THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Wednesday, June 26, 1996 TAG: 9606260612
SECTION: LOCAL PAGE: D1 EDITION: FINAL
SOURCE: BY MARC DAVIS, STAFF WRITER
DATELINE: NORFOLK LENGTH: 57 lines
A bankruptcy judge ruled Tuesday that it is too early to decide whether the bankruptcy of Computer Dynamics Inc. should be dismissed or converted to a Chapter 7 liquidation.
Judge David H. Adams said he will decide in October, after several pending issues are resolved.
The U.S. Trustee's Office - an arm of the Justice Department that oversees bankruptcies - asked the judge to dismiss the case. A lawyer for the office said there is no hope that the defunct company can get enough money to reorganize itself under Chapter 11.
The company agreed with this request, saying that unsecured creditors can't possibly recover their money anyway because IBM Credit Corp. is first in line, with a $7 million debt.
Computer Dynamics, once a prosperous government contractor, now has no money, no employees and no business. It was forced into Chapter 11 reorganization last year.
``It's ridiculous for this case to continue on,'' said Donna J. Hall, an attorney for the company.
But some creditors, who are suspicious of company owner Robert L. Starer, urged Adams to keep the case and convert it to Chapter 7. They asked that someone investigate charges that Starer made improper transactions and payments just before the company entered bankruptcy.
Stephen Merrill, an attorney for one creditor, Phoenix Capital Corp., said the federal government owes the company $7 million to $8 million for previous work done, and the company has not tried to collect the money.
Jonathan L. Hauser, an attorney for another creditor, First Hospital Corp., told the judge that dismissing the case would be expedient, but wrong.
``I would suggest the reason for (the dismissal) is this is a complicated case. It's a case everyone wants off its docket,'' Hauser said. ``That's a very unsatisfactory reason.''
Adams refused to rule either way.
Instead, the judge ordered Hall to investigate the charges that Starer improperly spun off profitable company subsidiaries - mainly adult education and computer training programs - for his own personal benefit, at the expense of creditors.
Adams also asked Hall to investigate whether the company improperly paid a $250,000 legal debt just before entering bankruptcy. He asked for a report within 90 days.
That, Adams said, will give the court enough time to deal with several other outstanding issues, including:
A motion to cite company founder R. Alan Fuentes for contempt of court for spreading harmful information about the company to potential witnesses in the bankruptcy. That hearing is scheduled for July 31.
A motion to sanction some creditors and their attorney, Stephen Merrill, for making a legal motion that took several weeks to resolve. Starer claims it was a frivolous motion to harass him. That hearing is scheduled for Sept. 18.
An appeal from Adams' ruling in March not to appoint a trustee to take over the company. That is pending at the U.S. District Court.
Adams scheduled the next hearing for Oct. 2. by CNB