Mercerville, NJ, Jan. 15--Most companies hope never to file for bankruptcy. At Congoleum, however, executives celebrated the recent move, according to The Times of Trenton.
The firm expects the move, which took place a week ago, will save its operations. Facing a mountain of asbestos lawsuits related to its earlier flooring products, Congoleum aims to gain a bankruptcy court judge's approval to limit its liability to those claims. Under the Congoleum plan:
The company pays $2.7 million (subject to future revaluation) to a trust set aside for paying asbestos claims; all current and future awards are paid out of a trust, not company coffers; shareholders retain ownership of the company; and creditors continue receiving timely payments.
"This filing marks another major milestone in resolving our asbestos problem," Congoleum Chairman Roger Marcus said in a statement. "Our next challenge is to get our plan confirmed by the court as quickly as the process allows."
Congoleum stopped using asbestos more than 20 years ago. Still, recent lawsuits have cost the company $60 million, and more than 100,000 claims still loom over its balance sheet.
Rather than litigate these cases and risk losing, the company put together the bankruptcy plan to shield itself from legal liability. Congoleum spent much of the past year trying to get a majority of claimants to back the deal.
Now that it has won the support that it needs and filed for bankruptcy protection, the company wants a federal judge to approve the plan and eliminate the nightmare of endless lawsuits.
Investors have responded positively to the bankruptcy plan. Since the filing last week, Congoleum shares have climbed about 55 cents.
"Stock prices often go up after a bankruptcy filing," said G. Ray Warner, director of the bankruptcy masters degree program at St. John's University School of Law.
"Even when the bankruptcy plan calls for shareholders to lose ownership of the company, people sometimes buy the stock because they don't understand what is going to happen to them," he said. "In this case, however, it appears that stockholders are moving toward the stock because the cloud of uncertainty is beginning to lift off the company. By filing this bankruptcy, the company is giving investors a better idea of what its prospects are going forward, and investors like that greater degree of certainty."
Just three days after Congoleum filed for bankruptcy, the company announced more good news.
The bankruptcy court handling its case issued an interim financing order that gave Congoleum access to a credit line and enabled the company to pay its suppliers.
That news, together with the filing itself, looked like solid progress to some observers. "This is a huge step forward for Congoleum, but nothing is certain yet," said Peter Chapman, president of Bankruptcy Creditors Service, which is based in Fairless Hills, PA.
"These prepackaged bankruptcies are a pretty new concept, and none of the companies that have used them have gotten out of bankruptcy yet," Chapman said. "Still," he continued, "employees and customers have little cause for worry. The company makes money, so everyone wants it to keep operating. The question is who will collect the profits from those operations."
