Judge Denies Plea to Halt Armstrong's Asbestos
Wilmington, DE, June 2---A bankruptcy judge here decided Friday to let Armstrong World Industries keep progressing toward its own solution to its asbestos woes, rather than wait and see if Congress creates one, according to the Lancaster New Era.
The judge denied an Armstrong shareholder's request to freeze action on Armstrong's proposed reorganization until Congress acts on an asbestos bill -- a measure that could replace Armstrong's proposed method for paying asbestos victims, at about half the cost to the company.
Judge Randall J. Newsome, by rejecting that motion as well as approving a key document that must be prepared for creditors and claimants who will vote on the plan, paved the way for their vote this summer.
If the plan is approved by creditors and claimants, as expected, then the plan will come before the bankruptcy court for approval at a confirmation hearing, tentatively scheduled for mid-November.
Court approval of the plan is the last step before emerging from bankruptcy.
"If I had a crystal ball, or if I had 40 crystal balls, I wouldn't know what Congress is going to do," Newsome told Eugene R. Joseph, a computer scientist and entrepreneur who owns 52,000 Armstrong shares.
"So, the answer to your objection is, no, I'm not going to wait to see what happens in Congress. But, as a practical matter, we're going to have to wait, because of the timing of the confirmation hearing," the judge said.
Senator Orrin Hatch, a Utah Republican, last week proposed creating a $108 billion nationwide asbestos trust fund -- financed by insurers and businesses such as Armstrong that face asbestos claims.
The bill would create a new federal system for paying asbestos victims, getting money to them faster and stabilizing businesses now being swamped by claims, said Hatch, who chairs the Senate Judiciary Committee.
The sums that businesses -- including businesses in bankruptcy, such as Armstrong -- would contribute to the fund would depend on their 2002 revenues and on how much they've paid to settle claims in the past.
Under Hatch's bill, Armstrong apparently would pay more than $900 million into the fund, over 27 years, although this could not be confirmed Friday with the company, Hatch's office or the Judiciary Committee.
If true, that would be about half of the value of the cash, notes and stock that Armstrong would set aside to pay asbestos victims under its own bankruptcy reorganization plan.
However, under certain circumstances, the Hatch bill would allow a company in bankruptcy such as Armstrong to go forward with its own plan for paying asbestos victims.
Armstrong was pushed into bankruptcy in December 2000 by the soaring cost of settling tens of thousands of claims from people alleging personal injury from exposure to the company's asbestos insulation.
Last November, Armstrong announced its solution -- a complex and consensual plan, negotiated with representatives of the asbestos victims and the company's unsecured creditors.
The plan calls for dissolving the current Armstrong corporation, canceling its current stock and replacing them with a new corporation and new stock, most of which would be owned by a newly formed trust.
All asbestos claims against Armstrong would be channeled to the trust for payment, thereby permanently freeing Armstrong of that multi-million-dollar expense.
Last week, Armstrong cut the proposed sums it would set aside for the trust, the company's unsecured creditors and its current shareholders, citing weak recent profits and a dimmer outlook.
The "pool" of funds to finance the trust compensating the company's 200,000 or so asbestos victims would shrink from $2.1 billion to $1.8 billion, Armstrong said.
Joseph, in an interview after the hearing, said he sought to delay action on the Armstrong plan because the Hatch bill would cost Armstrong less and not require canceling the current Armstrong stock.
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