The A. H. Robins Co. -- in deepening trouble over its bankruptcy filing -- agreed yesterday to turn over control of reorganizing the company to an outsider.
In a settlement with the U.S. Attorney's Office in Richmond, disclosed in papers filed in U.S. District Court there, the company agreed to the appointment of an independent member to its board of directors, to be named by William C. White, the federal trustee overseeing the pharmaceutical company's efforts to reorganize.
Under the agreement, the outside director would have considerable authority, including negotiating a plan for paying creditors and deciding whether the company should seek compensation from third parties, including directors and officers.
The director also would supervise the recovery of $6.8 million in improper payments made since the company filed for voluntary bankruptcy Aug. 21, and would report to the court on the progress of plan negotiations, financial conditions and business operations as they affect claims against the company.
U.S. District Judge Robert R. Merhige Jr., who must approve the agreement before it takes effect, will consider the proposal at a hearing next Wednesday.
The agreement is the most recent development in a long chain of events that began with the company's decision in the early 1970s to begin marketing the Dalkon Shield intrauterine device.
The company stopped selling the device in June 1974 in the United States and elsewhere by April 1975, after questions arose about its safety and effectiveness.
At the time Robins filed for reorganization under Chapter 11 of the federal bankruptcy law, about 15,000 women in the United States had filed lawsuits, claiming damages they said were caused by the birth-control device. Since then, at least 150,000 women have filed claims as a result of an advertising and public relations campaign by the company publicizing an April 30 deadline for filing claims.
Last month, Assistant U.S. Attorney S. David Schiller disclosed that Robins had improperly paid $6.8 million to certain creditors, including retired officers of the company, after entering into voluntary bankruptcy.
Schiller asked that the company be held in contempt and that a trustee be appointed to run the company.
The motion for a finding of contempt and the appointment of a trustee, which had been set for April 28, have been put on hold as a result of the settlement.
The U.S. Attorney's Office will continue its investigation of the payments, including taking depositions from Robins officials and employes and requiring Robins attorneys to respond in writing to written questions.
"Robins is gratified that, through discussion and cooperation with the U.S. Attorney's Office, an innovative approach to addressing the concerns expressed in the U.S. attorney's motion for a trustee has been developed," said Robins spokesman Roscoe E. Puckett Jr.
This approach, if approved by the court, will return the focus of the company's Chapter 11 case to the development of a plan of reorganization fair to all creditors, claimants and shareholders," he said.
"We believe the new director's view of Robins will be that of a well-managed company determined to cooperate fully in the effort to bring the Chapter 11 case to an early conclusion," he said.
"Robins was confronted with a serious problem. It lost its credibility and the company's reorganization efforts were dead in the water," said Murray Drabkin, a bankruptcy specialist with Cadwalader, Wickersham & Taft who is counsel for a new committee of Dalkon Shield claimants.
"The company has taken a difficult but manageable reorganization case and turned it into a disaster," he said. "By accepting the appointment of this quasi-trustee, the company has faced up to its problems."
"Robins is basically a very healthy, profitable company," said Louis Hannen, an industry analyst with Wheat First Securities. "The question involved is how much money is going to be set aside immediately and later on for the payment of claims, how will it be funded, and how much will that leave for the stockholders.
"The ideal thing is to get through this bankruptcy, give the claimants their pound of flesh and get back in business as soon as they can," he said. "Anything that delays that or slows it down might be regarded as bad news by the market."