A federal bankruptcy judge in Delaware will hold a hearing tomorrow to determine whether ICG Communications should be allowed to pay up to $500,000 to cover due diligence costs of a potential new lender.
Judge Peter J. Walsh will hear arguments that ICG should reimburse the costs of investigating the companys financial condition, in order to secure exit financing that would allow it to emerge from Chapter 11 bankruptcy protection.
The company has not identified the potential lender in documents it filed in the bankruptcy proceeding requesting permission to pay the lenders research costs.
Randall Curran, the new CEO appointed to take the company into bankruptcy, said earlier this year that he expects ICG to emerge from court protection by the end of this year, or early next year.
ICG has until Dec. 10 to file its own plan of reorganization with the court, or face competing plans from creditors that may have different ideas on how best to recover what they are owed. If the company meets that deadline and the court approves its reorganization plan, ICG will have two additional months to convince creditors to approve it.
The high-profile, troubled competitive local exchange carrier – which also faces more than $650 million in shareholder lawsuits that allege fraud and mismanagement – fled into bankruptcy court late last year with $2.8 billion in debts and $2.7 billion in assets.
ICGs former CEO, J. Shelby Bryan, stepped down as top company official in the midst of controversy last summer, after ICG had to restate its financial projections and earnings reports. Bryan, a celebrity political fund-raiser, had convinced Liberty Medias John Malone and Thomas Hicks of Hicks, Muse, Tate and Furst to invest some $730 million in the company just months before it collapsed.
Malone has never commented, but a spokesman for Thomas Hicks told Interactive Week earlier this year that the investment firm was a “victim” of fraud.
Former ICG executives and accounting and security personnel told Interactive Week that the company engaged in improper business practices to inflate its sales figures, and allowed the company to be pillaged by insiders.
The U.S. Bankruptcy Trustees office in Delaware – which bears responsibility under federal law to prevent fraud, overreaching or misconduct in federal bankruptcy proceedings – has failed to return numerous phone calls requesting comment on whether that office is investigating allegations of misconduct levied by former employees.
The Securities and Exchange Commission would not comment on pending investigations, but SEC investigators have conducted at least preliminary inquiries.
Wednesdays hearing is the result of what ICG said in bankruptcy documents are preliminary discussions with a lender to secure exit financing. According to those documents, the unidentified lender would not enter into negotiations with creditors or take other necessary steps to put financing in place for ICG unless the company paid the costs of its due diligence.
Company officials have repeatedly refused to talk to Interactive Week since its investigation earlier this year into allegations by former employees that senior company officials knew of theft and other misconduct that compromised the assets of the publicly traded company.