CHARLESTON, W.Va. -- Freedom Industries, the company that fouled thousands of West Virginians' water with a chemical leak into the Elk River last week, filed for Chapter 11 bankruptcy Friday.
Freedom owes $3.6 million to its top 20 unsecured creditors, according to bankruptcy documents. The company also owes more than $2.4 million in unpaid taxes to the Internal Revenue Service, and the IRS has placed at least three liens on Freedom's property, demanding payment.
The unpaid taxes date back to at least 2000, according to a lien filed in 2010.
Under the bankruptcy code, Chapter 11 permits a company to reorganize and continue operating.
The filing also puts a hold on all of the lawsuits filed against Freedom Industries. Since the leak last week, about a mile and a half upriver from West Virginia Water American's plant in Charleston, about 25 lawsuits have been filed against Freedom in Kanawha Circuit Court. The company also faces a federal lawsuit.
The company's assets and liabilities are each listed as between $1 million and $10 million in the bankruptcy filing. Chemstream Holdings Inc. is the sole owner of Freedom Industries, according to the filing. Gary Southern, who is identified as Freedom's president, signed all of the bankruptcy documents.
On Thursday, a source close to Freedom Industries, who asked to remain anonymous because of pending lawsuits, told The Charleston Gazette that Chemstream Holdings is owned by J. Clifford Forrest of Kittanning, Pa.
Forrest is listed as "manager" of Freedom affiliates Etowah River Terminal and Poca Blending in a merger filing from Dec. 31, 2013.
About an hour after its bankruptcy filing, Freedom filed an emergency motion for what's called "debtor-in-possession," or DIP, financing, which would allow it to secure up to a $5 million loan to continue to function in some capacity. The loan would, according to the filing, "provide additional liquidity to [Freedom] in order to allow it to continue as a going concern."
The lender in a debtor-in-possession case generally gets first priority when it comes time for the debtor, in this case Freedom, to pay money back.
"Under the bankruptcy code, when there is DIP financing from a DIP lender, 99 percent of the time, they get priority over all the other creditors," said Bob Simons, a prominent bankruptcy lawyer with the Pittsburgh firm Reed Smith. "You're putting your money in at risk, and the debtor is not going to have a lot of options, so the bankruptcy clerk permits the DIP lender to get priority over all the other lenders."
Freedom's proposed lender is a company called WV Funding LLC. That company does not exist in West Virginia, according to business records on file with the West Virginia secretary of state. Pennsylvania's secretary of state also has no records online for it.
The DIP agreement has places to sign for Freedom Industries and for WV Funding "by Mountaineer Funding LLC."
Mountaineer Funding was incorporated with the West Virginia secretary of state on Friday. Its one listed member is J. Clifford Forrest, Freedom Industries' owner.
The DIP agreement states that the terms "were negotiated by the parties in good faith and at arm's length."
The West Virginia Bureau of Employment Programs has placed at least two liens on Freedom's property, for about $4,000 in unpaid unemployment compensation insurance. Those liens were filed in 2002 and 2003.
On Jan. 9, the day the leak contaminating the Elk River was discovered, Freedom and its subsidiary, Etowah River Terminal, also owed nearly $93,000 in Kanawha County property taxes, about half of which was due on Oct. 1, 2013, and had become delinquent.
Freedom paid the full amount, $92,694.98, to Kanawha County on Jan. 10, the day after the leak was discovered. Of that amount, $47,618.87 had been overdue since Oct. 1.
A Freedom spokesman said Friday that, on the advice of legal counsel, the company would make no comment. Mark Freedlander, of McGuireWoods LLP in Pittsburgh, is representing Freedom.
Topping the list of Freedom's unsecured creditors, at $648,221, is Atlanta-based FloMin Coal Inc. Freedom owes Silverlake Holding LLC, of Evansville, Ind., $615,954.
Eastman Chemical, the maker of "Crude MCHM," the chemical that spilled into the Elk River, is owed $127,474, documents show.
Eastman, headquartered in Tennessee, is named, along with Freedom and West Virginia American Water, in the federal lawsuit filed this week.
Charleston-based Liberty Tank Lines is owed $117,812, according to the bankruptcy documents.
Documents in the bankruptcy filing allege that a water line break adjacent to the Barlow Drive facility might have contributed to the ground beneath a storage tank freezing during frigid temperatures in the days immediately preceding the incident.