CHARLESTON, W.Va. -- The personal assets of a company's shareholders and executives are generally protected even if that company goes bankrupt and can't pay its debts.
"When you create a corporation you are creating a separate entity," said Andrew Nason, a Charleston bankruptcy lawyer. "Whether you work for IBM or a small mom and pop inc., your personal assets are not involved in a corporate bankruptcy filing."
That's probably a good thing for the owner and presidents of Freedom Industries, all of whom have made significant purchases or donations in the last two years.
On Jan. 9, the day that Freedom Industries' chemical leak was discovered, one of the company's officials bought a house in Charleston.
Dennis P. Farrell is still identified as president on Freedom's website. In documents filed Monday in federal bankruptcy court, the company said Farrell was terminated as president on Dec. 6 of last year, but remained employed by Freedom "in a sales function."
Farrell bought a four-bedroom house on Longridge Road in the South Hills section of Charleston for $375,000, paying in full, without a mortgage.
The deed says the sale closed on Jan. 9, but it was not notarized until Jan. 22 and was not filed with the Kanawha County clerk until Jan. 24, a week after Freedom Industries filed for bankruptcy.
The first state inspectors who arrived at Freedom Industries on the morning of Jan. 9 said they were greeted by Farrell, who identified himself as president.
Farrell did not return requests for comment. Robert Howell, the lawyer, who prepared the deed, would not say when the sale was closed or whether Farrell was present, citing attorney-client confidentiality.
Several bankruptcy lawyers said there is probably nothing improper about Farrell's purchase of the house, but it's something they would investigate if they represented Freedom's creditors.
"Anything they do is likely going to be under a microscope," said Bob Simons, a bankruptcy lawyer with the Pittsburgh firm Reed Smith. "It's certainly something that you would look into."
Adam Levitin, a bankruptcy professor at Georgetown University law school, said that sometimes executives of smaller companies personally guarantee their company's debt, which would draw their personal finances into the bankruptcy equation.
"What I'd want to find out is, are there any personal guarantees of corporate debt by the president," Levitin said. "If the president is a major shareholder he might have made a guarantee."
Barring a personal guarantee of Freedom's debt, Farrell's purchase is kosher, so long as he used his own money and not the company's money, one lawyer said.
"If I, as the president, was to take a company check and buy a $400,000 house, then the bankruptcy court will go hog wild on that," Nason said. "But if I had assets and could buy myself a house out of my lawfully obtained monies that I had previously earned and paid taxes on, the fact that I didn't loan that back to the corporation wouldn't be a bankruptcy issue."
Nason said that the purchase would pique his interest, but ultimately it may just be a case of bad optics.
"Sort of like the president, the British guy," Nason said. "Drinking bottled water."
Nason was referring to Gary Southern, who became the public face of Freedom after a brief press conference on the night of Jan. 10. As 300,000 people closed their second day without usable tap water, Southern was handed a bottle of water by a public relations aide. He drank from it before being hustled away from cameras with reporters still shouting questions.