Print | Share | Reprint

UST wants to install trustee to oversee Solyndra

by Aviva Gat | Published October 3, 2011 at 4:04 PM

Its top managers have refused to testify before Congress and a Delaware court, but now bankrupt Solyndra LLC will have to fight a motion by the U.S. trustee seeking to either have a Chapter 11 trustee appointed to its estate or have the solar panel maker's Chapter 11 case converted to a Chapter 7 liquidation.

Judge Mary F. Walrath of the U.S. Bankruptcy Court for the District of Delaware in Wilmington will consider U.S. Trustee Roberta A. DeAngelis' motion on Oct. 17.

DeAngelis moved the court to appoint a Chapter 11 trustee or convert Solyndra's case because CEO Brian Harrison and chief financial officer W.G. Stover refused to answer questions about the company's business affairs and because of an ongoing investigation, which could distract management from performing their duties in the bankruptcy case.

According to the Sept. 30 motion, the officers invoked the Fifth Amendment during hearings. While DeAngelis said she recognized the importance of the constitutional right against self-incrimination, the lack of testimony impairs the bankruptcy proceeding, which is based on full disclosure and reporting obligations.

DeAngelis said she isn't alleging any wrongdoing by Solyndra's management but is concerned about its ability to carry out its fiduciary duties, such as informing creditors of Solyndra's finances and the circumstances leading to bankruptcy, while its members assert their Fifth Amendment rights.

"Transparency and disclosure are the linchpins of the bankruptcy system," she wrote in the motion.

The officers refused to testify due to an investigation initiated by the FBI, along with the Department of Energy Office of Inspector General. The agencies had executed search warrants for Solyndra's Fremont, Calif., headquarters on Sept. 8 to probe whether there was any accounting fraud in connection to a $535 million loan provided by the U.S. Department of Energy in March 2009.

Solyndra's officers were set to appear before the U.S. House of Representatives Committee on Energy & Commerce's Subcommittee on Oversight and Investigations on Sept. 23. Three days before the hearing, however, the counsel to Harrison and Stover notified the subcommittee that the officers would decline to answer any questions during the hearing, according to DeAngelis' motion.

The hearing proceeded, and Harrison and Stover refused to answer any questions, including those related to Solyndra's financial affairs.

During the hearing, members of the subcommittee questioned how Solyndra "duped" the Obama administration and U.S. taxpayers out of more than $500 million.

According to a transcript, Rep. Cliff Stearns, R-Fla., the subcommittee chairman, alleged that Solyndra's officers had ensured congressional members that the company was doing fine just months before the bankruptcy filing. Moreover, Harrison stated that Solyndra's revenues were projected to double in 2011.

"I was hoping that Mr. Harrison would testify today and explain to me and to this committee, how he could make those representations in late July, about Solyndra improving prospects when the company was on the path to bankruptcy just 30 days later," Stearns said during the hearing.

Rep. Tim Murphy, R-Pa., alleged that George Bush's administration had rejected lending money to Solyndra in January 2009. However, two months later, when Barack Obama had been installed as president, the loan resurfaced and was approved.

In December 2009, Solyndra made a filing with the Securities and Exchange Commission for an additional public offering to ensure a strong return from stock sales to repay the government loan. Solyndra, however, decided to cancel the offering.

"It was an airtight scheme that trumps the Bernie Madoff scheme," Murphy said.

Rep. Fred Upton, R-Mich., said Solyndra's financial model showed the company would run out of cash by September 2011 and that the Obama administration had restructured the loan when Solyndra faced default at the end of 2010.

"But now we have our own modern-day great train robbery," Upton said. "But it appears we have a great heist of over half a billion dollars, and possibly even willing collaborators and maybe even co-conspirators."

But the congressional hearing wasn't the first time Harrison and Stover refused to provide information.

DeAngelis said that, even before the hearing, Harrison and Stover had refused to answer her questions about the debtor's contracts based on concerns about investigations and possible litigation. For example, during an interview on Sept. 15, Solyndra's vice president and in-house counsel, Benjamin Schwartz, refused to answer questions about Solyndra's customer contracts, stating that the topic could be the subject of future investigations or litigation.

Specifically, the officers wouldn't disclose whether financial information submitted to investors and creditors was accurate, when they realized the company was unprofitable, whether its lack of profits was discussed at board meetings, whether the management received bonuses and whether Solyndra has a plan to repay the $535 million loan provided by the DoE.

DeAngelis also said Solyndra has said it intends to "produce someone" to testify during the creditors' meeting scheduled for Oct. 18, but as of Sept. 30, the debtor couldn't identify who will appear during the meeting to answer questions about the bankruptcy case. Solyndra's counsel has, however, indicated that it has taken steps to retain a chief restructuring officer.

Solyndra and parent 360 Degree Solar Holdings Inc. filed for Chapter 11 on Sept. 6.

Founded in 2005, Solyndra manufactures photovoltaic solar power systems designed for large commercial and industrial rooftops and for certain shaded agriculture applications.

According to documents, Solyndra lost $329 million on $142 million in revenue in 2010. Solyndra valued its assets at $859 million and liabilities at $749 million.

Debtor counsel Bruce Grohsgal of Pachulski Stang Ziehl & Jones LLP couldn't be reached for comment. Imperial Capital LLC is financial adviser for the debtor.

Counsel to the creditors' committee Bonnie Fatell, David W. Carickhoff, Alan M. Root and Rocco A. Cavaliere of Blank Rome LLP did not return calls for comment.

Michael A. Rosenthal of Gibson, Dunn & Crutcher LLP and Sean M. Beach of Young Conaway Stargatt & Taylor LLP are counsel to the debtor-in-possession lenders.

Share:

Restructuring

UST wants to install trustee to oversee Solyndra

Free preview

Meet the journalists

Aviva Gat

Senior Reporter: Bankruptcy

Movers & Shakers

Video

A fast start toward an uncertain finish

Sectors