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| Canadian Foam Maker Domfoam Seeks U.S. Bankruptcy Protection | ||
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| After admitting its guilt in a conspiracy that inflated the cost of polyurethane foam, top Canadian foam maker Domfoam International Inc. filed for bankruptcy protection in the U.S. to shield itself against lawsuits from angry furniture manufacturers who say they've been forced to pay higher prices for more than a decade. Domfoam filed for Chapter 15 protection in U.S. Bankruptcy Court in Toledo, Ohio, where it faced more than a dozen lawsuits over the inflated prices it charged for its foam that goes into carpet underlay, furniture and bedding. The 550-worker company's headquarters are located outside Montreal and the company and its affiliates make the foam in plants across Canada. |
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| In court papers, Chief Executive Tony Vallecoccia said that the U.S. bankruptcy court's protection, which blocks the advancement of lawsuits, would create "stability to allow for the marketing and sale of its businesses" and allow the company to pay off its debts. Earlier this month, Domfoam and its affiliate, Valle Foam Industries 1995 Inc., announced their C$12.5 million ($12.48 million) settlement with Canada's antitrust agency. Both companies pled guilty to coordinating price increases with other foam manufacturers after agency investigators amassed wiretapped evidence against them. Canadian officials said that Domfoam's price-fixing conspiracy started January 1999 and ran for more than a decade. In the U.S. lawsuits, furniture manufacturers estimated that the overall price of slabstock foam has been inflated by at least 3.5% since 2001 because of the industry-wide conspiracy. One of the lawsuits against Domfoam was filed on behalf of consumers that seeks to recover money for those who purchased items made with the company's foam. Another lawsuit was brought by mattress giant Sealy Corp. The fine and subsequent lawsuits hit Domfoam during tough economic times for the polyurethane foam industry. Foreign competitors can make the product cheaper, and consumer tastes have shifted away from products made from its foam products, which range in firmness based on their chemical makeup. "In particular, the demand for carpet under-padding has been eroded by a move in construction and consumers away from carpeting in favour of hardwood flooring and tile," Vallecoccia said. Domfoam said it lost more than $5 million on $37.1 million worth of sales during its most recent fiscal year. Domfoam estimated that the value of its assets, including that held by its affiliates, tallies to about C$44.1 million. But Vallecoccia cautioned in court documents that value isn't "likely to be realized in the event of a forced or even orderly sale of the business as a result of its insolvency." "Domfoam continues to lose money on a monthly basis, although I believe it could operate at a break even basis if properly restructured and ultimately return to profitability in the future," he said in court papers. The company's Canadian-based reorganization would enable it to pay off its debts, including a C$4.5 million operating loan from Royal Bank of Canada. The company and its affiliates also owed about C$9 million in trade debt, payroll debt and taxes as of Dec. 1. Owed C$2.7 million, Bayer AG ranked among its biggest creditors for its agreement to sell a key ingredient called polyol. In the company's U.S. bankruptcy case, Judge Mary Ann Whipple granted the company's request to put lawsuits against the company and its affiliates on hold while she determines whether the company's request for protection in U.S. court system is legitimate. Companies that filed for Chapter 15 protection in the U.S. court system have to prove to a judge that, among other things, the company is restructuring its finances in a foreign court and that it should, as a result, enjoy the same protections that the court system typically gives to bankrupt companies. The company filed for Canada's equivalent of bankruptcy protection in Ontario Superior Court on Jan. 12. Domfoam also put Valle Foam and another affiliate, A-Z Sponge & Foam Products Ltd., under Chapter 15 bankruptcy protection. The lead case is numbered 12-30215. |
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| Document DJFDBS0020120127e81rmgd3o | ||
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