellectual property. Wagner said the sale also was delayed to obtain more information on a suitable price.
Back in Massachusetts, the company got some good news: Blue Wolf Capital Management announced it has provided a credit facility to Gloucester Engineering to fund its working capital requirements.
Squeezed by the recession, Gloucester Engineering faces cash-flow problems and a long list of overdue bills. The firm has laid off an unspecified number of workers and, in January, told suppliers not to ship goods without first getting approval.
Blue Wolf issued a May 25 news release that said: “The infusion of capital will fund GEC's near-term capital requirements and allow the company to return to its daily business of taking and fulfilling orders and serving its customers.” Blue Wolf did not disclose terms of the financing. Officials could not be reached for this story.
Gloucester Engineering also could be about to get out of its own bankruptcy, at a court hearing set for June 3 in Boston. Plastifar SA and Hub Technologies Inc. want to dismiss the involuntary Chapter 7 case. They joined with another creditor to force Gloucester into Chapter 7 in March.
But two creditors and Gloucester Engineering Europe oppose the dismissal. Wagner, the bankruptcy trustee in Austria, filed his opposition May 17. In papers filed with in the Massachusetts Chapter 7 case, Wagner charged that, in late 2009, the officials from the U.S. company transferred about 608,000 euros ($753,000) from Gloucester Engineering Europe to pay its debts. That left the European subsidiary only about 373,000 euros ($462,000) of assets against liabilities of about 847,000 euros ($1.05 million) —pushing the business into insolvency.
Since no security was provided, Wagner believes those payments should be investigated by the Austrian authorities. He filed a statement of fact with the Staatsanwalt in Vienna on May 7 listing his concerns. Sharood is managing director of the Austrian corporation.
“Simplified, one could say that a managing director must prevent assets from leaving the corporation to or for the benefit of direct or indirect shareholders unless the corporation receives consideration on an arms-length basis or a 100 percent safe security,” Wagner told European Plastics News.
Sharood strongly disputed Wagner's allegations. “There was no transfer of assets as described by the trustee in any way, shape or form in December, or indeed any time that I was managing director of the company,” he told Plastics News.
Wagner's filing in the U.S. bankruptcy case uses harsh words to describe his allegations, saying Sharood faces possible charges, under Austrian law, of “embezzlement, grossly negligent impairment of creditor interest and fraudulent bankruptcy offense.”
Sharood said: “I am going to categorically state that I have done nothing wrong. I take my reputation extremely seriously. And I intend to refute these allegations.”
The Commercial Court in Vienna opened bankruptcy liquidation proceedings in March for Gloucester Engineering Europe. The company, which provided after-sales service, process engineering support and spare parts for customers in Europe, posted sales of 2.7 million euros ($3.75 million) in 2009.
The asset sale at Gloucester Engineering Europe includes customer lists, technical equipment, inventory stock and spare parts.
Swiss Winding Inventing is making a strong play for Gloucester Engineering Europe and already has hired four former employees after they were laid off, according to Martinez. His Rapperswill, Switzerland-based Swiss Winding Performance business has worked with Gloucester Engineering on a number of film lines over the years, he said.
Martinez told European Plastics News that Swiss Winding Inventing intends to offer after-sales support and service to former Gloucester Engineering Europe customers.
“We deal with the same customers,” he said. “We are interested in buying anything [at Gloucester Engineering Europe] that can be applied. For us the most important thing has to be the human capital so we can be sure we can service customers. We have that now, but if we can get the rest we will.”
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