Southern Montana Electric Chapter 11 trustee appointment terminated

By Caroline Salls

Pittsburgh, Nov. 26 - Southern Montana Electric Generation and Transmission Cooperative, Inc.'s Chapter 11 trustee's appointment was terminated and possession and management of estate property and operation of the company's business was restored to Southern Montana Electric, according to a Tuesday filing with the U.S. Bankruptcy Court for the District of Montana.

As previously reported, cooperative member Fergus Electric Cooperative, Inc. asked the court to remove the Chapter 11 trustee, arguing that the trustee was "standing in the way" of a liquidation.

Southern Montana Electric's official committee of unsecured creditors subsequently joined the trustee removal motion.

Fergus said the circumstances that prompted the appointment of Chapter 11 trustee Lee A. Freeman no longer exist, so "there is no longer any reason to incur the extraordinary expense of a Chapter 11 trustee and his professionals in this matter."

Fergus said Freeman was appointed in November 2011, with the consent of the cooperative members, because the company's board of trustees was deadlocked and could not properly manage the bankruptcy.

According to the motion, the deadlock no longer exists, and the members have recently agreed unanimously that Southern Montana Electric should be liquidated.

"Ironically, however, the trustee is now the one standing in the way of [the company] exercising its right to liquidate," Fergus said.

Instead of allowing Southern Montana Electric to liquidate, Fergus said the trustee was attempting to force a reorganization on the company that has no possibility of success.

Despite this, Fergus said Freeman is "plowing ahead with his plan, forcing the estate to incur millions of unnecessary dollars in cash collateral payments and litigation expenses."

In addition, Fergus said the trustee "is now marching in lock-step with the secured creditors, Prudential and Woodmen, and is fighting the battles of those secured creditors."

In Tuesday's ruling, judge Ralph B. Kirscher said he does not see the need for the trustee's continued employment.

In addition, the judge said "there is the appearance of a perverse incentive to keep this case going along under the status quo, so the trustee, his counsel and counsel for the noteholders can continue filing interim fee applications that are subject to a lesser standard of review."

Southern Montana filed for bankruptcy on Oct. 21, 2011. The Billings, Mont.-based cooperative's Chapter 11 case number is 11-62031.

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