Wickes creditors ask court to authorize suing officers, directors

New York, Oct. 25 - Wickes, Inc.'s official committee of unsecured creditors asked for permission to sue the company's officers and directors for breach of fiduciary duty, corporate waste, preference, fraudulent transfer and related claims.

The request was made in a filing Tuesday with the U.S. Bankruptcy Court for the Northern District of Illinois and would allow the creditors to take action on behalf of the bankruptcy estate.

Explaining their view that legal action is appropriate, the creditors said that they have been carrying out an investigation since fall 2004 to determine the cause of Wickes' bankruptcy and identify potential sources of recovery. They have examined documents and interviewed officers, directors and third-party consultants.

Those inquiries, the creditors continued, have "uncovered a number of transactions" carried out before the bankruptcy filing "which were neither in the best interest of the debtor [Wickes], nor conducted on terms equivalent to those that could have reasonably been obtained in comparable arm's length transactions."

The directors did not take action to investigate or stop the transactions, the creditors said in the court filing.

In addition, the officers and directors of Wickes were "grossly negligent in failing to address and resolve the company's precarious debt structure at a time when the company could have taken steps to avoid bankruptcy," the creditors added.

Ahead of the maturity of $100 million of senior subordinated notes in December 2003, the company passed up the opportunity to merge with a national supplier of building materials at more than three times the trading price of the stock, the creditors said.

Creditors' losses of $45 million could have been avoided.

Creditors' specific complaints

Specifically, the creditors claim that for at least six years Wickes paid "a substantial portion" of the overhead expenses of Riverside Group, Inc., a holding company owned by Wickes' former president Steven Wilson based on Wilson's claim that Wickes needed to pursue joint ventures with Riverside - joint ventures that, the creditors say, did not exist or were of no benefit to Wickes.

Going back to 1998, Wilson billed Wickes for travel on a personal plane at above-market rates or for trips with no relation to the company's business activities, the creditors said in the court filing.

Investment in a service to sell tools over the Internet was transferred to Riverside without competitive bidding or an appraisal and Riverside then repeatedly defaulted on the $870,000 unsecured note that it had used to pay for the service, the creditors claimed. Wickes failed to pursue collection in a prompt manner.

Subsequently the technology was transferred to another of Wilson's companies and Wickes entered into a "multimillion dollar" contract, the creditors continued. They also alleged that Wilson misrepresented the performance of the software.

Another Wilson company, Cybermax Communications, Inc. had a six-figure contract with Wickes that was of no benefit to the company, the creditors said. A similar arrangement followed with another company that took over Cybermax's operations, this one called Ennovative, Inc.

The creditors also objected that Wilson's salary was "grossly excessive" at a total of $4 million from 1999 and 2003 million even though he was only working for Wickes 10% to 15% of the time. In April 2003 the board approved a $1 million severance payment.

Ahead of the note maturity, Wickes sold 31 lumber yards and four plants to competitor Lanoga Corp. for $102 million in December 2002 - even though they were the only profitable part of Wickes' operations.

No oversight was exercised over the use of the proceeds, the creditors said, and ultimately none was used to repay debt.

In spring 2003, the board turned down a $2.50 per share offer for Wickes from Bradco.

The creditors claimed there was no analysis, rather, they said, the decision was made on "the whims" of director Robert Shaw who had just acquired nearly three million shares at $5.00 per share "in an effort to recoup debt owed to him by Wilson."

In the fall of 2003, the company failed to pursue a sale and leaseback transaction that would have raised enough capital to repay the notes.

Despite the history, many of the officers and directors are still in place and have not responded to the creditors' request that they start legal action - hence the creditors' request to the court.

Wickes filed for bankruptcy on Jan. 20, 2004. Its Chapter 11 case number is 04-02221.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.