Continental Illinois Bank & Trust Co. and several other international banks engineered a plan in early 1982 to keep then-ailing Nucorp Energy Inc. afloat just long enough for them to protect more than $300 million in near-worthless loans and improve their standing in subsequent bankruptcy proceedings, a Nucorp trustee has alleged in a lawsuit.
The civil suit, filed in U.S. District Court here earlier this month, alleges that Chicago-based Continental Illinois, as lead partner for a consortium of nine banks, arranged a complex series of transactions two years ago designed to circumvent bankruptcy law and fraudulently transfer funds out of the insolvent company.
The suit claims that the banks were forced into the transactions by New York-based American Express Co., which allegedly threatened to force Nucorp into an involuntary liquidation for non-payment of $9.8 million in debts.
Continental Illinois paid off American Express and then extracted the funds from Nucorp to delay the inevitable collapse of the company until the banks' loans could be fully secured, according to the suit.
Neither Continental Illinois nor American Express officials would comment on the allegations when contacted Monday.
The trustee asked a federal bankruptcy court judge to wipe out hundreds of millions in dollars in claims by the banks if $6.9 million in allegedly fraudulently transferred funds are not repaid.
The lawsuit is one of 385 filed in recent weeks by the trustee seeking to recover more than $90 million in preferential payments and fraudulent conveyances of money and property allegedly made during the turbulent 90 days before Nucorp filed a Chapter 11 bankruptcy petition on July 27, 1982.
Nucorp was one of the most visible of the high-growth energy firms to emerge during the oil crunch of the 1970s. Between 1980 and 1982, the company acquired more than 25 oil-related firms throughout the Western United States as its debt ballooned from $157 million to more than $615 million. By the time its shopping spree ended, so had the oil shortage, and high-flying Nucorp was suddenly grounded.
In addition to Continental Illinois, other banking firms named in the suit are Security Pacific National Bank, Citicorp Inc., Barclay's Bank International Ltd., Royal Bank of Canada, Bank of Montreal, Mercantile National Bank of Dallas, First National Bank & Trust Co. of Oklahoma City and Frost National Bank of San Antonio.
The suit also names American Express and the Federal Deposit Insurance Corp., which has assumed Continental Illinois' interest in claims against Nucorp.
To protect their sizable investment in the troubled concern, Nucorp's bankers arranged an emergency $300-million line of credit on Jan. 29, 1982, secured by virtually all of Nucorp's lien-free assets. With that agreement "American Express became concerned about the unsecured status" of the $9.8 million in Nucorp notes it held, according to the lawsuit.
American Express then "threatened" to file an involuntary bankruptcy petition by April 29, the 90th day following the bank-credit agreement, the complaint says.
That move would have cost Continental Illinois and its partner banks potentially hundreds of million of dollars by eliminating their security because, under bankruptcy law, many contracts and payments made in the 90 days prior to a bankruptcy filing can be nullified and the funds forcibly returned. Those funds are called preference payments.
Facing that threat, Continental Illinois "facilitated a multi-step transaction" to pay off American Express "in a manner designed to appear non-preferential" the lawsuit contends.