Springfield Granite creditors clash

After company owners John and Tracy Hardwick twice received extensions to file a reorganization plan for the company, both deadlines have come and gone with no plan.

Now the company’s creditors are split on how the case should proceed.

Secured creditor Great Southern Bank Sept. 2 filed a request to either dismiss the case or convert it to a Chapter 7 proceeding in order to liquidate the company’s assets and distribute them among the creditors. In its filing, Great Southern cites several reasons for its request, including the “absence of a reasonable likelihood of rehabilitation” for the company and an “inability to effectuate a plan” for reorganization.

Dan Nelson, a Lathrop & Gage attorney representing Great Southern, said the motion was made because the bank is not happy with the progress in the case.

“(Chapter 7 is) preferable to what is happening right now, which is nothing,” Nelson said. “We don’t see any progress toward a reorganization or a sale of the business, and we’re not satisfied with the status quo. If the debtor’s not going to file a plan or be able to reorganize, we’d just like to have the assets liquidated.”

If the court decides to dismiss the case, Nelson said Great Southern would probably start foreclosure or repossession proceedings. A hearing on the bank’s motion is scheduled for Sept. 28 in the U.S. District Court for the Western District of Missouri.

The unsecured creditors committee in the case, however, feels that Chapter 11 proceedings are appropriate, as it stated in its Sept. 9 response. The group, which compises of veteran stone vendors, reviewed the company’s finances and found, among other things, “grossly overstated” inventories and net losses where profits had been reported.

The committee states that Chapter 11 is the right way to go, assuming that the company would be sold and reorganized under new ownership. The unsecured creditors believe Springfield Granite could be a viable business under different management.

According to Springfield Granite’s bankruptcy attorney David Schroeder, that assumption was not unfounded.

“The company was approached by more than one prospective purchaser, and it appeared that it would be something that the company would have entertained. So they spent a great deal of time providing information and allowing the prospective purchasers to do due diligence leading up to some negotiations,” he said. “At some point those negotiations broke down, so the emphasis has shifted back to basically filing a traditional plan of reorganization.”

Schroeder added that the company does intend to file a reorganization plan, though it will be up to the court to decide on its feasibility. The Hardwicks could not be reached for comment.

Continuing Chapter 11 proceedings makes the most sense, said Blackwell Sanders Peper Martin’s John Cruciani, attorney for the unsecured creditors committee. City Utilities, Cox Medical Center, Internal Revenue Service, Elliott, Robinson & Co. and Springfield Business Journal are among Springfield Granite’s unsecured creditors.

“Absent unusual circumstances, when a case is converted to Chapter 7, the business is supposed to stop operating,” he said. “Typically a business’ value is tied to its ability as a going concern to continue to operate. We just don’t believe … that converting the case to Chapter 7 and having it cease to operate would be in the best interests of the creditors.”

The group has requested that a Chapter 11 trustee be appointed to run the business, with the intent of either selling the business or putting a reorganization plan in place.

Nelson said that Great Southern is not taking a stance on the UCC motion at this point, though there have been discussions between the attorneys for the UCC and Great Southern.

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