Bids stream in for bankrupt Foss Manufacturing
Several parties are interested in buying Foss Manufacturing and want to operate it as a growing concern, Patrick J. O'Malley, trustee for the bankrupt Hampton company, revealed March 23 in U.S. Bankruptcy Court in Manchester. The amount the parties are offering is unexpectedly high, the trustee said, adding that he hoped to complete the deal before the company’s latest round of financing runs out on April 21. Indeed, lawyers had planned to start filing forms related to the possible sale as early as the week of March 27. Even if the company is sold, the official creditors committee, in cooperation with the bankruptcy trustee, plan to sue against Stephen Foss and other former executives and third parties, seeking to return money they allegedly looted from the company. “We’ll file it sooner rather than later,” said Joe Foster, representing the official committee of the unsecured creditors, seeking the court’s approval to pursue the suit. Bankruptcy Judge J. Michael Deasy appeared likely to grant it. “It makes perfect sense in a case like this,” he said. Foss, which employs 375 people making nonwoven industrial fabrics, filed for Chapter 11 reorganization Sept. 16. CEO Stephen Foss resigned shortly afterward. According to court papers, the company’s chief lender tightened its cash flow after hearing allegations of fraud, and pushed the firm into bankruptcy. Company directors said they discovered the company was over-advanced on its loan and asked for Foss to resign. But many of the board and other company executives who were friends and relatives of Foss stayed on, despite allowing “such malfeasance to continue under their noses,” charged CapitalSource Finance LLC, the company’s main creditor last fall. In January, the unsecured creditors sought and received permission to question whether Foss and four of his relatives treated the company like a “piggy bank.” At the time, the creditors alleged that the company: • Misrepresented inventory values, inflated accounts receivable to CapitalSource • Paid Foss and former CFO Kevin Sexton approximately more than $1 million each in “excessive compensation” above their salary • Paid at least $180,000 in company funds to improve the home of Foss’s daughter Jenifer Foss Smyth • Paid Foss family memberships fees at facilities in New Hampshire, Florida and Bermuda as well as some $150,000 in American Express charges on cards held by Stephen Foss, Smyth and Sexton • Sold company properties and leased them back with no apparent use. One of those properties, the creditors allege, houses the Foss family’s housekeeper • Paid $1.5 million for use of a company jet over a 2-1/2-year period that was used largely for personal reasons Foss objected to the investigation, arguing that the allegations were false, a distraction to the company and in preparation for a lawsuit. In the meantime, the trustee filed a motion to nullify Smyth’s five-year, $500,000 contract.