Sewall Prepares for Sale

Published in CSP Daily News

Trustee accuses former president of mismanagement, competitive actions

BATH, Maine -- While preparing for an asset sale, a court-appointed Chapter 11 bankruptcy trustee of a financially troubled Bath, Maine, heating oil and convenience store company has also had to contend with internal drama. A judge on Wednesday granted a temporary restraining order barring the former president of M.W. Sewall & Co. from a variety of business actions, reported The Forecaster. The action was expected after the trustee accused Philip Sewall of "mismanagement and self-dealing" and using proprietary information to establish a competing business.

According [image-nocss] to documents filed at U.S. Bankruptcy Court cited by the newspaper, trustee Mark Stickney asked the court for the temporary restraining order and a preliminary injunction against Philip Sewall on February 8. Stickney said Sewall should be ordered to "refrain from using or disclosing the estate's confidential information and from competing with the [company] in violation of the Maine Uniform Trade Secrets Act."

According to the report, Stickney told the court he has not yet conducted a thorough forensic accounting to learn "the extent of Philip's mismanagement and self-dealing." But he said his investigation so far suggests Sewall was "breaching his fiduciary duty, he is engaged in self dealing to the detriment of the estate, and has, during his tenure as president, used his access to the estate's property and confidential and proprietary business information with the intention of setting up a competing company."

Family-owned M.W. Sewall sought bankruptcy protection last March and eventually filed a plan of reorganization that company attorney George Marcus last year said could bring the case to a close early this year, said the report. But the plan was withdrawn so that Stickney could "take a fresh look at the situation," Marcus said last Wednesday.

Stickney was appointed last October, at the request of Assistant U.S. Trustee Stephen G. Morrell.

In his motion to appoint Stickney, Morrell suggested the issues confronting M.W. Sewall were more troublesome than a family feud. He described the company as a business plagued not only by internal disputes, but by spiraling financial losses, management conflicts of interest and questionable business judgments, the report said.

Stickney, who essentially functions as chairman and CEO of M.W. Sewall, fired Philip Sewall on February 5, according to a statement of facts in support of his motion for the restraining order and injunction cited by the Forecaster.

Stickney alleged that Sewall "has been misappropriating the [company's] property, including confidential information, proprietary information and trade secrets, and soliciting...employees to switch their affiliations from the [company] to Mr. Sewall's proposed new enterprise 'Sewall Energy'."

Alec Leddy, clerk of the District of Maine U.S. Bankruptcy Court, said Judge James Haines signed off on Wednesday on the temporary restraining order, which was entered with the consent of Stickney and Sewall, said the report.

Gayle Allen, Stickney's attorney, told the paper that Sewall had "consented to entry of the order, but he hasn't admitted or conceded any of the allegations in the complaint or the motion."

Sewall's attorney, Peter Cary, told the paper, "Philip Sewall does not consent to the accuracy of the allegations."

Allen said Sewall has the opportunity to file pleadings challenging the allegations.

A hearing is scheduled for April 28, said the report. The order dictates that pending the hearing, Sewall, his employees, associates, agents, affiliates or other people acting on behalf of or in connection with them cannot contact any current (M.W. Sewall) employees, customers, funding sources, vendors or other business prospects or relationships except to conduct business on behalf of the company, and only with Stickney's express written direction. They also cannot compete with any of the company's operations.

Stickney also has filed a revised order approving the bidding process he plans to use to "sell substantially all of [M.W. Sewall's] assets and assume and assign certain executory contracts and unexpired leases," said the report.

He said that the firm's core businesses are strong, added a report by The Times Record. "We obtained additional financing; we got a line of credit from TD Bank," he told the newspaper. "The employees here are working with me to restructure the company. Our recent activities are focused on customer service and continuing fuel deliveries uninterrupted. We have a cash flow and we have financial backing to continue operations, particularly through the heating oil season. We're on target with the budgets that we developed just a couple of months ago."

Gayle Allen, an attorney representing Stickney, told the paper that the bidding procedures only give Stickney flexibility as he determines which company assets can be sold off to satisfy creditors, and are not indicative of a "fire sale" or "forced sale."

M.W. Sewall runs the Clipper Mart chain of c-stores. Last March, the company cited the poor economic climate as the reason it sought protection from its creditors. It lost more than $563,000 in 2007 and was expected to show a net loss of nearly $1.8 million for 2008. The Chapter 11 filing froze past-due debts and allows the company to continue operating and paying its current expenses while it attempts to restructure its finances, the report said.