E.C. Ernst Inc., the giant Washington electrical contracting firm that filed for bankruptcy 15 months ago, yesterday disclosed a plan to settle its debts.
Most of Ernst's creditors will get 10 cents for every dollar owned them if the plan is approved.
The firm owes about $25 million to unsecured creditors, who are entitled to only a fraction of their claim, and between $7 million and $8 million to secured creditors, who have a legal right to be paid in full.
To come up with the cash, Ernst probably will have to sell controlling interest in the firm to an outside investor, said Stewart Hirshfield, the attorney representing the firm in bankruptcy court.
The new investors "could receive in excess of 80 percent of Ernst's outstanding shares," Chairman Joseph E. Griffin said in a statement issued by the company.
Present stockholders will have to approve issuing additional shares and in effect give up part of their ownership of the company, Griffin said.
The Ernst officials said selling majority control of the company may be the only way to keep the multimillion-dollar business alive. The new investors could obtain not only a majority of Ernst's stock, but also notes from the company to repay part of their investment.
If shareholders won't go along with that plan, "there could be nothing for anybody," Hirschfield added.
The attorney said Ernst officials are negotiating with potential new investors but that no agreement has been reached; he refused to identify the prospective buyers.
Completing Ernst's reorganization in bankruptcy also will require settling two major lawsuits filed against the company and its officers by groups of stockholders. The lawsuits claim investors were deceived by false reports on the company's finances.
Ernst filed for reorganization in bankruptcy in December 1978. At that time, the company had debts of more than $50 million, including construction work under way. Ernst has continued to operate, completing $50 million worth of construction and taking on new jobs while it tries to work out its financial problems.
As part of the reorganization, Ernst's largest creditor, Citibank of New York, has written off a $11 million in debt owned by Ernst. The biggest remaining unpaid obligation is another $11 million owed to First Pennsylvania Bank. Under the plan filed yesterday, First Pennsylvania will get only $1.1 million.
The plan calls for paying the 10-cent-on-the-dollar settlement in cash, probably sometime next summer.
The settlement must be accepted by a majority of Ernst's creditors, both in number and in the amount owed.