Unsecured creditors have filed a lawsuit against the board of Top 40 distributor Standard Register (asi/333647) over the company’s 2013 acquisition of WorkflowOne. The lawsuit was filed Monday night following a ruling from a Delaware bankruptcy judge that allowed the suit to move forward. The lawsuit alleges 15 counts of fraudulent transactions and seeks unspecified damages. Silver Point Capital, an equity firm that has agreed to purchase Standard Register, was also named in the suit.
Standard Register filed for Chapter 11 bankruptcy in March to increase its financial flexibility, which included debts of nearly $184 million worth of loans to complete the acquisition of WorkflowOne, a former Top 40 distributor. The lawsuit, according to several media reports, claims that the Standard Register board relied on unsound projections when approving the deal, which left the company “insolvent, undercapitalized, and unable to pay their debts as they came due.”
Standard Register last week filed an objection to the lawsuit while defending the acquisition of WorkflowOne. “I believed then, as I continue to believe to this day, that the WorkflowOne acquisition was the right move and a good deal for the company and its stockholders,” said Standard Register President and CEO Joe Morgan Jr. in the filing, according to the Dayton Business Journal.
Standard Register did not respond to Counselor’s inquiries. The company still expects the $275 million sale to Silver Point Capital to continue as planned on June 15. According to the lawsuit, the Chapter 11 filing by Standard Register allowed Silver Point Capital to avoid hundreds of millions of dollars in unsecured claims. If successful, the lawsuit would effectively remove the debt from the WorkflowOne acquisition and grant the unsecured creditors a higher priority in receiving money when the Chapter 11 case is settled.
Based in Dayton, OH, Standard Register reported to Counselor that its 2014 North American ad specialty sales were $118.8 million, a year-over-year increase of about 6%.