Judge signs off on Gainey cash deal

GRAND RAPIDS, Mich. (WOOD) - A federal bankruptcy judge has agreed to a deal that will allow Gainey Corporation to use its cash to operate -- a ruling necessary to allow the corporation to continue to function.

"It's a big step forward in the case," Gainey Corp. attorney Daniel Gosch told the court. The firm filed for Chapter 11 bankruptcy protection in late October after a group of lenders, led by Wachovia Bank, sued Gainey Corp., saying they were owed $230 million.

Those lenders had contested the use of cash since the Chapter 11 filing -- noting the firm's money is effectively theirs -- but both sides somewhat surprisingly made a deal.

"I did not expect an agreement today," said Judge James Gregg, who called the deal even-handed. Because the corporation's cash does effectively belong to the lenders, a judge's approval is required to use it. Gainey was already using its cash under a temporary order signed by Gregg.

Gainey Corp. can use that cash through the end of May under the deal, which requires the firm to present a Chapter 11 reorganization plan by the end of March. The agreement also resolves questions about hundreds of semi truck trailers thought to be missing by a consultant hired by Wachovia.

Gregg did not make a decision on proposed annual salaries for Harvey Gainey and the firm's chief operating officer, Carl Oosterhouse -- at approximately $600,000 each. Gregg said there did not appear to be any reason to rule on the matter quickly. The salaries will be discussed again at a February status conference.

An attorney for the U.S. bankruptcy trustee had objected to the cash deal earlier Thursday, saying it put employees and vendors at greater risk should Gainey Corp. run out of money.

After testimony that the risk had been diminished by better-than-expected financial performance by Gainey, the trustee's attorney, Dean Rietberg, withdrew his objection. A financial analyst testified that he did not believe the corporation's available cash would dip below the amount needed to fulfill payments to employees and other "administrative expenses" over the next few months.

In an interview, Harvey Gainey told 24 Hour News 8 Thursday he believes employees are properly protected under the deal.

Another attorney, representing "unsecured creditors" -- entities to which Gainey Corp. owes money other than the Wachovia-led group of lenders -- initially objected to the deal as well. She was concerned because it allowed the firm to use its private aircraft. At the judge's suggestion, the corporation agreed to document use of the aircraft, including justification of its use versus a commercial flight, and the unsecured creditors' attorney withdrew her objection.

"If we could sell the airplane, we would," Harvey Gainey told 24 Hour News 8. He said there is not much of a market for used aircraft right now, and the corporation's plane is used very sparingly.

Harvey Gainey was not present during the salary hearing Thursday afternoon, nor was an attorney to represent him. His personal attorney told the court earlier Thursday that Harvey Gainey had asked him to withdraw as counsel.

Gregg warned attorneys representing the corporation not to cross the line and begin advocating for Harvey Gainey himself, who now has 20 days to hire an independent lawyer.
The judge read from expert analysis regarding the salaries that concluded 75 percent of chief executives of firms similar in size to Gainey made less than $350,000 per year. Still, perhaps because of his duties beyond that of chief executive, Harvey Gainey may still be underpaid, Gregg said. He said that conclusion would depend on arguments and evidence presented at a future hearing.

The salary for Carl Oosterhouse, the firm's chief operating officer, also remains in question. Expert analysis read by the judge stated that 75 percent of chief operating officers at comparable firms earned less than $200,000 per year.

Questions about the duties Oosterhouse performs for Gainey Corp. led Gregg to order in December record-keeping of the COO's work.

Gregg had said a week prior to that order that payments made to Oosterhouse prior to his appointment appear "highly suspicious," though he said there could be a reasonable explanation for them.