To lawyer Robert Sweeney, who represents people suffering from asbestos-related diseases, the Manville Corp.'s decision to seek court protection under the bankruptcy act is a fraud and a sham, a perversion of laws designed to protect creditors when a company goes broke.
Other lawyers see the Manville action as a "novel" and "creative" use of the bankruptcy laws that could assure that thousands of former asbestos workers, whose claims the company estimates could total at least $2 billion, get fair compensation in a systematic way. One Washington bankruptcy specialist called it "preventive therapy" to keep the presently solvent Manville Corp. from going belly up later under the weight of the asbestos suits.
Bankruptcy specialists are just beginning to analyze the complexities of the Manville case, which with billions of dollars and the health of thousands of asbestos workers at stake, raises issues that go far beyond the bankruptcy court. The unexpected maneuver could lead to changes in federal bankruptcy laws and work-hazard regulations as well at the future of Manville as a business.
Sen. Robert Dole (R-Kan.), chairman of a Senate judiciary subcommittee reviewing bankruptcy laws, criticized the Manville filing as "dubious and unusual at best."
Yale law profesor Joseph W. Bishop believes the odds are 50-50 that the courts will throw out the Manville petition, probably, he says, because the company's condition isn't desperate enough to qualify under the bankrupcty statute. But Professor Vern Countryman of Harvard sees nothing illegal in the Manville filing. "I think it is a proper use of the statute," he said.
"It's certainly a novel case," said Professor Morris Shanker of Case Western Reserve University. "But there is nothing in the bankruptcy code that prohibits a solvent company from going bankrupt. They usually don't want to, however."
Manville management runs the risk of losing control of the company to a committee of creditors appointed by the bankruptcy court, something no executive relishes. Company officials now cannot sell or shift the company's assets without permission and face problems with suppliers, who generally are reluctant to extend credit to firms in bankruptcy.
"The price that a company pays -- the burden, the restrictions and costs it takes on -- are serious enough so that no one files for bankruptcy lightly. You do it only because your financial situation drives you into it," said Murray Drabkin, a bankruptcy specialist with the New York-Washington law firm of Webster & Sheffield.
It is hard to say who are the biggest losers since Manville filed for reorganization under the bankruptcy act on Aug. 26 -- the stockholders, suppliers or banks and insurance companies who loaned the supposedly solvent corporation money.
Manville stock, already down this year in a bear market, plumeted after the bankrupcy was filed. It stood at $7.88 a share when the market closed Aug. 25, the day before the filing, then fell to a new low of $4.25 last week. It closed yesterday at $6.
In all, stockholders--on paper--lost almost $50 million. The biggest loser is the company employes' stock purchase plan. Before the filing, the plan owned the largest single block of Manville stock--9 percent, or 2.14 million shares. The largest other shareholder is the Maryland investment firm of Torray Clark & Co., which held 1.34 million shares before the bankruptcy and, in a speculative move, bought another 2 million after the filing.
Other losers are Manville's major creditors, since a bankruptcy filing stops a company from paying any of its creditors until the court approves a reorganization plan that is fair to all. Manville owes Prudential Insurance Co. $68 million and Morgan Guarantee Trust Co. $36 million, according to the bankrupcy petition filed in New York.
Other major banks owed substantial sums by Manville are Bank of America, Chemical Bank and Citibank, $20 million each; Republic National Bank of Dallas, $12 million; and Continental Illinois National Bank of Chicago and Wells Fargo Bank of Denver, $10 million each.
The corporation held a meeting of 120 of its major creditors at its corporate headquarters near Denver, but released no details of the discussions.
So far, neither creditors nor suppliers have taken action to challenge the Manville bankruptcy petitions on the grounds that the company has plenty of money to pay its present obligations. But Bishop, the Yale law professor, said "I'll bet the creditors are planning to move."
Suppliers also are reported to be extending regular credit to Manville, though normally in a bankruptcy situation they demand cash on delivery. With business generally bad and Manville having the potential to emerge unscarred from bankruptcy, suppliers appear willing in this case to give the benefit of the doubt.
The major question mark, however, remains the thousands of former workers who are suing Manville for illnesses they suffered as a result of working with asbestos. McKinney said 16,500 law suits are pending, which could cost the company $660 million.
Manville says outside consultants have warned that the company can expect another 32,000 suits that could cost $2 billion. That projection was cited by Manville as the major reason for filing for bankruptcy now.
Along with going to the bankruptcy court, which now takes control of all the suits against the company all over the country, Manville has opened a public relations campaign designed to persuade Congress to bear some of the costs of the suits.
Rep. George Miller (D-Calif.), whose House labor standards subcommittee will hold hearings Thursday on Manville's action, opposes what he considers a federal bailout of the asbestos industry. Miller instead has offered legislation that would set up insurance financed entirely by the companies.
Sweeney, the Cleveland lawyer who represents large numbers of the asbestos victims, says he wants a special creditors' committee to look out for the interests of his clients in the bankruptcy court proceedings. "After all," he said, "we are the principle problem area."
He also challenged the Manville estimates of potential future losses, charging they are "swollen" and "out of profile" with amounts the company now pays to victims. Manville, on the other hand, claims that only one dollar of every three spent on the asbestos law suits goes to the victims, with lawyers -- including its own -- getting the rest.
The hardest job facing the bankruptcy court will be to work out a fair way to settle current and future asbestos suits, including leaving a fund for workers who have not yet shown signs of disease, which can take 20 or 25 years to develop.
"I think it is conceivable that a reorganization plan could provide a framework for equitable distribution so that people with similar claims will be treated similarly," said Drabkin, the Washington bankruptcy expert.
"It would be rough justice, but it would be better than no justice, which would be the case if the company was wiped out."