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U.S. bankruptcy trustee: Freedom president's legal fees not a priority

CHARLESTON, W.Va. -- If the president of Freedom Industries wants his legal fees paid, he should get in line with the others who believe the company owes them money, a federal trustee said Friday.

Gary Southern's legal fees should be treated as a general unsecured claim, rather than an administrative expense, as Southern requested, a trustee appointed by the U.S. Department of Justice to handle the bankruptcy case wrote in an objection Friday.

Southern is president of Freedom Industries, the company responsible for a Jan. 9 chemical leak that tainted the water supply of 300,000 West Virginians for days. The company filed for Chapter 11 bankruptcy on Jan. 18. Chapter 11 allows a company to reorganize and continue operating, but its attorney has said the company is winding down.

Southern filed a motion earlier this month asking a judge to pay him until a chief restructuring officer was hired. He also asked that  Freedom's insurance cover his legal expenses.

On March 18, a judge approved the hiring of chief restructuring officer Mark Welch to head Freedom's finances while it winds down operations. Welch is a "turnaround consultant" with MorrisAnderson in Chicago.

Trustee Judy Robbins wrote in her filing Friday that she doesn't object to Southern being paid for his work up until Welch's hiring. However, the $48,909 owed to the Kay Casto & Chaney law firm -- the legal expenses Southern wants Freedom's insurance to cover -- shouldn't be an administrative expense, the trustee's filing states.

"While this may result in some hardship to the present officers or directors in the event they must fund their own defense, their plight is neither better nor worse than general creditors who rendered services or supplied goods in reliance upon the expectation of payment," the trustee's filing states.

In a separate filing Friday, attorneys for Freedom Industries said they don't object to Southern's legal fees being classified as an administrative expense.

The class of unsecured creditors, which mainly consists of people and businesses that have filed lawsuits against Freedom, objects to Southern getting paid, as well as the company giving priority to his legal expenses, they wrote Friday.

Unsecured creditors are those who are close to the bottom of the list to get paid and don't have, for example, the power to file a lien to ensure they do get paid.

Attorneys for the committee say Southern shouldn't be paid because he wasn't president long enough, "having served in his present capacity for no more than 30 days prior to" the date the company filed for bankruptcy.

Their objection also states that the court should keep administrative claims to a minimum, as there are limited resources to distribute.

A hearing on Southern's motion to get paid is set for April 18 in bankruptcy court in Charleston.

Welch said at a hearing on March 17 that he believes Freedom will have between $2 million and $3 million left in June to pay creditors.

Reach Kate White at kate.white@wvgazette.com or 304-348-1723.


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