Michael Kennedy, the former CEO of defunct packaging firm Radnor Holdings Corp has sued Skadden Arps and the law firm’s client, the hedge fund Tennenbaum, as well as some other legal and financial advisers in the U.S. Bankruptcy Court in Wilmington, Delaware.
Michael Kennedy alleges that Skadden had colluded with Tennenbaum Capital Partners to give the firm a $100 million windfall in the sale of Radnor to Tennenbaum in 2006. Kennedy has made a claim for $75 million and voiding of the sale of Radnor.
The lawsuit includes at least 10 claims including conspiracy, malpractice, breach of contract and fraud.
Radnor, which used to make food packaging and chemical products for big food chains declared itself bankrupt in the wake of Hurricane Katrina leading to shortages in raw materials and natural gas. The company was sold to Tennenbaum which already owned about $95 million in bonds in the company.
However, according to Kennedy, before declaring bankruptcy he had repeatedly asked Skadden to advise the company on an asset sale and out of-court restructuring. However, Skadden and Tennenbaum rejected Kennedy’s proposals to restructure outside the court through equity investments and asset sales.
Skadden also advised Radnor that a bankruptcy sale to Tennenbaum was its best option.
Apparently, Kennedy was unaware that Tennenbaum had paid Skadden about $4 million in 2004-5 for legal services related to raising funds that Tennenbaum then invested in Radnor.
And he also did not know at the time that some Skadden partners including one involved in the Radnor matter had invested their personal moneys in Tennenbaum through an investment vehicle controlled by Skadden.
The eventual sale of Radnor to Tennenbaum resulted in the hedge fund gaining about $100 million, while at the same time Kennedy’s family stake in Radnor was wiped out.
The real story, of course, would be unearthed if the lawsuit proceeds to the stage of discovery.
The case is Michael T. Kennedy v. Skadden Arps Slate Meagher & Flom, U.S. Bankruptcy Court, District of Delaware, No. 12-51308.