Creditors file Chapter 11 against Recycling Technologies

Creditors file Chapter 11 against Recycling Technologies

Creditors filed Chapter 11 bankruptcy proceedings on Aug. 17 against Recycling Technologies International, a Hanover-area company that received a state loan to improve its business.

Recycling Technologies purchases shredded tires and grinds them into rubber powder, while removing steel, fiber and other contaminants.

Among the creditors was Dodge Regupol Inc., Lancaster, which sells some of the recycled rubber products RTI makes, according to documents filed in U.S Bankruptcy Court for the Middle District of Pennsylvania, Harrisburg.

RTI owes Dodge Regupol $262,455, according to bankruptcy documents.

Other creditors include the following companies: Colony Tire Corp. of Edenton, N.C., $8,141; Lavokika 2000 Inc of Farnhan, Quebec; and Emanuel Tire of Baltimore, no amount listed. Total claims from all creditors are $301,527.

A Chapter 11 bankruptcy is a reorganization proceeding that allows the debtor to continue to be in business. A Chapter 11 plan, when approved, provides a method for the debtor to pay its creditors.

George Soukas, CFO of Dodge Regupol, said his company wants RTI to continue to operate. Dodge Regupol, in fact, owns 50 percent of Recycling Technologies.

"We felt for some time the business was under-capitalized, and we felt an unwillingness from the rest of the owners to capitalize it," said Soukas. Recycling Technologies did not have enough money to pay its creditors, he said.

Soukas declined to provide more information about his company's filing of the Chapter 11 proceeding against Recycling Technologies.

In general, the involuntary bankruptcy petition might indirectly lead RTI's other owner to lend RTI more money to operate, said Joshua D. Cohen, a partner with Hartman, Underhill & Brubaker, Lancaster. Cohen is not involved with the case but offered guidance on how a situation like this could occur in a Chapter 11 case. RTI's other owner is Recycling Technologies Inc.

Loan approved

"The company would not be legally compelled to put more money in, but it might be in its interest to put more in," Cohen said.

On Aug. 21, Dodge Regupol received preliminary approval from the bankruptcy court to lend up to $200,000 in additional funds to keep RTI going, which Dodge Regupol intends to do, Soukas said.

In a Sept. 5 hearing, the bankruptcy court approved Dodge Regupol's loan.

The loan had to be approved by the court because, once a bankruptcy petition is filed, whether voluntary or involuntary, the court has to approve any loans or other transactions outside normal business operations, Cohen said.

It's not unusual to have a creditor offer additional financing to a debtor, Cohen said. The funds enable the debtor to stay in business, so that, when a reorganization plan is approved, it can pay its creditors, he said.

Once the loan receives final approval, a number of things could happen, according to Mitch Sommers, a bankruptcy attorney in Lancaster who also isn't involved in this particular case. If approval is given, Dodge Regupol and the other creditors could withdraw the involuntary petition, and the bankruptcy proceedings would end.

"It would not surprise me to have this company out of bankruptcy as quickly as it went in," Sommers said. If this did not happen, RTI could choose to file a voluntary Chapter 11 reorganization plan.

Sommers said, from his perspective, it is unusual for RTI to get a loan from a creditor.

The fact that the loan from Dodge Regupol was worked out so quickly indicates that the creditors and RTI are working together, he said. That also could be a sign that the loan was planned even before the involuntary Chapter 11 filing, he said.

Sommers was surprised, however, that the amount of the loan was $200,000.

He often sees creditors make loans of $3 million to $4 million.

He said that Dodge Regupol could be taking a larger security interest, a larger debt, in RTI.

Tim Leighty is president of Recycling Technologies International and also a shareholder of Recycling Technologies Inc. Leighty said Recycling Technolgies' problems were due to the economic situation at the end of 2000 and the beginning of 2001.

"The Chapter 11 is a reorganization," Leighty said. "Our expansion is completed, and we intend to keep operating

"The problem was soft first and second quarters," he said. "The company found itself in a very tenuous condition. But I think there's been an upturn in the industry." He explained that, in the third quarter, sales had increased by about 20 percent over the previous quarters. He attributed this to an increased demand from existing customers,

The Chapter 11 bankruptcy has no effect on a $3.2 million loan from the state Department of Community and Economic Development received in June 2000, a state official said

That loan was used to purchase more tire shredding equipment so Recycling Technologies could expand production.

According to department spokeswoman Megan Miller, the loan is performance-based, and if RTI is able to produce more than 120 million pounds of shredded tire materials within eight years, it becomes a grant. The loan is not affected by the bankruptcy proceeding, Miller said.

Recycling Technologies International, formerly Recycling Technologies Inc., started in Leighty's Chambersburg home in 1993.

Operations at the Conewago Township plant began in September 1994.

The plant is about 87,000 square feet. Central Penn Business Journal