The Bankruptcy Filing as Revisionist History

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)[1] makes provision for NFP organizations in financial distress to seek the protection of the State Attorney General and State Courts to reorganize during periods of financial distress.[2] Under the Act, federal rules are suborned to state regulations. At no time prior to my resignation was the organization’s board advised by the workout group of their rights to seek this protection under the State courts. One can reasonably presume and conclude that both Amsouth Bank, as the secured lender, and KRS, as the ‘independent and expert turnaround contractor’ should have been aware of this feature of the Act and its’ availability to the not for profit organization in constructing a critical financial path through government dispute and past the secured lender’s merger. Retrospective review of the events makes it easy to conclude that bankruptcy was planned for by the secured lender and manipulated into the not for profit organization as a method for securing control and sale of assets.

Upon the bankruptcy filing, the KRS began to process the organization for liquidation and sale of the assets. In July of 2006 a contract DOJ Contract Trustee, Michael Collins, was appointed. He elected to keep Kraft Recovery Services LLC, in place along with the attorney group, Baker-Donelson, rather than maintain independence by terminating the relationship and contracting with his own advisors. One can make the reasonable assumption that Michael Collins, as the Trustee, should have been aware of this feature of the Act and its’ availability to the not for profit organization through the State Courts in constructing a financial path through government dispute and past the secured lender’s merger. The records to date do not indicate that any attempt was made to reconcile the features of the Act with the merger agenda of the secured lender or to protect the not for profit or its’ unsecured creditors from predation. Rather, Collins elected to continue to campaign carried out to date by KRS on behalf of the secured lender.

In November 2006, Collins recruited for profit post-petition entities to the table to manage the resurrection of the not for profit organization and its’ JWOD contracts. Rejecting purchase offers from other not for profits, he accepted the offer from LMM&M, LLC formed for the purpose of replacing the management and directors of the organization. LMM&M, LLC was subsequently purchased by Jeffrey Callahan who created AUI Management, LLC[3] to serve as the post-petition lender and operator. At the time of his appointment, Mr. Callahan was the target of a suit filed by the city of Signal Mountain, for noncompletion of a contract awarded to his sewer engineering company, AUI. The allegations in the suit reflect poor overall contract performance, yet Mr. Callahan's participation in the management of ARC is ostensibly for his experience in managing public contracts. Mr. Callahan created multiple companies to shield the fees he has been systemmatically removing from revenues generated by ARC's federal contracts including AUI Management, LLC and CPI which not only charge for administration, but leasing ARC's own equipment back to the organization at a suspect rate, payments to EconoGenesys, and the factoring of supplies at cost plus a percentage. A recent lawsuit filed by Owensboro Grain against Jeffrey Callahan and all of his alias companies indicates that the management entities have failed to properly reimburse Owensboro Grain for the cost of supplies.

Until recently, Dennis Michael Barrett, an attorney debarred by the US Supreme Court, who was twice convicted for violating federal contract procurement protocols and is currently on federal probation through October of 2008, served as the agency’s Chief Operating Officer. Parnering with Kevin Bowling in the creation of a sales and marketing company named ‘EconoGeneysis,’ he unduly benefit from commissions paid to him for work conducted under the set-aside program.

Thousands of dollars in bankruptcy court fees have been paid to Michael Collins, KRS and Baker-Donelson Attorneys with no apparent progress toward resolving the most critical matters that involved the resolution of the price change dispute. As of 02/08, the trustee certified a loss to the not for profit of more than $6 million after 16 months of “intervention.” The government price dispute has not been rectified in accordance with FAR requirements or litigated within the Administrative Procedures Act, and filings indicate that the current organization owes millions of dollars to it’s current creditors. The resurrected agency has been placed on probation by the Committee for Purchase for failure to meet the direct labor hour requirements of the JWOD program.

Collins submitted yet another financial reorganization plan[4] to the court during the week of March 24, 2008. This proposal now intimates that because the organization is in bankruptcy, everybody who ever served as an officer or director or had a role in advising the executive staff must have been bad and he therefore reserves the right to litigate against the former board members Don Calcote, Steve Copeland, Gerry Whitehead, Vikki Thomas, and Ruth Jones in the future for conversion of funds through the D&O or other routes. He also threatens to litigate against Ken Williams, attorney, John Stophel, attorney, and Lloyd Pitts, Certified Public Accountant. He has proceeded to wave the flag of lawsuit against Lloyd Pitts, and is seeking to force twelve creditors who are owned significant amounts of monies to disgorge previous payments made not in preference, but because they were necessary to conduct business activities as directed by Amsouth and KRS.

What he has failed to disclose to potential unsecured creditors in this set of documents is that the settlement constructed between the Trustee and the inside directors through a pre-negotiated tolling agreement with the D&O carrier, settles all claims that may be litigated against the insurance carrier for the actions of the Board of Directors or their subcontractors. While leading potential unsecured creditors, who are asked to vote on this plan, down the garden path of “I will set up a trust to capture future recoveries so you can get paid twenty-five to fifty cents on the dollar over time” he does not disclose that he cannot do so through the route of litigating against “the bad actors,” which is basically (by his description) everybody who ever served in any capacity to the organization. Monies recovered would be placed into a trust account from which priority fees would be paid first to the trust managers (a.k.a Michael Collins, proposed), second to unsecured claimants.

Collins further asserts that he recognizes that this solution hinges on a satisfactory resolution to the vegoil dispute, that he may not achieve a satisfactory outcome against USDA (which should have already long been rectified under the Administrative Procedures Act) but fails to acknowledge that if experience to date is any indicator of his prowess, he and his advisors might not be competent to litigate these matters. The multiyear vegoil revenue numbers proposed in the reorganization documents are illusory and offered without support, and lack compliance with FAR pricing mechanisms. And finally, his proposed reorganization plan allows the operator, AUI Management and the contracted marketing company, EconoGenesys (Bowling and Barrett,[5] et al), the rights to more than a combined ten percent of every dollar earned, a percentage of benefit that is more than has ever been afforded the costing and profitability structures of the JWOD contracts, and which reserves nothing in the way of funding for the recovery of the not for profit or the benefit of the creditors.

As offered, the reorganization plan paves the way for a chapter 7 filing, wherein the new secured creditor, AUI Management, is guaranteed the future opportunity to recover losses and benefit from the sale of the not for profit assets to the detriment of the creditors.