City of Lamar enters O'Sullivan fray

O'Sullivan Industries officials appear to have played fast and loose with the facts when they told a bankruptcy court judge the company did not owe money to the city of Lamar for utilities. In documents filed today in U. S. Bankruptcy Court for the Northern District of Georgia, city officials ask to be allowed to either shut off O'Sullivan utilities if the company does not pay its bills or require the company to put up a $374,000 deposit for services.
The problem began just before the Oct. 14 bankruptcy filing, according to a motion filed by Atlanta attorney Louis McBryan, representing the city of Lamar.
"The debtor (O'Sullivan Industries) was not current with its utility bills with the city," McBryan said. Problems began on Oct. 10 when O'Sullivan paid the city for its utilities with a check for $166,480.54...and the check was stopped and returned for insufficient funds. An O'Sullivan representative brought a replacement check on Oct. 14, the same day the company filed for bankruptcy.
"The honored check was delivered without any notice of any kind that (O'Sullivan) had filed bankruptcy," according to the city's motion.
On Oct. 27, O'Sullivan officials demanded that the city return the money, saying the check was "unauthorized."
In a letter written to the city, and included in the court filing, Russ Steinhorst, controller for O'Sullivan, writing from the company's palatial new corporate headquarters in Roswell, Ga.,said, "The Bankruptcy Code prevents O'Sullivan from making payments after Oct. 14 to creditors for pre-Oct. 14 debts. Thus, to the extent O'Sullivan mistakenly made any payments to creditors post Oct. 14 on accounts of pre-Oct. 14, debts, we need to request the creditors to return those funds." In the next sentence, Steinhorst threatened to bring legal action against the city if it refused to do so.
As the two sides negotiated, the next utility bill came due with O'Sullivan owing $144,602.30, according to court documents. When the payment had not been made 15 days later, a penalty was assessed, bringing the bill to $159,062.51. The December bill was not paid until O'Sullivan officials suggested that the money from the disputed check be put toward it. Even then, O'Sullivan officials denied that they owed any penalty for late payment.
So the city ended up using money it had received for the October bill and applying it to the December bill. Now the January bill has come due and once again it appears O'Sullivan officials are not planning to pay it.
The motion filed by the city says, "The Jan. 1, 2006, invoice is due and owing in the amount of $193,646.14. City officials indicate they do not intend to continue operating a charity service for O'Sullivan at a time when they have made an across-the-board 30 percent to all of their utility customers.
"The city states that it is not adequately protected and seeks authority to discontinue utility services to the Debtor and set off funds held against the post petition amounts due." The motion indicates that the city does not trust O'Sullivan officials. "The pre and post petition activities regarding the exchanged check demonstrate a lack of good faith of this debtor," the court document says.
If the city is not allowed to shut off service for non-payment, it is asking for an order requiring the company to make a deposit equal to two times the projected monthly usage, which under the current rates, the motion says, would be at least $374,000.