Bankruptcy Fraud
DOJ Investigates Trustee

The Michigan-based Collins & Aikman Corp. filed for a Chapter 11 Bankruptcy in 2005 to reorganize the company.

Two years later, the justice department is stepping in to examine why the case is still being administered by the bankruptcy trustee, who has racked up large fees against the estate.

Meanwhile, the corporation's investors have been screaming foul that their pleas for justice have been ignored. They assert that the company provided false financial reports -- a fraud - to get more investment money.

Fraud Claims in Collins & Aikman Corp. Bankruptcy

By Associated Press
February 26, 2007


WASHINGTON -- The Justice Department is backing a call by a big creditor of Collins and Aikman Corp. to appoint an examiner to look into more than $100 million in fees charged by professionals in its bankruptcy case.

U.S. Trustee Saul Eisen, a Justice Department employee, said Collins and Aikman investor Third Avenue Value Fund had made "troubling allegations that merit an independent investigation," according to court papers filed Friday.

In December, Third Avenue asked for an examiner to look into the fees charged by Collins and Aikman's lawyers and advisers after the company abandoned its plan to reorganize. Third Avenue, which is owed $250 million from the auto supplier, argues the bankruptcy professionals should have cut their hours as soon as it was apparent the company would liquidate.

The trustee says Third Avenue's allegations merit an independent investigation and that the examiner should pay particular attention to decisions made by turnaround firm Kroll Zolfo Cooper LLC, which advised Collins and Aikman during its Chapter 11 case.

The Michigan automotive-parts maker has said the appointment of a fee examiner is unnecessary at this late stage in its bankruptcy case -- Collins and Aikman is about to be broken up and sold -- and would unfairly burden it with additional costs and fees.

Rather, Collins and Aikman wants a committee, which would include a company representative, to look in to the professionals' fees. But a committee would not have the same authority as an independent examiner.

Third Avenue, Collins and Aikman's largest creditor, resigned from the company's creditors committee in the fall, claiming the panel's bankruptcy advisers were racking up fees on "auto pilot" even while the company's reorganization strategy was failing.

The committee, however, has sided with Collins and Aikman, arguing that the examiner would simply add another layer of fees and expenses to the company's bankruptcy estate.

When he approved the last round of fees in Collins and Aikman's case two months ago, Bankruptcy Judge Steven W. Rhodes asked the company and its creditors to submit opinions about the need for an examiner. Rhodes will consider the request for an examiner at a hearing scheduled for March 12.

Collins and Aikman filed for Chapter 11 in May 2005 in U.S. Bankruptcy Court in Detroit amid production cutbacks by the biggest U.S. auto manufacturers and protection and allegations of fraud by investors who claimed they had been misled about the company's financial condition.

But after 18 months in Chapter 11, the Southfield, Mich., company pulled the plug on its strategy and said it would sell its assets rather than emerge from bankruptcy as a stand-alone entity.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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