Representation: Creditors’ Committee
Out of Court Workout
Situation: While representing several of Cambria Mills Coal Company’s creditors, Bernstein and Bernstein, P.C. was in a position to force the coal company into a Chapter 11 proceeding.
Action: Attempting to avoid the delay, cost and uncertainty related to a Chapter 11 proceeding, the law firm arranged a meeting of the debtor’s largest creditors. During the meeting, a representative group was elected as an informal creditors’ committee. This committee hired Bernstein and Bernstein, P.C. to negotiate and enforce an out-of-court settlement with the debtor.
The debtor, who owed approximately $3.6 million to creditors, entered into a composition agreement with creditors. This agreement, similar to a reorganization plan in a bankruptcy proceeding, allowed creditors payments of 27 percent of their unsecured debts at a rate depending upon the quantity of coal the debtor shipped. The debtor deposited more than $90,000 with Bernstein and Bernstein, P.C. to distribute to creditors. When other creditors forced the debtor to seek bankruptcy protection, Bernstein and Bernstein, P.C. was hired to represent the official committee of unsecured creditors. The debtor was unable to propose a plan of reorganization and due to its environmental liabilities was converted to a liquidation proceeding. Ultimately, no Chapter 7 Trustee would accept the appointment because of those environmental problems. The case has been dismissed and the company has ceased operating. The secured creditors and priority environmental claims will, most likely, capture what assets are available.