Galey & Lord's unsecured creditors object that disclosure statement lacks information

By Carlise Newman

Chicago, Dec. 12 - Galey & Lord Inc.'s committee of unsecured creditors has filed an objection to approval of the company's disclosure statement, saying it lacks information, including details of the ongoing litigation between the committee and Barclays Bank plc, which could have a significant impact on the unsecured creditors' recoveries.

The committee began the litigation because it believed the bank breached its fiduciary duty by using information it gained in its role as committee member to trade in pre-bankruptcy debt of the company, the committee said in a filing with the U.S. Bankruptcy Court for the Southern District of New York. The reorganization plan appears to improperly release Barclays and other lenders from any liability, the committee added.

The disclosure statement also lacks information describing the value of the company's foreign subsidiaries. The committee believes that 35% of the stock of the subsidiaries was unencumbered when the company filed for Chapter 11 and therefore should benefit the unsecured creditors - but notes that currently the creditors' recoveries are minimal, the committee said.

The statement also fails to detail potential avoidance actions, the committee said, and instead of being disclosed, they were waived with no explanation.

The statement does not include information about Galey & Lord's plans to reorganize its foreign assets and close factories, which could have an impact on the estate. Without that information, the creditors said they cannot determine the merits of the reorganization plan.

The committee said the company provides no detail on how it plans to conduct business going forward, nor information on how its recent restructuring efforts will affect its business plan. It also does not disclose the identity of the company's management after emergence.

The statement is also missing key documents, the committee said, including a registration rights agreement; a shareholders' agreement; the exit credit agreement; a warrant agreement; and any document disclosing details of the management incentive program.

The committee said that the management incentive program itself is improper in that it grants management stock or options worth a percentage of the company's equity even after the management spent the first six months of the bankruptcy process focused on the size of the employee retention program. Through that program, management already received more than $3 million in bonuses.

Greensboro, N.C.-based Galey & Lord manufactures textiles for sportswear.

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