Lakeshore TolTest to forgo payments, equipment in settlement

October 16, 2016 | By Chad Halcom | Crain's Detroit Business CrainsDetroit.com

A longtime Detroit civil engineering and public works contractor that filed for bankruptcy liquidation two years ago will surrender $23 million in outstanding contract payments to the Pentagon in a settlement - along with millions of dollars of equipment in Iraq, Afghanistan and elsewhere that may or may not be able to be recovered.

Lakeshore TolTest Corp. settled more than 20 pending appeals in more than half a dozen U.S. Department of Defense contracts awarded in the last decade. The settlement was made several weeks ago before the federal Armed Services Board of Contract Appeals.

The deal between the government and the court-appointed trustee navigating its Chapter 7 bankruptcy in Delaware calls for parent LTC Holdings Inc. and its various companies to forgo the outstanding contract payments and $220 million worth of military contract business in exchange for a $5.3 million corporate tax refund. The contractor will also turn over to the government equipment and materials it abandoned at work project sites in Iraq, Afghanistan and elsewhere when it folded in 2014.

"The government was both a creditor and debtor. It owed a fair amount of money on some of its contracts," said Anthony Calamunci, an attorney at FisherBroyles LLP in Toledo and a co-counsel for trustee Alfred Giuliano in the Delaware bankruptcy cases.

"Although the government was also due money because contracts were never completed, so there were competing claims. The agreement takes care of all of those, and ... I think the government did very well, but no one had computed it in an exact (cents on the dollar) sense."

Lakeshore TolTest filed for bankruptcy in May 2014, days after sending separation letters to various project managers, engineers and other employees on military contracts overseas. Past employees have told Crain's that 79 employees and about 135 more subcontractors or independent contractors were handling projects for LTC in Afghanistan at the time, and they had to make arrangements to leave the country on their own.

At least three military contracts with the U.S. Army Corps of Engineers and the U.S. Air Force Materiel Command were terminated for default in the preceding months, and in late April 2014 Chicago-based lender BMO Harris Bank NA also found Lakeshore in default and stopped providing advances for working capital, according to court filings.

Co-founders and managing partners Thomas Burger and Eugene Conese of Connecticut-based Gridiron Capital LLC, one of three private equity firms that had acquired a stake in Lakeshore since 2011, did not return voice mail and email messages seeking comment last week. Avinash Rachmale, the company founder and ex-CEO who sued Gridiron and co-owner Starboard Capital Partners LLC along with some management officials shortly before the bankruptcy, also declined to comment through his attorney, Douglas Toering of Mantese Honigman PC in Troy.

Nicole Navas, public affairs specialist for the U.S. Department of Justice tax division which took part in the settlement, also declined to comment, saying the bankruptcy is still pending.

Attorneys expect those court proceedings will continue at least into next year, as Lakeshore still has creditors to contend with in the oil and gas and commercial construction industries.

The government had made a combined $222.3 million in claims against Lakeshore in court, according to the settlement agreement, but also owed about $23.4 million on various change orders and contract modifications completed but not yet paid.

Under the deal, Lakeshore will forgo those payments but the trustee will receive a $5.3 million tax refund to pay creditors.

The Pentagon also will not try to recoup about $5 million in payments made in early 2014 under a construction contract for one Afghanistan base, Lakeshore had assigned to the Insurance Co. of the State of Pennsylvania under a conditional financing agreement in late 2013. It will, however, remain an unsecured creditor while the case proceeds and gets to keep various vehicles, trailers, construction materials, machines and specialty equipment left behind at Lakeshore work sites in the Middle East, according to the deal.

Giuliano, as the trustee, had tried to sell those to pay creditors for a while but ran into roadblocks. For example, Lakeshore got court approval in 2015 to sell Nebraska-based K-Mar Building Products Inc. some machinery at Forward Operating Base Delaram in Afghanistan for $120,000

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