Freedom Industries President Seeks Pay Approval, Lawsuit Protection

Freedom Industries President Seeks Pay Approval, Lawsuit Protection

Source: Dow Jones News Service, March 17, 2014
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The president of Freedom Industries Inc., Gary Southern, wants protection from lawsuits while keeping his $230,000-a-year job to wind down the company at the center of a West Virginia chemical spill that tainted the water supply of 300,000 people.

In documents filed Saturday with the U.S. Bankruptcy Court in Charleston, W.Va., Mr. Southern asked Judge Ronald Pearson to approve his pay until a chief restructuring officer, or CRO, is appointed. Mr. Southern, who has been named in two lawsuits filed as a result of the spill, is also asking a bankruptcy judge to approve an indemnification provision in Freedom’s corporate bylaws that would protect him from any losses or expenses resulting from lawsuits related to his work for the company.

Mr. Southern became president of Freedom at the beginning of this year, just days before the chemical spill and subsequent water contamination. Mr. Southern’s lawyers say his continued employment is “essential” to a successful resolution of the bankruptcy case and that the company is on target with deadlines agreed upon with the state of West Virginia, according to court papers.

In court papers, Mr. Southern said he worked 12 to 16 hours a day, every day, including Saturdays and Sundays for 46 consecutive days following the spill. Since then, his lawyers said, Mr. Southern has put in 10 to 12 hours a day, working with investigators, drafting the company’s remediation plan and winding down the business as it completes the process of cleaning up the spill site.

Companies in bankruptcy typically pay for the legal defense of their directors and top executives. But insider pay during bankruptcy typically attracts the attention of creditors, as has Mr. Southern’s request for indemnification while various investigations into the spill are ongoing.

“I would not be surprised to see the creditor community uniformly oppose Mr. Southern’s request,” said Anthony Majestro of Powell & Majestro PLLC, an attorney representing Stephen Smith, one of five members of the committee representing unsecured creditors in Freedom’s bankruptcy. “I think it is particularly inappropriate for Mr. Southern to seek indemnification regarding his attorney expenses incurred in defending a potential criminal prosecution.”

Mr. Southern said he “is willing to continue to provide any and all services needed” without pay after a CRO is employed by Freedom provided the court signs off on his indemnification bid. He’s also asking that his lawyers’ claims for payment receive administrative status, which would push them in front of unsecured creditors in the order to be repaid.

Lawyers for Mr. Southern declined to comment.

Freedom, based in Charleston, W.Va., filed for Chapter 11 bankruptcy protection after being hit with more than 20 lawsuits from individuals and businesses claiming damages from the spill. The environmental accident, in which some 10,000 gallons of a coal-treatment chemical called crude MCMH spilled from a Freedom-owned site into the Elk River, triggered a water ban by state environmental authorities that affected some 300,000 people.

Claims include everything from health issues to lost business, as restaurants and other companies were forced to shut down until the water was declared safe.

The Bankruptcy Code’s automatic-stay provision puts the brakes on pending litigation against a company and bars anyone from bringing new litigation, but it also opens the door to court-supervised probes into what led to the disaster, and what resources are available to pay any damages.

Initially, Freedom, which supplies chemicals and services to the coal industry, thought it could continue operations while figuring out a way to address the spill-damage claims. Now, Freedom has thrown in the towel and plans to continue as long as it can using cash generated as the business is wound down.

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