Northwest Paid Firm Before Ch. 11 Filing
 

I just love the part about "On April 7, 2005, Northwest made three payments totaling $974,940 to Cadwalader, Wickersham & Taft, its lead bankruptcy counsel, for bankruptcy-related services ..... Nineteen days later Chairman Gary L. Wilson established a plan for selling his shares in the company ..... Throughout the summer and lasting until a few weeks before the Sept. 14 bankruptcy filing, Wilson sold nearly all his stake for $21.3 million."

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Northwest Paid Firm Before Ch. 11 Filing
Friday June 16, 6:04 pm ET
By Joshua Freed, AP Business Writer
Northwest Paid Bankruptcy Law Firm Almost $1M for Expenses 5 Months Before Filing for Chapter 11

MINNEAPOLIS (AP) -- Five months before Northwest Airlines Corp. filed for Chapter 11 protection, it paid its lead bankruptcy law firm almost $1 million for bankruptcy expenses, according to a court filing by the airline.

It's common for companies considering bankruptcy to get legal advice in advance. But Northwest's payments came when executives said bankruptcy was a risk, but not a certainty, and were using the threat of bankruptcy to pressure workers to take concessions.

On April 7, 2005, Northwest made three payments totaling $974,940 to Cadwalader, Wickersham & Taft, its lead bankruptcy counsel, for bankruptcy-related services, according to a court filing the airline made late Thursday.

Nineteen days later Chairman Gary L. Wilson established a plan for selling his shares in the company. When the sales began in May, the company said Wilson was selling so he could diversify his holdings, and declined to release the trading plan filed in April. Throughout the summer and lasting until a few weeks before the Sept. 14 bankruptcy filing, Wilson sold nearly all his stake for $21.3 million.

A shareholder lawsuit filed in December accused Wilson, Chief Executive Doug Steenland, former director Al Checchi and former Chief Financial Officer Bernie Han of selling stock when they had nonpublic information about Northwest's bankruptcy plans.

Northwest declined to comment Friday on why it began paying Cadwalader five months before its bankruptcy filing, and declined to say when it made the decision to file for bankruptcy.

It disclosed the payments in a bankruptcy court filing called a "statement of financial affairs" late Thursday. In addition to listing creditors, the 1,659-page document requires bankrupt companies to list payments "for consultation concerning debt consolidation, relief under the bankruptcy law or preparation of a petition in bankruptcy within one year" before filing.

Northwest paid $12.1 million to legal and consulting firms for bankruptcy expenses throughout the summer until it filed for bankruptcy protection on Sept. 14.

Northwest warned for months in advance of filing for bankruptcy that it was in serious trouble. In its March 2005 newsletter, Steenland warned that unless the airline can return to profitability, "at some point we will have no other option but to seek protection under Chapter 11."

But the company also portrayed bankruptcy as avoidable. When it reported a $458 million loss on April 21, Steenland said Northwest would be "well-positioned for the future" if it got the labor cost cuts it was seeking.

The shareholder lawsuit accuses Northwest officials of failing to disclose that the bankruptcy filing "was unavoidable and imminent" and that a Chapter 11 filing was "a strategy that defendants had adopted at least as early as April 2005 because they viewed bankruptcy reorganization as the only way to dump the crushing burden of Northwest's pension obligations" on the federal agency that guarantees pensions.

A spokesman for the firm that brought the lawsuit, Milberg Weiss, said the attorneys involved were not available to comment Friday.

Lowell Peterson, a bankruptcy expert with the law firm of Meyer Suozzi English & Klein in New York, said two or three months before a filing is a more common timeframe to hire a bankruptcy attorney.

"Five months is long, but it's not unusual for a company to retain bankruptcy counsel some time before filing," he said. "Even before it's decided to file, just to get some advice on what that would entail."

Bankruptcies are never a knee-jerk decision, said Minneapolis bankruptcy attorney George Singer.

"The larger and more complex cases require more planning and forethought, and Northwest is no exception," he said.


http://biz.yahoo.com/ap/060616/north...ptcy.html?.v=4

Ooooh, the twist of fate is cruel.

Can't say I'm suprised, though. CEOs always want to cash-out before bankruptcy.

I'm sure shareholders would be very interested that tidbit. I wonder if selling shares with the apparent intent for file BK is in vilolation of SarbOx? The question is, did NWA provide shareholders proper guidance on the chance of BK before the CEO dumped his shares?

No they did not. That's why they are under investigation. In fact, they lied about how much the pension fund was underfunded by about 3.5 billion.