CHARLESTON, W.Va. -- Freedom Industries is winding down its business and may cease to exist at some point in the future, attorneys said in Friday's bankruptcy hearing.
Freedom's attorney, Mark Freedlander, said the company is winding down its inventory and transferring its customers and employees to other vendors.
"What we've learned is post-petition events have caused the debtor to recognize it's going to have to shut down a large part, if not all of its facility," U.S. Bankruptcy Judge Ronald Pearson said.
Pearson asked if there was anything in the last few weeks that made the company come to this realization.
"The company's problems far exceed its size," Freedlander said. "That's the start and finish of the dialogue."
Pearson approved an order substantially modifying Freedom's initial financing motion.
Attorneys for Freedom said the company hasn't needed to use the $3 million it previously borrowed from WV Funding, LLC. Under the interim order, Freedom will not use this money through March 18.
Attorneys said the company might not even need the money that is currently held in the estate's account. An attorney representing WV Funding LLC proposed negotiating a different type of loan in the future to handle expenses to reclaim the site.
By March 15, the company needs to remove its stored materials and start decommissioning the Etowah Terminal along the Elk River. Attorneys said for the most part, inventory has been sold down and the company is working with the state Department of Environmental Protection to decommission the facility.
During this period, the company will rely on proceeds from selling inventory.
According to budget information, Freedom will have $5.4 million in cash left by March 16 after it starts winding down its business. This is without touching the $3 million in its account.
The company is working to figure out how much money it needs to go forward, especially addressing environmental issues. Attorneys said they do not yet know how much environmental mitigation will cost.
Although the business is winding down, attorneys said the case is not converting to Chapter 7 bankruptcy, or straight liquidation, and will remain under Chapter 11 proceedings.
The next step is a creditors meeting, which takes place at 10 a.m. Tuesday. Company President Gary Southern and CFO Terry Cline are scheduled to testify since they testified at the hearing on first-day motions.
Freedom Industries filed for Chapter 11 bankruptcy on Jan. 17, following the Jan. 9 discovery of crude MCHM leaking into the Elk River.
Lawsuits began pouring in against the company at 7:59 a.m. the day after the chemical spill. Eight lawsuits were filed by the close of business that day.
By the time Freedom filed bankruptcy, 30 lawsuits had been filed. However, an automatic stay afforded by the bankruptcy filing meant all lawsuits against the company are put into "time out," as attorney Harry Bell previously explained.
Lawsuits are still on hold but attorney Anthony Majestro said discussions about lifting the stay are ongoing.
"I think everyone recognizes that the course Freedom is on was inevitable following the Jan. 9 spill," he said following Friday's hearing.
"The parties and the bankruptcy court are doing their best to balance competing interests in Freedom's resources."
Pearson encouraged attorneys to adopt an administrative order addressing ways to streamline the way claims against the company are handled.
He said the process could save "hundreds of thousands of dollars," later noting the importance of keeping legal costs down because of the "serious limit on funding."
This order would require uniform documentation by creating a customized claim form for all plaintiffs to use when submitting their claims.
The document notes there is a May 27 deadline to file proof of claims and the order says since all potential claimants haven't been notified of that deadline, counsel should discuss whether the deadline should be delayed.
Pearson also encouraged plaintiffs' attorneys to get a spokesperson so Freedom wouldn't have to talk to everyone who has filed a lawsuit.
Freedlander said attorneys would look through the order and come back before the court later with a comprehensive proposal.
In its earlier filings, Freedom requested to hire experts and consultants to assist in remediation of the site, help preserve evidence and help in the defense against lawsuit allegations.
The reason Freedom wanted an expedited hearing to hire experts is because it wants them to take a look at details surrounding the leak before evidence is removed or destroyed in the remediation process, according to the filing.
Freedom also filed a motion last Friday to hire Pittsburgh-based Civil & Environmental Consultants Inc. as special environmental consultants to look into the leak.
The firm will investigate how the soil, groundwater and surface water were affected by the leak and will look at ways to address these effects. The court approved these motions.
The court also approved Freedom's motions to hire Pietragallo Gordon Alfano Bosick & Raspanti LLP as special litigation counsel and hire Babst, Calland, Clements & Zomnir PC as special environmental counsel.
The court adjourned the hearing to hire Chicago-based MorrisAnderson & Associates Ltd. as a financial advisor because attorneys said the company's role may change. Freedlander said there could be a shift in focus and said its role may best be served as chief restructuring advisor.