Manzi fights over Nets Inc. loan
A committee for the bankrupt company objects to former CEO Jim Manzi's move to become one of the first creditors to collect.
But company's creditors committee said he'll have to wait in line. It filed an objection to Manzi's move to join a list of secured creditors, a ranking that would give him a higher priority for repayment, according to Manzi's attorney Richard Mikels.
Secured creditors are the first to receive any reimbursement from a bankrupt company. Unsecured creditors, such as vendors, are left collect whatever funds are left.
Filed the day before the deadline for objections, the committee complaint "seeks to remedy the harm suffered by unsecured creditors when the company, although on the brink of insolvency, took no action to protect the interests of unsecured creditors" while Manzi was chief executive.
The complaint specifically alleges that, between December 1996 and the first quarter of 1997, it became clear that Nets was going to run out of money but that Manzi made no attempt to sell the assets of the company, preferring to look for outside investment.
"The crowning blow was a loan made by Manzi," the complaint states, "which was insufficient to cover accruing losses and which simply delayed the inevitable demise of the company to the detriment of unsecured creditors."
Under those conditions, the suit continues, Manzi's claims for reimbursement should be subordinated to those of the unsecured creditors.
Manzi, a former CEO of Lotus Development, says he financed the flagging company to the tune of $500,000 a week in the month before it filed for Chapter 11 bankruptcy protection in May.
"Jim Manzi stepped up to the plate to hold the company together, and because he did that the creditors will receive a very large return that is, in fact, larger than most bankruptcies," Mikels said.
The conflict is the latest installment in what has become a troubled history for the company. In February, Nets pulled the plug on its recently acquired AT&T Business Network, a news and information service Web site, as part of an effort to sharpen their business focus.
Nets laid off most of its 200 employees when making its May announcement in an effort to reorganize and revitalize its Industry.net service, an electronic marketplace for industrial goods.
The company has never been profitable, posting a net loss of $17 million for 1996 and a $7 million loss for the first quarter of 1997, according to the complaint.
Perot Systems acquired the company's assets for $9 million in July, which is going to reimburse creditors, said Hall Swaim, Nets counsel. The total amount of debts to paid is still being resolved.