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Law360 (May 1, 2020, 10:21 AM EDT) -- A large Florida sawmill owned by Klausner Holding USA sought Chapter 11 protection in Delaware with more than $100 million in debt early Friday, making the regional construction wood supplier the latest casualty of the sharp economic contraction brought on by the COVID-19 pandemic.
According to a bankruptcy declaration and court documents in Florida, Klausner Lumber One LLC was abruptly shuttered without notice to employees on March 16, at about the same time that officials and engineers with the company's Austria-based parent were "evacuated" to their home country. The move was said to reflect concern that pandemic travel restrictions would strand European professionals and managers in America otherwise.
Michael Freeman, Klausner's chief restructuring officer and a managing director with Asgaard Capital LLC, said in a court document filed Friday afternoon that remaining managers sought Chapter 11 to protect the new, state-of-the-art plant and retain new independent directors and professionals capable of selling its assets.
The bankruptcy filing came under the shadow of a tax sale scheduled for this month, lawsuits filed by trade creditors and a notice from the company's corporate counsel that it would "disengage" in the absence of guidance from management or compensation.
Freeman said, the company has since lined up post-petition financing and hopes to prevent "a very large investment from completely going to waste or being dismembered by individual creditors, and at the same time bringing renewed employment to a part of rural Florida."
A twin plant in Enfield, North Carolina, shut down weeks earlier, Freeman said. Both plants are capable of producing 350 million board feet of southern yellow pine annually and both are ultimately owned by Austria's KNB GmbH, which is 100% owned by nondebtor Alpha Privatstiftung.
It was unclear on Friday, however, whether the Enfield plant was part of the Delaware case. Freeman said details on the company's financing and sale plans, as well as details about its debt and capital structure, would be filed with the court next week.
According to a declaration in a Worker Adjustment and Retraining Notification Act complaint filed on March 21 in the U.S. District Court for the Middle District of Florida, default judgments were entered against both sawmills on April 23 for no-notice worker pay violations.
"Prior to March 16, 2020, Klausner evacuated its foreign management team to Austria, with knowledge that the facilities would be closed," the WARN Act complaint said. Although the document said that workers were told they would be paid through the full closing week, they were instead let go without receiving pay due for the prior two weeks.
Workers "were laid off without cause by Klausner as part or as the reasonably foreseeable result of plant shutdowns or mass layoffs," the complaint said.
News and trade publications have been reporting a number of construction wood supplier shutdowns and cutbacks across the United States and Canada in recent weeks. Multiple industry and European news sites have reported that both Klausner Trading International GmbH and Klausner North America Beteiligungs GmbH opened insolvency proceedings in Austria in mid-April, with Freeman confirming the development on Friday.
Freeman said troubles came on fast after the Austrian management team's departure.
"Having no ability to operate, no financing, and no liquidity, KL1's operations were shuttered immediately, and there was no controlled liquidation, bankruptcy filing, or the like," Freeman said. "Employees were informed (or learned) that they should no longer come to work; it has been alleged they did not receive their final paychecks. Insurance lapsed shortly thereafter."
Klausner Lumber One is represented by Daniel B. Butz of Morris Nichols Arsht & Tunnell LLP.
The case is In re: Klausner Lumber One LLC, case number 1:20-bk-11033, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Katherine Rautenberg.
Update: This story has been updated with more information about the case.
For a reprint of this article, please contact reprints@law360.com.
