Five months after Appco declared [image-nocss] bankruptcy, Titan is essentially nonexistent, said the report, with its stock worth less than a penny a share and all of its subsidiaries, including Appco, having liquidated or filed bankruptcy. Chance and two other directors faced a lawsuit claiming they ran Appco into bankruptcy partly by transferring almost $5 million in Appco's revenues to Titan. (Click here to view details about Titan's countersuit.)
Appco's bankruptcy filing included paperwork showing that about $3.6 million had been transferred from Appco to Titan in the final year before the bankruptcy, the report said. The new lawsuit alleges an additional $1.3 million was siphoned off, including a $500,000 transfer on Sept. 14, 2007, three days before Titan even closed on its purchase of Appco from longtime owner Jim MacLean. The new complaint comes less than three months after bankruptcy judge Marsha Parsons stripped control of Appco from Titan and put it under a "chief restructuring officer," Andy Weber. Within six weeks, Weber had terminated Titan CEO Bryan Chance and a Titan vice president, Mike D'Onofrio.
Now, lawyers for both Appco and for the unsecured creditors who are owed a total of more than $7.5 million claim those transfers rightfully belong to Appco and should be included in the bankruptcy estate.
They have, in fact, sent two letters to Titan demanding the money, the report said. The first letter, dated May 22, refers to the $3,630,330.39 transferred in the year before the bankruptcy filing. "Our investigation indicates that APPCO received nothing in exchange for the transfers made to Titan and its affiliated entities... These were merely withdrawals of cash by Titan from APPCO without any consideration or other value flowing to APPCO."
The second letter was sent directly to Chance via FedEx on July 1, with identical copies sent to Titan director David Marks and former Titan Chief Financial Officer Scott Hensell. It indicates that together, lawyers for Appco and the creditors' committee have found "wrongful acts" committed by directors and officers (D&O's) of Appco, including Chance, Hensell and Marks.
The letter suggests that Titan's damage to Appco extended beyond the $5 million in cash transfers, said the report.
"Although the facts are still being discovered, the facts we do know indicate that some D&O's engaged in wrongful acts and omissions that were, among other things, negligent, grossly negligent, reckless, in breach of fiduciary duties and in breach of relevant statutes."
Those acts, the letter states, "resulted in significant losses to [Appco] and its creditors, which we estimate to be substantially in excess of $10 million." It promises Chance that the plaintiffs will "pursue the claims to the fullest extent permitted by law."
While the suit contends that Titan's highly leveraged purchase of Appco "left massive new debt and lease obligations that left Appco with insufficient capital to operate its business," its main target involves actions after the original purchaseprimarily the cash transfers. The transfers were made, the suit says, with Chance et. al. "aware that [Appco] was insolvent and that it did not have sufficient capital to pay its existing creditors or future creditors" and "with actual intent to hinder, delay and defraud the Debtor's creditors."
In addition to numerous counts related to violations of the bankruptcy code, the suit also alleges a violation of a Tennessee law regarding distributions to shareholders, the newspaper said. Since the transfers made Appco unable to pay its debts, among other negative outcomes, Titan's directors breached their duty "to deal fairly with the Debtor, and to not act in the self interests of themselves or Titan."
On all six of its counts, the suit asks for the amount of the transfers ($4,951,673.23), plus other amounts that may be proven at trial, plus costs and attorney fees.
Click hereto view previous CSP Daily News coverage.
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