Bloomberg News

Solyndra Needs Trustee for Bankruptcy, U.S. Lawyer Says

September 30, 2011

(Updates with trustee’s comments in seventh paragraph.)

Sept. 30 (Bloomberg) -- Solyndra LLC, the bankrupt solar- panel maker under investigation, should have a trustee overseeing its bankruptcy because top executives won’t answer questions about the company’s finances, the U.S. Trustee said in court papers.

Chief Executive Officer Brian Harrison and Chief Financial Officer W.G. Stover have asserted their constitutional right not to answer questions related to a criminal matter, which prevents them from “properly exercising their fiduciary duties,” Roberta A. DeAngelis, U.S. Trustee for the Mid-Atlantic region, said in court papers.

The company, based in Fremont, California, faces a probe by the Federal Bureau of Investigation and Republicans in Congress over a $535 million federal loan guarantee it used to build a $733 million factory. Solyndra filed for bankruptcy this month with a plan to either sell the eight-month-old factory or liquidate the specialized equipment used to manufacture its solar panels.

David Miller, a spokesman for Solyndra, didn’t respond to a phone call and e-mail seeking comment on the U.S. Trustee’s filing.

The U.S. Trustee is an arm of the U.S. Justice Department that monitors corporate bankruptcies.

Before the two Solyndra executives refused to testify at a Sept. 23 hearing in Congress, another company executive, Benjamin Schwartz, declined to answer questions from the U.S. Trustee about Solyndra’s contracts with customers, according to court papers filed today in Wilmington, Delaware.

‘The Linchpins’

“Transparency and disclosure are the linchpins of the bankruptcy system” and all bankrupt companies have “a duty to inform creditors, the United States Trustee, and the court about its finances and circumstances leading to its bankruptcy,” the trustee said in court papers.

Solyndra’s lawyers have indicated to the U.S. Trustee that the company has “taken steps” to hire a chief restructuring officer, which would handle the bankruptcy proceedings.

The executives’ silence raises questions about “the reliability of the information” that would be provided to creditors “from any subordinate source,” the trustee argued in court documents.

The FBI probe seeks to discover if accounting fraud occurred at the company, according to an agency official, who requested anonymity because the investigation is continuing.

Possible Misrepresentations

The FBI is examining possible misrepresentations in financial statements submitted to the Energy Department, the agency official said. The FBI raided the company’s offices on Sept. 8, two days after the company sought court protection.

“Regardless of the outcome of any pending investigations, management will undoubtedly be distracted by them” and Solyndra and its creditors deserve “an independent trustee who can devote undivided attention” to the case, the Trustee said in court papers.

Solyndra’s collapse has prompted congressional scrutiny of President Barack Obama, who praised the solar panel-maker during a May 2010 tour of its facilities. The Obama administration issued final approval of the loan that also won support from officials in the administration of George W. Bush.

The company received court approval this week to hold an Oct. 27 auction to sell assets, including the $733 million Fremont factory, built with funds from the U.S.-backed loan.

If U.S. Bankruptcy Judge Mary Walrath refuses to appoint a trustee, she should convert the case to a liquidation under Chapter 7 of the bankruptcy code, the U.S. Trustee said.

The case is In re Solyndra LLC 11-12799, U.S. Bankruptcy Court, District of Delaware (Wilmington).

--with assistance from Jim Snyder in Washington. Editors: Peter Blumberg, Mary Romano

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net; Michael Bathon in Wilmington, Delaware, at mbathon@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.


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