Robins Spent $20 Million, Judge Told
Government attorneys claim that A. H. Robins Co. improperly spent about $20 million after filing for voluntary bankruptcy--nearly triple the original estimate of $7 million.
In a report to the U.S. Bankruptcy Court here, S. David Schiller and Robert W. Jaspen, assistant U.S. attorneys, said the payments showed that those responsible cannot be trusted to run the company while it seeks financial reorganization.
The 95-page report summarizes the government’s evidence for a motion asking Judge Robert R. Merhige Jr. to name a trustee to run the company. At a hearing today, government lawyers also will seek to have Merhige hold Robins in contempt for violations of a consent order last Aug. 23, two days after Robins filed for protection from its creditors.
Schiller filed the motion March 12, saying the Richmond, Va.-based pharmaceuticals company paid an estimated $7 million to selected creditors in what he called willful and knowing violation of the consent order.
Tax-Loss Benefits
The bulk of the increase in improper payments disclosed in the latest report involves transactions between Robins and its 12 subsidiaries after the bankruptcy filing. The government said that depending on the testimony, $12 million to $15 million was transferred by Robins in the form of tax-loss benefits to its subsidiaries that were not part of the Chapter 11 proceedings.
A large portion of the report relates to more than $2 million in deferred bonuses paid out after the bankruptcy to present and former executives and directors under a company retirement plan. The report said that most of the payments were made in November, January and February, and that Robins had been advised beforehand that the payments could not be made without court approval.
“This sequence of events constitutes a raid on the corporate treasury by insiders which can never be tolerated, nor can those who participated in or orchestrated the raid be trusted to properly and lawfully manage” Robins, Schiller and Jaspen said.
The report also criticized what Schiller and Jaspen called a “frenzy of payments” to senior executives “in the six-week period immediately preceding the bankruptcy.”
The $1.2 million was 10% of Robins’ total available cash reserves, the government said.
When Robins filed for financial reorganization, it was besieged by a flood of lawsuits from women who claimed that they were injured by using the company’s Dalkon Shield intrauterine birth control device. At the time, about 6,000 Dalkon Shield lawsuits were pending and another 9,500 claims and suits had been resolved at a cost of $520 million to Robins and its insurer.
