Congoleum says latest plan resolves past creditor treatment issues; company argues against case dismissal

By Caroline Salls

Pittsburgh, Jan. 23 - Congoleum Corp. and its plan of reorganization proponents said the company's latest plan was negotiated in good faith and resolves litigation that stood in the way of plan confirmation in the past, according to a Friday filing with the U.S. Bankruptcy Court for the District of New Jersey.

Congoleum also said its Chapter 11 bankruptcy case should not be dismissed or converted to Chapter 7 for liquidation. The company said the court recently asked for opinions on whether the case should be dismissed or converted in light of a motion for a summary judgment denying confirmation of the plan.

As previously reported, insurers First State Insurance Co. and Twin City Fire Insurance Co. have asked the bankruptcy court to deny confirmation of the company's most recent plan, arguing that the plan still attempts to push through an alleged preferential treatment scheme that has already been rejected by the court.

The insurers said the scheme called for Congoleum to file for bankruptcy, the favorite clients of two plaintiff attorneys to receive preferential treatment and the lawyers themselves to receive $1 million each "free of any judicial scrutiny."

"More than five years and a dozen failed plans later, Congoleum still has not come to grips with what the Third Circuit and this court have made absolutely clear: This scheme violates the Bankruptcy Code."

In addition, the insurers said Congoleum's plan continues to favor preferred claimants over other current and all future claimants through different claims-allowance standards and larger payments to some claimants who filed their claims before Congoleum's bankruptcy filing.

However, Congoleum said in Friday's filing that the court said in its order approving the litigation settlement contained in the most recent plan that "the disparity of treatment of similarly situated creditors" had been eliminated.

The company said all asbestos personal injury claims are classified in the same class under the latest plan.

"It is telling that the only parties-in-interest in these bankruptcy cases who have raised summary judgment issues with respect to the amended joint plan are the insurers, non-creditors, who, since August 2002, have failed to provide insurance to the debtors and are the only entities who apparently benefit from delay of confirmation of a reorganization plan," the company said in the response.

Congoleum said the court eliminated the insurers' standing in a recent supplemental summary judgment decision by ruling that the company's insurance proceeds can be assigned to a plan trust and that the insurers' contractual rights are not impaired by the plan.

According to Friday's filing, the plan proponents intend to take the necessary steps to ensure that the plan conforms to any court rulings.

Specifically, Congoleum said the proponents intend to show that the plan meets the goals of reorganization, including maximization of recoveries for the estates' creditors and reorganization of a viable company.

Dismissal or conversion 'drastic remedy'

To the extent that the court rules that any part of the plan does not satisfy the standards of confirmation, the company said "the drastic remedy of conversion or dismissal is not the solution." Instead, Congoleum said the plan includes a severance clause that would allow any invalid provisions to be eliminated from the plan.

"Conversion or dismissal would only foster chaos and substantially reduce recoveries for all of the estates' creditors," the company said in the filing.

"An opportunity to resolve non-material issues relating to a complex plan of reorganization would greatly outweigh the bleak recoveries for the estates' asbestos and non-asbestos creditors and the shuttering of a long term New Jersey business that would result from conversion or dismissal."

Congoleum, a Mercerville, N.J.-based flooring company, filed for bankruptcy on Dec. 31, 2003. Its Chapter 11 case number is 03-51524.

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