Metro Fuel creditors prepare claims, involuntary case against Pullos

By Caroline Salls

Pittsburgh, June 3 - Metro Fuel Oil Corp.'s official committee of unsecured creditors requested court approval to prosecute estate claims against company affiliates Gene V. Pullo, Paul J. Pullo Jr., Paul Pullo Sr. and Thomas J. Torre, according to a Friday filing with the U.S. Bankruptcy Court for the Eastern District of New York.

"Unless this motion is granted quickly, it is likely the debtors' estates will forever lose the ability to recover on claims against the Pullos that are worth millions of dollars and are collectible," the motion said.

The committee said a key component of Metro Fuel Oil's plan of liquidation is a multimillion-dollar substantial contribution by the Pullos in exchange for releases of claims.

However, the creditor group said New York Commercial Bank's $16.87 million state court judgment against the Pullos on its personal guaranty claims is clouding negotiations.

If the Pullos do not voluntarily or involuntarily obtain bankruptcy protection before June 13, then New York Commercial Bank's judgment liens against the Pullos' assets will become unavoidable.

If that happens, New York Commercial Bank will be a secured creditor of the Pullos, and all other holders of unsecured guaranty, contract, tort and avoidance claims against the Pullos will not receive any recovery until New York Commercial Bank has been paid $17 million from the Pullos' assets.

The committee said the Pullos have indicated that they are not currently prepared to file voluntary bankruptcy, meaning the committee must be prepared to coordinate involuntary bankruptcy filings against the Pullos before that date, "as a liquidating plan continues to represent the best option for preserving value for all creditors (not just [New York Commercial Bank])."

Potential actions

According to the motion, the ability to realize this value is in jeopardy unless the claims prosecution motion is granted.

If the motion is granted, the committee will file adversary proceedings against the Pullos, to be followed by expedited requests for prejudgment remedies against the Pullos under New York law to prevent the dissipation of their assets.

To prevent New York Commercial Bank's judgment lien from becoming unavoidable, the committee said it will also be prepared to sign an involuntary Chapter 11 petition against the Pullos on behalf of the Metro Fuel Oil debtors.

The committee said it would request that the Pullos cases' be jointly administered with the Metro Fuel Oil cases, invoking the automatic stay and preventing the running of the 90-day preference period on New York Commercial Bank's judgment lien.

"The committee, the debtors, the holders of other guarantees by the Pullos and certain other key stakeholders will then be in a position to quickly finalize the terms of a confirmable liquidating plan and wind down these bankruptcy cases," the motion said.

Claim details

The creditor group said the potential claims against the Pullos and Torre include avoidance and recovery of fraudulent and preferential transfers stemming from direct asset transfers to pay real estate holdings obligations, avoidance and recovery of excessive compensation to the Pullos while the debtors were insolvent, recharacterization of the Pullos' so-called loans to the debtors as equity contributions and/or the return of inappropriate dividends and claims arising from the commingling of the debtors' and the Pullos' assets by the inappropriate use of the debtors' personal and administrative infrastructure to fund and manage the Pullos' non-debtor businesses.

The committee said the Pullos also face breach of fiduciary duty claims in connection with years of mismanaging the debtors' businesses.

"Combined with business decisions that generously can only be described as grossly negligent, including the Pullos' decision to pour $40 million into the construction of a biodiesel facility with extremely limited project financing and no apparent written business plan, the Pullos face significant liability for running the debtors' businesses into the ground," the committee said.

A hearing is scheduled for June 6.

Metro Fuel Oil is a Brooklyn, N.Y.-based energy company that supplies bioheat, biodiesel, heating oil, central air conditioning units, ultra low sulfur diesel fuel, natural gas and gasoline throughout the New York City metropolitan area and Long Island. The company filed for bankruptcy on Sept. 27, 2012 under Chapter 11 case number 12-46913.

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