Judge: 2 policies not part of firm
Proceeds to fund NanoMech probe
A bankruptcy judge issued an order Thursday that the proceeds of two insurance policies valued at as much as $6 million are not the property of NanoMech’s estate and may be used to fund investigative costs and other claims.
During a hearing earlier this week, Michael Busenkell, attorney for NanoMech, told Judge John Dorsey the order was needed so the insurance companies could begin to fund investigations into claims of malfeasance against officers of the company and members of its board of directors.
A part of an insurance policy by Nationwide Insurance Co. and all of the policy from Argonaut Insurance Co. cover directors’ and officers’ liabilities. In general, these policies, typically called D&O policies, protect a company’s officers and directors against claims of wrongdoing and typically cover the attorney costs, legal fees and other losses but often exclude protection for fraud or other criminal action.
By ruling the proceeds of the policies are not property of NanoMech, it allows the insurance companies to pay expenses for legitimate
claims against the policies without becoming entangled with the bankrupt company’s estate. The order requires the insurance companies to make regular reports to the court regarding how the funds from the polices are disbursed.
The disposition of the directors and officers policies were the subject of several objections to the initial sale of NanoMech until it was made clear the policies were not part of the sale.
In late July, Dorsey approved the sale of NanoMech’s assets, free of liens and other legal encumbrances to P&S Holdings for $8 million. The sale closed in early August. P&S is a subsidiary of Houston’s Vinmar International Ltd., a global marketing, distribution and project-development company serving the petrochemical industry.
NanoMech said in earlier court filings that certain stakeholders had raised questions about former Chief Executive Officer Jim Phillips’ leadership and actions as the company’s top executive. NanoMech said its investigations show Phillips spent more than $750,000 in company funds on personal expenses, including trips, and also awarded himself a compensation package the company could not afford.
Phillips contends that NanoMech’s allegations are gross mischaracterizations of the truth or outright fabrications.
Phillips retired weeks before NanoMech filed for Chapter 11 bankruptcy protection in April in U.S. Bankruptcy Court for the District of Delaware. NanoMech claimed $7.2 million in assets and owes nearly $19 million to its creditors, according to initial bankruptcy filings.
NanoMech, founded in 2002, develops nanotechnology for use in machining and manufacturing, lubrication and packaging, coatings and also develops specialty chemicals. Nanotechnology is the manipulation of matter at the atomic and molecular scale.