💥New Chapter 11 Bankruptcy - Presperse Corp.💥
Wholesale provider of ingredients to cosmetic industry files to address mass tort liability.
On September 9, 2024, Presperse Corp. (the “debtor”) filed a chapter 11 bankruptcy case in the District of New Jersey (Judge Kaplan), the latest entity to succumb to mass tort liability. The debtor is a wholesale provider of ingredients to the cosmetic industry. Plaintiffs allege it supplied talc containing asbestos, causing personal injury. “Presperse vigorously disputes any and all talc-related or asbestos-related liability,” CFO Mehul Shah writes in his first-day declaration. However, the debtor is a “small company with limited and finite assets,” and the ever-growing number of complaints and litigation costs are unsustainable. The debtor plans to use the chapter 11 process to create “...a trust under sections 105 and 524(g) [as] the most efficient and expeditious way for the Debtor to ensure that holders of current and future Talc Personal Injury Claims are treated in a fair and just manner.”
Founded in 1981, the debtor sells over 400 specialty raw materials to over 300 customers in the cosmetics and personal care industry. Key markets are skin, color and sun. They caught the eye of Japan’s Sumitomo Corp. of Americas (“SCOA”), which in 2007 acquired a 20% stake. In 2010 SCOA, along with then-parent Summit Global Management of America, Inc (“SGMA”), acquired the remaining interests. The debtor has been a wholly-owned subsidiary of SCOA since March 2017, when SGMA merged into SCOA. The debtor reported annual revenues of $49.4mm for its fiscal year ended March 31, 2024. Their net loss for the year was $4.9mm, thanks largely to litigation costs of $5.4mm and settlement payments of $2.2mm.
The debtor was first named a defendant in a talc lawsuit in ‘15. A “small number” of cases followed over the next six years, then exploded in ‘21. Since mid-’23, SCOA has been named as a defendant, Shah writes. 275 cases are pending as of the petition date. Shah admits that the debtor “…does not have the financial wherewithal to defend itself…” against these claims.
In late ‘22, the debtor engaged Duane Morris LLP (Morris Bauer, Drew McGehrin) as legal advisor and Getzler Henrich as financial advisor to explore options. The debtor also began exploring the possibility of addressing the talc claims through bankruptcy. In early ‘23, it executed a confidentiality agreement with firms representing certain talc claimants: Simon Greenstone Panatier, PC, Belluck & Fox LLP and Waters Kraus LLP (collectively, the “Talc Claimants’ Committee”) to discuss the possibility of a pre-negotiated chapter 11 524(g) plan of reorganization.
The Talc Claimants’ Committee retained Robinson & Cole LLP (“Robinson Cole”) as legal counsel and GlassRatner Advisory & Capital Group LLC d/b/a B. Riley Advisory Services (“B. Riley”) as financial advisor, and Legal Analysis Systems, Inc. to provide advice (at the debtor’s expense, of course). This is bankruptcy, of course, so naturally there were more pigs at the trough: back in March the debtors “…with the advice and consent of the Talc Claimants’ Committee, sought to engage an independent third-party to represent future talc-related personal injury claimants.” The debtor selected (the ironically named?) Value Extraction Services LLC as the pre-petition future claimants’ representative (the “Future Claimants’ Representative”) “to represent the interests of individuals who may assert Talc Personal Injury Claims in the future, but whose talc-related diseases have not yet manifested and are unknown (the “Future Claims”).” The Future Claimants’ Representative retained Young Conaway Stargatt & Taylor LLP as counsel, Ankura Consulting Group LLC as consultant, and jointly retained, together with the Talc Claimants’ Committee, B. Riley as financial advisor.*
That’s a lot of people fighting for pieces of a pie that’s — how did Mr Shah put it? — “limited and finite.” They talked all through the summer but called talks off in August, 2023, unable to reach agreement. But the new lawsuits continued to pile up. The debtor’s financial stress worsened and the debtor had to consider all options, “…including the serious contemplation by Presperse of liquidation due to the unsustainable costs associated with resolving talc-related claims in the tort system.” What could they do? In February 2024 it reached out to the Talc Claimants’ Committee again.
This time they reached an agreement and on March 31 executed a term sheet envisioning:
A Talc Personal Injury Trust, funded by a $49mm cash contribution from SCOA and the debtor, less certain fees and costs, and a $1mm promissory note; and
A permanent injunction, issued on the effective date, channeling all talc personal injury claims, whether asserted against the debtor, SCOA or their representatives, to the Talc Personal Injury Trust.
The debtor has no secured debt, and has $10.3mm outstanding under an unsecured financing facility with SCOA (“SCOA Financing Facility”). Trade debt stands at roughly $4.7mm.
The debtor “…expects to maintain adequate cash flow to satisfy both its ordinary course and chapter 11 administrative expenses (including professional fees).” Nevertheless, it is seeking approval to access $2mm of remaining availability under the SCOA Financing Facility as a DIP loan facility on an interim basis, and an additional $2.7mm on a final basis. “Upon confirmation of the Plan, the SCOA Financing Facility, including the pre-petition amounts outstanding thereunder, and post-petition loans (if any) funded thereunder, is expected to be reinstated.”
The debtor obtained the requested relief, including the DIP motion, at a first-day hearing on September 12, 2024. A disclosure statement hearing is scheduled for October 2, 2024 at 10am ET.
*Good for B. Riley. They could use all of the revenue they can get right now. Google it if you don’t know of what we speak.
Company Professionals:
Legal: Duane Morris LLP (Morris Bauer, Drew McGehrin)
Financial Advisor: Getzler Henrich & Associates (Mark Podgainy)
Claims Agent: Kroll (Click here for free docket access)
Other Parties in Interest:
Sumitomo Corporation of Americas
Legal: Lowenstein Sandler LLP (Jeffrey Prol, Bruce Nathan, Philip Gross)
Tort Claimants Committee: Simon Greenstone Panatier PC, Belluck & Fox LLP, Waters Kraus LLP
Legal: Robinson & Cole LLP
Financial Advisor: GlassRatner Advisory & Capital Group LLC d/b/a B. Riley Advisory Services
Other Advice: Legal Analysis Systems, Inc.
Future Claimants Representative: Value Extraction Services, LLC
Legal: Young Conaway Stargatt & Taylor LLP
Consultant: Ankura Consulting Group LLC