Earlier this month, the Liquidating Trustee in the Intermet bankruptcy filed preference actions against various defendants. This post will look at the nature of Intermet’s business, why the company filed for bankruptcy and the circumstances behind the formation of the Liquidating Trust that is pursuing the preference actions.
As I often do on this blog, much of the information used in this post comes from information provided in the Debtors’ Declaration in Support of its Chapter 11 Petitions. Intermet filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on August 12, 2008 (the “Petition Date”). In support of its bankruptcy filings, Intermet filed a Declaration of William H. Whalen, Intermet’s Chief Financial Officer (the “Whalen Declaration”). The Whalen Declaration provides a good summary of Intermet’s business operations and the events leading the company into bankruptcy. A copy of the Whalen Declaration is available here.
Intermet Corporation manufactures automotive cast components such as power trains, chasis and interior components used in automobiles. The company sells auto parts to over 30 major auto manufacturers and parts suppliers. At the time of Interment’s Petition Date, the company’s customers included Chrysler, Ford, Honda, the Delphi Corporation and Dana Corporation. Whalen Decl., p. 3.
Events Leading to Bankruptcy
It is common knowledge that the U.S. auto industry has suffered from a decline in global demand over that past several years. This drop in demand, especially for SUVs and larger vehicles, has resulted in increased inventory and overcapacity for auto parts suppliers. Intermet’s problems, like the auto industry in general, were compounded by an increase in the cost of raw materials at the same time it was experiencing substantial drop in demand for its products.
Prior to filing for bankruptcy in 2008, Intermet closed a manufacturing facility in Tennessee and implemented “lean manufacturing techniques” designed to reduce the number of employees on the company’s payroll. Although Intermet considered its cost cutting measures a success, the “unprecedented drop in sales” was too great for the company to operate at a profit. Intermet filed for bankruptcy hoping to further restructure its operations and debt, and at the same time consolidate its business operations. Whalen Decl., p. 9.
Formation of the Liquidating Trust
On June 16, 2009, the Delaware Bankruptcy Court entered an Order Confirming Intermet’s Chapter 11 Plan. Pursuant to Intermet’s Plan, a Lender Liquidating Trust was created to collect and distribute certain assets belonging to Intermet. Included in the assets assigned to the Liquidating Trust are the preference actions Intermet could bring under section 547 of the Bankruptcy Code. The Liquidating Trustee identified as the Plaintiff in the preference actions is the Liquidating Trustee created following the formation of the Liquidation Trust. The Intermet bankruptcy proceeding, as well as the avoidance actions filed by the Liquidating Trust, are before the Honorable Kevin Gross of the Delaware Bankruptcy Court.