THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Tuesday, October 17, 1995 TAG: 9510170294
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: Medium: 93 lines
Marine Hydraulics International Inc. will emerge from bankruptcy reorganization in a few weeks.
The small Norfolk shipyard's reorganization plan was approved Monday by Judge Stephen S. Mitchell in Norfolk's federal bankruptcy court. MHI filed for the Chapter 11 bankruptcy in January.
If there are no last-minute objections or appeals, MHI would emerge 10 days after Judge Mitchell's formally enters an order confirming the plan.
``Now we just have to get back to work,'' said a relieved Robert S. Walker, MHI's chairman, chief executive and majority owner.
The Navy guided-missile frigate Clark is scheduled to arrive Thursday at MHI's facility on the Elizabeth River's Eastern Branch for up to $2 million of repairs and alterations, Walker said.
The job will sustain MHI, which employs about 160 people, through December as it emerges from bankruptcy.
MHI is the third Hampton Roads shipyard to go through bankruptcy in the past five years. Colonna's Shipyard Inc. of Norfolk came out of a 19-month Chapter 11 in November 1991. Jonathan Corp. of Norfolk came out of a 14-month bankruptcy in March only to founder on a lack of work and go out of business in June.
MHI's prospects are better than Jonathan's since it doesn't have the crushing real estate debt that hindered that company, Walker said.
MHI also substantially reduced its overhead costs during tthe course of bankruptcy. The reorganization ``puts us in a good position to bid for other work,'' Walker said.
About 300 companies owed money by MHI will receive 40 cents for each of the nearly $6 million they are owed, to be paid out over the next 10 years. Creditors owed less than $1,000 will be paid 50 cents on the dollar within 60 days after MHI comes out of bankruptcy.
The unsecured creditors also will receive a 43 percent stake in the reorganized MHI, which will be held in a trust and subject to being bought back by the company.
Walker was MHI's only secured creditor. He agreed to several concessions to win creditor approval of the reorganization plan and to receive a release from and indemnification against claims against him and other MHI insiders by the company and creditors.
Walker agreed not to be paid the $1.2 million owed him until the unsecured creditors are paid. As owner of the real estate partnership that owns the waterfront property the company leases, he agreed to substantially reduce lease payments to about what the property costs. He also agreed to secure the cash payments to the unsecured creditors with a deed of trust in the property.
Walker also will get a 53 percent stake in the reorganized company. The remaining 4 percent will go to two other MHI executives.
Judge Mitchell approved the plan over the objections of MHI's fired chief executive, James Hong.
Hong stepped aside in June after being asked to resign by MHI's board of directors. Hong's 35 percent stake in MHI will be eliminated in the reorganization.
Hong said the plan failed to meet certain requirements of the bankruptcy code. The objection called the release and indemnification of Walker ``a fortress built around'' him that will require MHI to pay Walker dollar for dollar for any damage he caused the ship-repair firm.
In approving the plan, Judge Mitchell included some provisions to protect Hong's right to sue Walker and other MHI insiders if Hong is successfully sued for any damages he may have caused to MHI.
``We are pleased that the court recognized and protected Hong's rights by limiting the effect of the release and indemnification provisions,'' Hong's lawyer Donna Hall said in a statement.
The committee that has represented unsecured creditors in the bankruptcy sued Hong on Sept. 15, alleging that he systematically plundered MHI, pushing it into bankruptcy.
The suit alleges that Hong transferred money out of MHI to companies controlled or owned by him. Walker also held a stake in some of those companies.
Hall said Hong's defense may be to say that Walker, who was then MHI's chairman and majority owner, directed Hong to make the transfers.
MHI's bankruptcy also can be attributed to a number of other events and trends, the biggest being Navy downsizing since the end of the Cold War. With less ship-repair work to go around, there had to be some fallout among those companies that did the work.
MHI also had been doing some work at Newport News Shipbuilding. Its relationship with the giant Peninsula shipyard fell apart, and the two yards sued each other in March 1994. About the same time, MHI also lost its bank line of credit and was put on a cash-on-delivery basis by its suppliers.
It also didn't get some added work on the Maritime Administration vessel Mount Washington it had been expecting, Walker said.
MHI kept its head above water for nearly a year, but ultimately had to seek bankruptcy protection in the federal court. by CNB