American Business Financial's hiring of restructuring officer not enough, trustee says

By Ellen Chang

Houston, March 23 - American Business Financial Services, Inc.'s efforts to hire a chief restructuring officer and a management services company do not eliminate the need for the appointment of a Chapter 11 trustee to oversee the company's restructuring, said U.S. Trustee Kelly Stapleton in a filing Wednesday.

The proposed appointment of a chief restructuring officer and hiring of Alvarez & Marsal LLC to provide management services cannot "substitute for the replacement of debtors' deficient management by a disinterested trustee," said Stapleton in a filing with the U.S. Bankruptcy Court for the District of Delaware. It is also not an "appropriate remedy for the debtors' management deficiencies."

Stapleton also said the company's terms for hiring Alvarez & Marsal are "undefined and/or unreasonable in that no limits have been established" for the number of employees to be hired. In addition, the advisory firm wants an undefined success fee and the indemnification provided to the company is "inappropriate."

The chief restructuring officer would not be subject to "the fiduciary duties of a trustee," the filing said. The proposed officer would "disclaim any responsibility for what the debtors do" and is "inconsistent with the debtors' fiduciary duties," the filing said.

However American Business Financial Services opposed the appointment of a trustee.

In a Tuesday court filing, the company denied failing to provide adequate financial data to the US Trustee during a field review in February and also denied that it has inadequate internal financial controls.

It said the U.S. Trustee "imagines acrimony among the parties evidenced by 'hostile negotiations.'"

The company said that it has worked with all stakeholders on the impact of its cases.

As previously reported, the official committee of unsecured creditors is also opposing the proposal to appoint a Chapter 11 trustee - and it warned that doing so would trigger a default on the company's debtor-in-possession financing, resulting in the liquidation of its assets.

The committee said the appointment of David Coles as the chief restructuring officer has addressed its concerns, according to a Tuesday filing. Communication has greatly improved since Coles was appointed March 10, the committee said.

Philadelphia-based American Business Financial Services originates, sells and services home equity loans and money mortgage loans.

American Business Financial filed for Chapter 11 on Jan. 21. The company's Chapter 11 case number is 05-10203.

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