It seems former Mayor Jim O’Neal saw the writing on the wall.
O’Neal, the founder of 30-year-old transportation company O&S Trucking Inc., resigned from his post as mayor May 7, 10 days before his company voted to file for bankruptcy protection and less than three weeks before it inked an agreement to serve as a contract carrier for Springfield-based national trucking firm Prime Inc.
Both a local bankruptcy attorney and the current mayor suggested O’Neal knew he was planning to file when he resigned his mayoral post after three years, citing business and personal reasons.
In a May 18 interview with Springfield Business Journal, O’Neal said he planned to turn around the struggling company by addressing route inefficiencies and focusing on developing revenue streams for the company that had lost $20 million in annual revenue between 2008 and 2011.
According to O&S Trucking’s Chapter 11 filing in U.S. Bankruptcy Court in the Western District of Missouri, the cooperative agreement with Prime is central to O&S’ reorganization plan. “Both Prime and debtor recognize that O’Neal’s efforts in delivering debtor’s customers to the Prime affiliation is crucial to debtor’s profitability and success in reorganization,” O&S’ attorney Jonathan Margolies of Kansas City-based McDowell, Rice, Smith & Buchanan PC said in an emergency motion filed with the court May 31, a day after the full bankruptcy filing.
Prime’s general counsel, Steve Crawford, declined to comment for this story, and O’Neal did not respond to multiple interview requests by press time.
Details of the agreement provided to the court reveal that O&S would keep 80 percent of all revenue it generates by transporting freight for Prime; O’Neal’s company would utilize Prime’s buying power for fuel; O&S would have access to additional freight business due to its cooperative agreement with Prime; and Prime would assume administrative, accounting and marketing functions for O&S Trucking, providing savings to pay creditors by reducing its overhead.
The deal also comes with incentives for the former mayor. O’Neal would earn 3 percent commission for revenue generated by O&S hauling freight for Prime in the first year of the contract, 2 percent in the second year and 1 percent in the year three.
The emergency motion to approve the cooperative agreement was granted by federal bankruptcy case Judge Arthur Federman June 5 on an interim basis, with a final hearing scheduled July 11.
The move already has drawn an objection in court.
Caterpillar Financial Services Corp., which names itself as a creditor of O&S, has objected to the agreement between Prime and O&S Trucking. Dan Nelson, an attorney with Lathrop & Gage LLP in Springfield, said while a full schedule of creditors has yet to be filed, court records will show Caterpillar Financial as a secured creditor owed roughly $4 million on 63 trailers it financed for O&S.
Nelson said the objection filed June 6 gives the attorneys time to discuss the merits of the agreement before the motion’s July 11 hearing.
According to the objection, the agreement effectively serves as a buyout of O&S Trucking’s client base, and neither Prime nor O&S has demonstrated how the move would benefit the creditors.
“Certainly, there is a defined benefit to Mr. O’Neal and the percentages he will receive, but it is just too early to tell right now if that agreement, overall, is going to benefit the creditors of O&S Trucking,” Nelson said.
David Wieland, a 30-year bankruptcy attorney with Wieland & Condry LLC, said it was not uncommon for companies such as O&S Trucking to develop a plan with the help of another company in advance of a filing. He noted, however, that he is not familiar with the details of this case.
He said it is likely that O’Neal knew he was going to file for bankruptcy before he stepped down as mayor, because it typically takes between two weeks and two months to prepare the paperwork.
“This is not something you do quickly and easily,” Wieland said.
Prime and O&S Trucking signed the broker/carrier agreement May 25, just 18 days after O’Neal stepped down as mayor, and eight days after the board of directors of O&S formally voted to seek a Chapter 11 reorganization. The directors were listed as Jim O’Neal, Deborah O’Neal and Gary Brown, and the document shows that O’Neal and his wife voted in favor of the move, and Brown abstained from the vote.
According to the Chapter 11 filing, O&S Trucking has estimated assets of $50,000 or less against estimated liabilities of $10 million to $50 million. The company lists between 200 and 999 creditors.
Mayor Bob Stephens said he felt O’Neal was protecting the city’s image by resigning ahead of his company’s bankruptcy filing.
“Jim O’Neal is a very honorable man. I know that the fact his company was in trouble was eating at him because of the welfare of his employees, and yes, I think he felt like he needed to step down to save the city embarrassment,” Stephens said.
The city already was repairing its image after Councilman Nick Ibarra’s January resignation after being charged with a felony following an altercation with his wife.
Wieland said it is also not surprising that O’Neal did not publicly announce his preparations for filing.
“It would have been dumb for him to do so,” Wieland said, adding that O&S’ lawyer has an excellent reputation.
He said customers could have become worried and terminated their relationship with O&S prior to the filing, impacting the viability of the reorganization plan.
In a Chapter 11 case, the top 20 secured creditors review the reorganization plan and vote to approve it. However, Wieland said a judge can still approve a plan in spite of objections by one or more creditors through a process called a “cramdown.”
Wieland said there are generally many more variables in bankruptcy reorganization cases than Chapter 7 liquidations – all the more reason to be tight lipped about a filing.
“With Chapter 11s, everything is up in the air,” he said.[[In-content Ad]]
