(updated with correction)
The Pension Benefit Guaranty Corp.’s campaign to recover pension assets of Revstone Industries LLC — a case involving several defined benefit plans, civil and bankruptcy court litigation, and lots of moving parts — appears headed for success.
PBGC officials announced last March that they would take over the plans of Metavation LLC, an auto parts supplier based in Southfield, Mich., before it could be sold by parent company Revstone, as it went through bankruptcy proceedings. Since then, alleged pension improprieties with several more Revstone affiliates have turned up.
Instead of simply adding Metavation and potentially other Revstone liabilities to its balance sheet, the PBGC fought back. The settlement agreement between the agency and Revstone, filed Feb. 14, gives the PBGC as much as $95 million from forthcoming asset sales to cover Revstone's pension liabilities. The agreement with Revstone and several subsidiaries is supported by Revstone and the PBGC.
The battle for the PBGC began last March, when it announced it was taking over the two plans of Metavation, formerly known as Hillsdale Automotive LLC. The plans, the Hillsdale Salaried Pension Plan and the Hillsdale Hourly Pension Plan, were estimated at the time of the PBGC announcement to have a total of $47 million in assets and $93 million in liabilities.
After Revstone filed for bankruptcy protection, PBGC officials moved quickly to join the unsecured creditors committee and filed liens against some Revstone affiliates not in bankruptcy to collect nearly $2 million in overdue pension contributions for the Hillsdale plans. Before declaring bankruptcy, Revstone had up to 32 subsidiaries, most of which have been sold or closed. George Hofmeister, Revstone chairman, stated in court documents that he has bought and sold "about 150 companies" since 1986.
Since 2009, Department of Labor officials have been investigating what they claim was widespread fiduciary misconduct by Mr. Hofmeister and investment adviser Bernard Tew that has cost the pension funds an estimated $39 million. In July, DOL officials succeeded in having U.S. District Judge Karen Caldwell in Lexington, Ky., remove the two as pension trustees and now the DOL is pressing its case to recover $34 million in pension losses belonging to the two Hillsdale plans, and $4.9 million to the pension plans of Revstone subsidiaries Fairfield Casting LLC and Fourslides Inc., which are owned by irrevocable trusts for Mr. Hofmeister's children. So far, $490,000 of the $4.9 million has been restored to those plans.
The judge appointed Fiduciary Counselors Inc., Washington, as independent fiduciary to review plan expenses, holding out the possibility that Mr. Hofmeister and Mr. Tew, who collected more than $2 million in investment consulting fees for Metavation plans, "may ultimately be held liable" for non-routine expenses.
Calls to Revstone Industries and lawyers representing the company in the bankruptcy cases were not returned.
While Revstone lawyers complained in court filings of "highly aggressive litigation tactics" on the part of the creditors committee and at one point asked the U.S. Bankruptcy Court to reject the creditors' restructuring plan, the PBGC and Revstone have since come to an agreement. On Jan. 27, Revstone and an affiliate filed suit against Mr. Hofmeister in bankruptcy court to recover "fraudulent transfers" from the pension funds and other corporate assets, according to court documents.
According to the agreement, the PBGC — as the largest creditor with a total of $95 million in potential claims — will get a minimum of $80 million as company holdings are liquidated.
One reason there is a happy ending for the PBGC, which often faces bankrupt companies with no assets, is the complicated layers of Revstone's holding and operating companies. Underneath the holding company’s management problems were viable companies, PBGC officials said.
It also helped that “all parties committed to getting a good result” for everyone, PBGC Assistant Chief Counsel Kartar Khalsa said in an interview.
“This is a result of a good faith effort between the PBGC and the debtors to come to a resolution that minimizes litigation and cost to all parties. It worked out,” said Mr. Khalsa.