THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Tuesday, September 19, 1995 TAG: 9509190065
SECTION: BUSINESS PAGE: D2 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: Medium: 64 lines
Some creditors of Marine Hydraulics International Inc. have sued the company's fired chief executive in federal court, alleging that he systematically plundered the ship repair firm, pushing it into bankruptcy.
Filed by the committee representing unsecured creditors in MHI's bankruptcy case, the suit accuses James M. Hong of, among other things, breach of fiduciary duty and racketeering.
The suit was filed late Friday in Norfolk's federal court. The committee represents about 300 creditor companies owed about $4 million in MHI's bankruptcy.
MHI, a small Norfolk ship repairer, filed for Chapter 11 bankruptcy protection from its creditors in January.
Hong was MHI's president and chief executive until June 2, when the board of directors asked him to step down. Hong was also a director of the firm, with a 35.1 percent stake in it.
``Hong, in his capacity as director, president and chief executive of MHI, directed, controlled or was responsible for the transfers of MHI's money and property to the companies he owned and/or controlled,'' the suit alleges. ``Hong made these transfers for his own personal benefit at the expense of MHI and its creditors and shareholders.''
Hong's lawyer, Donna J. Hall, declined to comment on the suit. Hong has 30 days from when he is served with the suit to formally respond to it in federal court.
The suit describes the creation of numerous companies starting in April 1993 after Hong became president of MHI. The companies, including a temporary help agency and a painting company, were created to provide services to MHI.
Most of these new companies were jointly owned by Hong and Robert S. Walker, MHI's chairman and majority owner. ``Hong and others set up these companies for their own personal benefit, without risk, using MHI's capital and resources,'' the suit alleges.
A reorganization plan for MHI pending in Norfolk's federal bankruptcy court releases Walker from any liability. In exchange he is subordinating about $1 million owed him by MHI to what is owed other creditors in bankruptcy.
The suit alleges that MHI transferred about $14 million to these companies controlled by Hong from 1993 until MHI filed bankruptcy in early 1995.
MHI's 1994 revenue amounted to about $40 million.
It's unclear how much of these transfers were for services rendered by the companies. ``These payments were, in whole or in part, made without consideration and with the intent of stripping MHI to support Hong's investments in these and other companies,'' the suit alleges.
The creditors committee is asking the federal court for a judgment against Hong for whatever was improperly transferred to companies controlled by him. And with the charge of racketeering, the committee is also asking that whatever damages are awarded be tripled.
To prove racketeering, the committee must show that Hong and others conspired to illegally funnel assets out of MHI.
``As a result of Hong's misfeasance and malfeasance, MHI suffered severe waste of its corporate assets, became unable to pay its creditors, and ultimately filed for bankruptcy,'' the suit alleges.
Ross C. Reeves, the lawyer representing the committee, declined to elaborate on the suit. by CNB