Liberty Medical committee eyes authority to prosecute $3 million claim

By Kali Hays

New York, Jan. 6 – Liberty Medical Supply, Inc.’s official committee of unsecured creditors is seeking authorization to prosecute or file an adversary complaint against the Liberty’s executive management team, which has a $3.16 million claim against the company, according to a Monday motion with the U.S. Bankruptcy Court for the District of Delaware.

Individuals that are part of the management team include Frank A. Harvey, Tim Tidd, Arlene Rodriguez, Robert Mark and Samuel Silek.

During its investigation into potential causes of action, the committee said it believes the estate has grounds to reject the management team’s employment agreements as fraudulent transfers under Bankruptcy Code and is willing to pursue a possible rejection of the agreements “in light of the debtors’ refusal or inability to do so.”

According to the motion, the management team was also Liberty’s board of directors and therefore approved their own employment agreements which, as of December 2012, included yearly bonus entitlements that ranged from 37.5% to 50% of an executive’s base salary.

Prior to Liberty filing for bankruptcy the management team agreed to certain salary cuts, but immediately after the company filed, the team reinstated their own salaries to the full amounts allowed in the agreements, according to the motion.

“Once the committee discovered that the management team reinstated their own salaries but continued [...] the pay cuts for all of the debtors’ other employees, negotiations were undertaken whereby the management team agreed to reductions in their compensation.”

This agreement was confirmed on June 3, 2013. On June 19, 1014, the management team filed an administrative claim against Liberty in the amount of $3.16 million based on alleged outstanding bonuses and compensation increases included in the employment agreements.

The committee asked that the court allow it to prosecute and possibly settle the claim on behalf of Liberty as the company has not “given consent nor advised the committee that they will or intends to prosecute the action.”

A hearing is scheduled for Jan. 29.

Liberty Medical, a Port St. Lucie, Fla.-based health care products home delivery provider, filed for bankruptcy on Feb. 15, 2013. The Chapter 11 case number is 13-10262.

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