Crossville Chronicle, Crossville, TN

July 25, 2013

TSUD: too many questions to return sewer

By Heather Mullinix
Assistant editor

— There's too many unanswered questions for the commissioners of Tansi Sewer Utility District to feel comfortable turning over operation and ownership of the Tansi sewer system, the commissioners said Monday.

"I don't feel good about giving the system back when there are customers depending on us," said Virgil Ferguson, TSUD commissioner.

During the recent mediation conference at Brown Elementary School, bankruptcy trustee John McLemore of Cookeville explained options available to recoup assets of Tansi Waste Management, Inc., which has filed for Chapter 7 bankruptcy protection.

"Tansi Waste Management, Inc. was loaned money, an unsecured loan, by the [Lake Tansi P.O.A.] to build a sewer system. The sewer system is built and it is currently operating. It has been conveyed to [Tansi Sewer Utility District]. TSUD did not pay anything for it," McLemore said during the mediation conference.

Bankruptcy law allows for the transfer of an asset from an entity to be voided if the transfer was for less than adequate consideration and took place within four years of an entity filing for bankruptcy protection. McLemore explained TSUD could return the sewer system back to TWMI or wait for him to file suit seeking recovery of the asset.

At Monday's special-called meeting of the TSUD board, TSUD attorney Randol Boston said he did not have the information he felt necessary to properly advise the board on a course of action. He did ask the board to consider allowing him to provide information and confer with H.G. Pick, Crossville bankruptcy attorney, and to confer with McLemore on possible action by the bankruptcy trustee.

"We're still in a hurry up and wait type situation," Boston said. "I don't have the information available to me yet to advise this board."

Ferguson noted TSUD had offered to return the sewer plant to TWMI and, ultimately, the Lake Tansi POA shortly after the POA filed suit against TWMI and TSUD for default of the loan made by the POA to TWMI to build the sewer system.

"Nothing ever happened with that," Ferguson said.

The primary question the board had centered on who would operate the sewer system and serve those customers currently being served by the sewer service, including RCI and POA, the largest commercial customers. Ferguson was concerned someone could purchase the sewer system and salvage equipment and materials from it but not continue operating it.

Trey Kerley, president of the TSUD commissioners, said, "We're concerned with who will take care of the customers and the people out here. We don't want anybody taken advantage of."

"I don't see anybody purchasing this to make it a viable operation," Ferguson said. "The only ones I can see it being an asset to are RCI and the POA."

The situation poses unique legal questions, Boston told the board, and he had difficulty finding similar situations in Tennessee case law. While utility districts had declared bankruptcy in the past, TSUD was not insolvent, Boston said, and was not seeking bankruptcy protection itself.

"They are trying to take our assets," Boston explained.

If TWMI's bankruptcy trustee filed to have the sewer system returned to the TWMI bankruptcy estate, TSUD could object.

Ferguson said he did not believe the transfer of the sewer system to TSUD was fraudulent because the district had a bill of sale. That bill of sale conveyed the sewer treatment facility and infrastructure, which was valued at between $700,000 and $800,000 in an appraisal last year, for $10 and "other valuable consideration."

Pick explained proving the conveyance of the assets, the sewer system, was done with "valuable consideration" was but one hurdle in proving the transfer of property was legal. There was also the need to show there was proper documentation of any financing and that property was properly secured.

"Otherwise, it's no different than a doctor bill or a credit card," Pick said.

If the court returned the sewer system to TWMI, McLemore would then be charged with liquidating the asset and selling it to the highest bidder.

"Could someone buy it you don't like? That's possible," Pick said. "But it's not true someone could buy it and not operate it properly because of the environmental rules and regulations."

He also noted that TSUD could place a bid to purchase the system if it were returned to TWMI and sold at public auction.

Pick noted the bankruptcy trustee only had an interest in lawsuits that named TWMI in the litigation.

"It's my understanding there's lawsuits all over the place," Pick said.