In the Buccaneer Oil bankruptcy case, some local businesses have been hit with a double whammy. Not only does Buccaneer still owe them money, a Houston, Texas, law firm has now sent them dunning letters asking back money Buccaneer had paid. The city of Homer and Homer Electric Association also have received letters for what’s called a “demand for recovery of preference payments.”
“I’m still owed close to $10,000 I’ll never see,” said Lloyd Moore, owner of Moore & Moore Services, and one of the businesses that got a letter from the law firm of Snow Spence Green. “They’re also demanding a lot of money back.”
Buccaneer Oil, the Australian owned oil company that explored for and developed oil and gas in lower Cook Inlet, at the West Eagle Site and in Kenai, filed for Chapter 11 bankruptcy relief on May 31, 2014. As part of the bankruptcy process, Snow Spence Green of Houston, acting as trustee for the Buccaneer Creditors’ Liquidating Trust, sent a letter in mid June to several businesses as well as the city of Homer and Homer Electric Association. The firm seeks return of payments made in the 90 days before Buccaneer filed for bankruptcy, what’s called the preference period. In a letter sent to the city of Homer and provided to the Homer News, the trustee seeks payments of $17,457.15. City Manager Katie Koester said those payments were for wharfage and other port and harbor fees for Buccaneer vessels. Koester notified the Homer City Council of the letter in her city manager’s report for the June 22 meeting. She told the council the city attorney would file a response.
“Can we ask for our subsidies back?” council member David Lewis said at that meeting. “This seems ridiculous. If you collect money from someone and 90 days later they go bankrupt, they can get money back?”
According to Buccaneer bankruptcy filings, about a dozen local businesses are listed as creditors, including Moore & Moore, HomeRun Oil, the Best Western Bidarka Inn, Alyeska Tire and Maritime Helicopters. It’s unclear from court filings which businesses received demands for recovery of preference payments. Several businesses declined comment on if they had received letters.
Moore did not specify how much the letter demanded. HomeRun Oil owner Shelly Erickson also did not want to go on the record about how much she was asked to pay back. Citing customer confidentiality, HEA spokesperson Joe Gallagher also did not provide details. An Anchorage bankruptcy lawyer, David Bundy, said he had been contacted by several businesses regarding the letter, but could not identify them because of attorney-client privacy.
“I think trustees often send these things out wholesale, cast a wide net, and see what happens,” Bundy said. “It’s a real surprise to contractors or suppliers who got money a year or a few years ago.”
In the letter, attorney Ross Spence wrote, “It is understandably frustrating for a creditor who received payments for legitimate debts to be required to return the payments.” Spence explained in the letter that the demand is to recover preferential payments that might have been made to one creditor over another, with the objective to prevent favoritism. Once returned, the payments would be redistributed on a pro rata, or proportionate, basis.
Creditors who received payments in the ordinary course of business do not have to return payments, Spence’s letter said. That means payments were ordinary in relation to past practices.
A message left with Snow Spence Green seeking comment was not returned.
All the businesses and public agencies contacted said they had sent or will send legal responses making the “ordinary business” defense.
“I do know we received regular payments from Buccaneer,” Koester said. “Port and Harbor was very on top of regular billing.”
Moore said the bills were for things like portable toilet, trash Dumpster and water hauling services.
“I’m not an attorney, but I read the law,” he said. “The law shows it should be on our side.”
“We believe those payments were made as part of the ordinary course of business,” Gallagher said.
Rep. Paul Seaton, R-Homer, said he also had been contacted by local businesses regarding the demand for preference payments. Seaton said he contacted the Alaska Department of Revenue to see if the state still owed Buccaneer tax credits. If it did, Seaton said he asked to see if the money could be held to help businesses hit by the demand for recovery of preferential payments.
Seaton also raised the question of if oil companies working in Alaska should have to pay higher bonds to protect small businesses in the event a company goes bankrupt. He noted that because the state pays credits to Cook Inlet oil and gas companies, smaller companies use that credit to get financing they might not otherwise be able to get.
“How are we going to protect the Alaska citizens where corporate credits are being use for financing?” Seaton asked.
He also raised another concern: that banks that made risky loans would be paid ahead of small businesses.
“The bonds should not be payable to the people who made risky loans. They should first be paying suppliers who did work for them,” Seaton said.
He added that he did not know if that was the case with the Buccaneer bankruptcy.
Council member Lewis questioned giving state credits at all to smaller companies.
“Why should we deal with smaller companies and have them come here, have our welders work on rigs, when they go out there and have them declared bankrupt and you’re screwed,” Lewis said. “I would rather not see them come.”
In order to spur oil and gas development in Cook Inlet at a time when natural gas supplies appeared to be declining, the state adopted legislation to encourage exploration and development with tax credits. Moore conceded that his company benefitted from that development.
“The good news is, working with these oil companies over the years, it has allowed me to grow my company,” Moore said.
Originally a water hauling service, Moore invested profits into portable restroom and trash hauling services.
“It’s a risk, but it’s been a big reward for us over the years to do what we do,” Moore said.
For now, it’s too early to know if the city of Homer, HEA and local businesses will be able to keep the money paid to them or have to give it back. Seaton also said he had not heard back from the state yet about his questions and concerns.
“All you can do is hope and pray that what you’re reading is the law,” Moore said of the “ordinary business” defense.
But if the companies do have to pay the money back, that could have a huge ripple effect throughout the lower Kenai Peninsula economy. The hit also to HEA and the city of Homer will go back to customer and taxpayers, Moore noted.
“If HEA has to pay money back, that’s you and me paying it back. If the city of Homer has to pay it back, that’s the taxpayers of Homer paying it back.”
Michael Armstrong can be reached at firstname.lastname@example.org.