Amfuel plant

Amfuel, a major Magnolia employer, has filed for Chapter 11 protection under the federal bankruptcy code.

Amfuel has filed for voluntary reorganization under Chapter 11 of the federal bankruptcy code. The company plans to remain in operation while going through a financial reorganization process.

The company, known formally as American Fuel Cell and Coated Fabrics, filed documents on Sunday in the United States Bankruptcy Court in the Northern District of Texas.

Amfuel employs about 200 people at its Magnolia plant. Amfuel manufactures fuel cells for aircraft and vehicles, among other products. The Department of Defense in a prime customer for Amfuel fuel cells in aircraft.

The bankruptcy filing indicates that Amfuel has liabilities more than $1 million but less than $10 million. The filing is signed by Amfuel CEO and President Leonard J. Annaloro.

The filing includes an emergency motion for authority to pay wages, payroll taxes and other employee benefit claims incurred prior to Sunday’s bankruptcy filing.

The company says in the filing that Amfuel employs 243 people. Of that total, 40 are full-time, salaried employees and 203 are full time hourly employees. Amfuel also uses the services of 28 independent contractors.

“The debtor uses a payroll service called Paycom. As part of the debtor’s ordinary course of business, the funds to pay employees and independent contractors are transferred from the debtor’s operating account to Paycom by Thursday of each week. Hourly employees are paid weekly. A pay period runs from Monday to the following Sunday. Salaried employees are paid every two weeks.

“The debtor’s next payroll is Friday, December 1. The timing of the next payroll means that employees and independent contractors will necessarily be paid for work performed prepetition. The December 1 payroll is for amounts due and owing to the employees for the pay period ending November 26. Therefore, the pay period includes at least a portion of compensation for pre-petition wages and/or salaries.

“The total amount of prepetition wages and salaries owed to the employees and the independent contractors is approximately $233,000. Of this amount, $135,000 is owed to hourly employees and independent contractors and $98,000 is owed to salaried employees. On an individual basis, none of the employees is owed amounts over the priority cap of $12,850, and the debtor does not seek approval to pay any amounts over the priority cap,” the filing said.

As of Sunday, Amfuel owes about $17,000 in payroll taxes. It provides the employees with medical, vision, and dental insurance coverage from several carriers. Amfuel typically pays for the entirety of the benefits provided at the beginning of each month and then deducts the employee’s portion from paychecks received during that month.

“The debtor believes that benefits for the month of November have been paid. In an abundance of caution, however, the debtor seeks authority to pay any prepetition premiums due on these policies to maintain uninterrupted coverage for the employees,” the filing said.

Amfuel also proposes to pay other expenses and benefits owed through the bankruptcy petition filing date on Sunday.

“These employee benefits are an integral part of each employee’s total compensation package. Interruption of such employee benefits would seriously disrupt the morale of the employees and would undermine the debtor’s efforts to preserve the value of their estates. Thus, the debtor requests authority to pay certain prepetition amounts attributable to the employee benefits from time to time as and when such amounts become due in the ordinary course of business. The debtor further requests that the employees be allowed to take paid time off post-petition for benefits that accrued pre-petition,” the filing said.

Amfuel further seeks bankruptcy court permission to pay employees for work-related travel and related expenses, pay all payroll taxes, pay employees and independent contractors all prepetition unpaid employee compensation, pay employees any reimbursable expenses, and to honor obligations and pay expenses related to the employee benefits

“The debtor further seeks an order directing the debtor’s banks to honor all prepetition payroll checks that have not been deposited or cashed by the employees and to honor all payments related to the employee obligations,” the filing said.

“A bankruptcy court’s exercise of its authority under section 105(a) of the Bankruptcy Code is appropriate to permit the successful rehabilitation of the Debtor and to preserve going concern value and maximize property available to satisfy all creditors. The relief sought herein is essential to those goals. In these cases, it is critical that the employees be paid without interruption and that the debtor continue to honor its existing practices and policies for the pecuniary benefit of the employees.

“Such payments are necessary to prevent irreparable harm to the morale of the employees at the very time when their dedication, confidence, and cooperation is vital to these cases. Continued loyalty of the employees is a necessary component to any successful reorganization.

“The filing of a Chapter 11 petition is a stressful and uncertain time for a debtor’s employees, most of whom are not familiar with the nuances of bankruptcy. Such stress and uncertainty often cause poor employee morale at that critical time when a debtor needs its employees to be most loyal. Low morale may be further compounded if certain employees perceive themselves to have received less favorable treatment than others. Moreover, some employees live paycheck-to-paycheck and would suffer severe adverse consequences if they failed to receive their full compensation.

“Honoring the employee obligations will minimize the hardship the Employees will certainly endure if payroll is interrupted, and will prevent wholesale loss of employees that would ensue if they lost the reasonable expectation that they will be paid for their work. As such, the debtor seeks to continue to compensate the Employees and provide the employee benefits in the ordinary course without regard as to when the applicable wages were earned or benefits were accrued.

“If the Debtor is not allowed to continue to pay and honor the employee obligations, the debtor will be unable to retain the employees. Any loss of the employees will affect the debtor’s ability to continue its operations and to maximize the value of the debtor’s business, and will result in immediate and irreparable harm to the debtor’s estate,” the filing said.

Amfuel’s filing provided the following background information.

“The debtor is an Arkansas corporation with its principal place of business in Wichita Falls, TX. The debtor has been a leader in providing aviation fuel cells for over 70 years. Fuel cells – often referred to as fuel tanks – are flexible, rubberized fuel storage bladders that provide on-board fuel storage for both fixed-wind and rotary aircraft. …

“The fuel cell industry in a niche market. Only five domestic companies manufacture fuel cells in significant quantities for the U.S. Department of Defense. Four cells are manufactured from nylon cloth impregnated with raw rubber compounds, which are referred to as ‘fabrics.’ The debtor is vertically integrated and makes all of its fabrics and cements to ensure quality and freshness and to protect proprietary processes and formulas.

“The debtor has been a U.S. government contractor for over 70 years and provides its products to the commercial aviation sector as well. The debtor is awarded most of its contracts through a request for quotation (RFQ) process. For its DOD business, the debtor generally receives RFQs directly prom contracting officers and through reverse auctions. For commercial, general aviation and non-DOD military customers, the debtor responds to RFQs through distribution channels. The average time from RFW response to bid award is one month, but sales cycles vary greatly by product line.

“The debtor has taken steps to streamline its operations and increase profitability, most significantly by expanding its operations in Wichita Falls. … Unfortunately, the debtor has been unable to sufficiently streamlines its operations and restructure its finances outside of bankruptcy. For this reason, the debtor filed this Chapter 11 case to expedite its reorganization process. At this time, the debtor believes that investment by certain insiders may be the best means of completing a successful restructuring, though the precise nature of that investment remains to be determined,” the filing said.

Amfuel has a loan agreement with Fidelity Bank dated December 7, 2016, and which has been amended four times since. Amfuel issued a term note and revolving note to Fidelity Bank. The term notes grants Fidelity Bank a security interest in Amfuel’s present and future accounts, deposit accounts, inventory, equipment and products.

Amfuel is seeking interim and final orders from the bankruptcy court that will allow it to do several things to remain in operation. Among these are approval to use cash collateral for the payment of ordinary business expenses

One Columbia County company is listed among Amfuel’s top 20 largest unsecured creditors. Amfuel owes JEVAC Machine Inc. of McNeil $127,660.01 in trade debt. Amfuel owes the most money – both trade debts -- to 8600 Central Venture LLC of Wichita Falls, TX, $366,362.49; and Steptoe & Johnson LLP, Washington, D.C., $129,007.08. The JEVAC debt is Amfuel’s third largest.

Amfuel also owes money to several other Columbia County and South Arkansas entities, but the filing doesn’t list individual amounts. A bankruptcy filing prevents creditors from suing Amfuel to recover debts.

Local creditors include ABF Freight of Texarkana, Abilities Unlimited, Atwoods, Columbia County Unit of the American Cancer Society, APAKCO, At Your Service Environmental Solutions, B&M Consulting, B&R Machine of Camden, B&D Electric of Stamps, Back Country Signs LLC, BancorpSouth, Banner-News Publishing, Bruce Brown Phone Service of Star City, Camden Glass & Overhead Door, Camden News Publishing, Carefree Maintenance, Carol Tyson, Carpet One, Chateau Rental Properties, City of Magnolia, Clean Harbors, Columbia County Tax Collector, Cooper’s Lawn Maintenance, Crane, Butler & Phillips, Britt Gourley, Doris Stacy, Dr. D’Orsay Bryant III of El Dorado, Dr. Eddie Epperson, Dual State Fire Protection LLC of El Dorado, EHG Steel Deals of Camden, Elliott Electrical Supply, Farmers Bank & Trust, Frac-N-Vac of El Dorado, Gail Oguinn, GND Leasing of Texarkana, Gunnels Tire, H&F Electric, Holiday Inn Express, Home Cabinet Shop. Hugg & Hall of El Dorado, Imperial Contractors, J.A. Franks, Jamie Hanson, Joe Lipps, JRS Equipment Rental of El Dorado, Kelton Ladner Lawn Services, Kim Hunter, Kinard’s Hydraulic Repair of El Dorado, Knight’s Heating and Air of Buckner, KRC Customer Manufacturing of Homer, LA, Larry Fowler Trucking, Liberty Supply, Magnolia Water and Wastewater, Magnolia Cleaners, Magnolia Feed & Fertilizer, Magnolia Regional Medical Center, Magnolia Utilities, Marshall Jenkins, Milam Construction of El Dorado, Office Equipment of Southern Arkansas of El Dorado, Pecas Lawn Care, S&S Home Center, Samuel Orange of Springhill, LA, Sandra Sherman, Sherwin-Williams, Southern Medical Group, Spudnut Shop & Deli, Stephen Bailey, Susanna Nash, Teresa Skinner, Torre Scott, Tri-County Oil, Trimek Properties, UAMS Medical Clinic, Wallace Baker, Winder Sharp, World Championship Steak Cook-off.

The complete list of creditors runs 52 pages in the bankruptcy filing.

The Fort Worth, TX law firm of Forshey & Prostok LLP is representing Amfuel in the bankruptcy proceedings.

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