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Published on 5/17/2004 in the Prospect News Distressed Debt Daily.

ATX creditors' committee seeks to dismiss Chapter 11 case, or appoint trustee

By Jeff Pines

Washington, May 17 - ATX Communications Inc.'s official committee of unsecured creditors wants the company's Chapter 11 case dismissed or at least a trustee appointed.

In a Friday filing with the U.S. Bankruptcy Court for the Southern District of New York, the committee alleged ATX, then CoreComm, filed for Chapter 11 for the benefit of its senior secured lender, Leucadia National Corp., and senior management.

It also alleges the company and Leucadia entered into sweetheart deals covering the reorganization including ultimate recoveries under the reorganization plan and giving management generous pay packages.

The committee charged that Leucadia is getting all of the company's value. It acquired the company's $150 million secured facility for $25 million from JPMorgan Chase in a Dec. 19 purchase agreement.

"Widespread accounting and related improprieties" were committed by the company's management, according to 16 sworn declarations from former employees, the committee said.

Further, the top executives are overpaid when compared with peer telecommunications companies, it said.

If the Chapter 11 protection is dismissed, the creditors could sue the company for breach of fiduciary duty. Breach of fiduciary duty may be covered by an insurance policy, the committee said.

If the court rules against dismissal and appoints a trustee, the trustee would take over from management in administering the company's reorganization.

A hearing is scheduled for June 14.

The facilities-based telecommunications provider filed for bankruptcy on Jan. 15. ATX's Chapter 11 case number is 04-10214.


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