UPI Can’t Meet Its Payroll, Bankruptcy Petition Near
The fate of one of the nation’s two major wire services was put in doubt Friday, when United Press International, out of credit and unable to meet its payroll, authorized its chairman to file for reorganization under Chapter 11 of the federal bankruptcy code.
UPI said that it may file the petition Monday, as soon as it can draw up the appropriate papers. The news service will continue to operate but has asked employees not to cash their payroll checks.
“It was the only viable option left,” UPI spokesman David Wickendon said. “The die had been cast.”
The bankruptcy action resulted from a decision earlier this week by Foothill Capital Corp., the Los Angeles-based high-risk venture capital firm that is UPI’s primary lender, to halt the news service’s revolving line of credit. Thursday night, UPI found its payroll checks bouncing.
A participant in the negotiations between UPI and its major lender said that Foothill acted because the Internal Revenue Service last week placed a lien against the news agency for failure to pay $1.77 million in payroll taxes it owed for the last three months of 1984.
That lien relegated Foothill to second position among creditors, weakening Foothill’s chances of recovering the $5.5 million to $7 million that UPI owes it. Foothill executives had been pressuring UPI to reach an agreement with the IRS that would have forestalled such a lien.
On Friday, UPI Chairman Luis Nogales met with representatives from Foothill in Los Angeles to work out details of the Chapter 11 bankruptcy move. Sources within UPI said that Nogales had a “verbal guarantee” that Foothill would resume UPI’s credit line, at least initially, when the company entered reorganization proceedings.
Nogales has told The Times that UPI’s debts total as much as $29 million.
Chapter 11 of the bankruptcy code places control of the company, including all assets, stocks and bonds, in the hands of a federal bankruptcy judge, who will examine the company’s books, determine the priority of creditors and approve a corporate restructuring. The process is designed to allow companies to continue operating by offering them legal protection from creditors.
“UPI can (now) continue its reorganization and recapitalization programs on schedule,” Nogales said, “and with the (news) service functioning just as it always has done.”
Risks of Bankruptcy
However, bankruptcy attorneys cautioned that bankruptcy proceedings involve substantial risks. Although a company legally has at least 120 days to develop a plan to restructure itself--and often judges allow more time than that--the court can oust the current management and replace it with a trustee, or allow creditors to propose a reorganization plan. If the court decides that a company has no chance of succeeding, it can dissolve it, paying off the creditors by liquidating its assets under Chapter 7 of the bankruptcy code.
According to the source involved in the talks between UPI and its major lender, Foothill favored Chapter 11 because it hoped such proceedings would force UPI’s unions to agree to further wage concessions and persuade the company to lay off more employees than UPI was planning.
Foothill executives, according to the source, believe Chapter 11 might make UPI more attractive to potential investors because it would finally clarify the company’s controversial financial situation. However, Foothill executives would not comment on the record.
The Wire Service Guild, which has a seat on UPI’s four-person board, issued a statement saying that it supported a Chapter 11 filing because the proceeding would “safeguard money owed to employees, up to a maximum of $2,000 per employee.”
Didn’t Pay Taxes
The seeds of UPI’s bankruptcy filing apparently were sown back in December, when the company decided not to pay its payroll taxes for the fourth quarter of 1984. According to sources within UPI, that decision was made at the suggestion of two of UPI’s owners, Nashville businessmen Douglas Ruhe and William Geissler.
Ruhe and Geissler, who had bought UPI for just $1 in 1982, had promised to sell their Illinois television station by December and use roughly $2 million of the proceeds to pay off some of UPI’s long-term debt.
When Ruhe and Geissler were unable to make the sale, UPI found itself with $2 million less than expected, and Ruhe suggested delaying payment of payroll taxes on the assumption that he would have the TV station sold by January.
By April--with the station still unsold and the taxes unpaid--UPI was forced to negotiate with the IRS to pay the taxes with interest, and the IRS, to protect itself, filed a lien against company assets. Ruhe and Geissler did not return phone calls Friday.
Pair Lost Control
They had control of the company until March, when Foothill stopped the agency’s credit line and forced Ruhe and Geissler to relinquish control to Nogales, who had been president.
The agreement with Ruhe and Geissler gave Nogales until July to reorganize the company or control would return to them. But, according to UPI, Ruhe and Geissler have tried to sell their shares anyway, and sources say that they have talked to such potential purchasers as McGraw Hill, Mead Data Central and the London-based news agency Reuters.
