Trustee will govern Rolloffs’ affairs

Top executives at bankrupt trash collecting and recycling firm Rolloffs Hawaii have been doing more to protect their own pocketbooks than to ensure creditors get paid, a U.S. bankruptcy judge said in a ruling.

The ruling, filed Tuesday by Judge Robert Faris, involves $315,000 in proposed payments to three key Rolloffs managers, and follows the court’s approved $5 million sale of the company to competitor West Oahu Aggregate Co. last week.

Faris ordered that a trustee govern the affairs of Rolloffs instead of current management until West Oahu Aggregate takes over. The trustee will oversee debt repayments that mainly will go to American Savings Bank while other creditors — including the city — will recover what is expected to be little if any of what they are owed.

Rolloffs, which is owned by California-based private equity firm Corridor Capital LLC, sought to reward top managers with retention bonuses for keeping the company running amid financial difficulties that included a period before the firm filed for Chapter 11 bankruptcy protection Dec. 9.

The company, represented by bankruptcy attorney Jerrold Guben, filed a motion seeking to pay its independently contracted CEO Charlie Leonard $250,000 plus $50,000 to finance chief Tom Durupt and $15,000 to head of operations John Kojima.

But Faris, who noted that no reasons have been given for why Rolloffs was in bad financial condition, ruled that the managers seemed to be looking out for themselves as opposed to creditors.

“Certain aspects of the motion and related transactions convince me that Rolloffs cannot be trusted to fulfill its fiduciary duties to creditors,” the judge wrote in his order. “Rolloffs’ insistence on protecting the interests of the key employees and its complete neglect of the interests of unsecured creditors is cause for the appointment of a trustee.”

A trustee will be selected by the Office of the U.S. Trustee that monitors bankruptcy cases for integrity.

Faris said Leonard, Durupt and Kojima pressured American Savings to make a deal that would ensure they were paid the same bonuses, except $25,000 less for Leonard, if the judge rejected the bonus payment motion. This deal would have the bank pay the bonus amounts out of money the bank received as repayment for its debt, and also contained a provision that the three managers would not compete against West Oahu Aggregate for at least a year.

The bank, which is owed $6.3 million by Rolloffs, agreed to the side deal after Leonard, Durupt and Kojima made “repeated threats” that they would leave Rolloffs prior to a sale, according to Wayne Mau, a bankruptcy attorney representing the bank.

“Given the circumstances, including, but not limited to, ASB’s belief that to obtain the maximum value for the sale of the debtor’s assets, debtor’s business needed to be actively operating, ASB made a pure business decision to agree to pay the bonuses,” Mau said in a written declaration.

Meanwhile, only after prodding by Faris was it projected that relatively little money — perhaps $450,000 but maybe far less — would be available out of about $2 million Rolloffs had yet to collect from customers to pay other creditors that typically would only be repaid after the bank.

These so-called unsecured creditors included the city, which is owed about $2.9 million for unpaid fees for receiving rubbish at two facilities, Garlow Petroleum Inc. with a $205,870 claim, Pyramid Insurance with a $90,639 claim and PVT Land Co. with a $67,150 claim.

“Rolloffs under the key employees’ leadership and its counsel recommended that the court approve a sale process with no assurance of any recovery to unsecured creditors,” Faris said in his order. “Rolloffs, its counsel, and the key employees devoted significant effort to attempting to protect the (management bonus) plan, but they took almost no initiative to protect the interests of the estate and secured creditors.”