Delaware Bankruptcy Judge Spares Former Standard Register Co. Directors

Image via Dayton Daily News.

During a hearing in Wilmington, Del., last week, U.S. Bankruptcy Judge Brendan L. Shannon dismissed claims from the Standard Register Co. estate liquidating trust that directors set the company up for failure by acquiring fellow Dayton, Ohio-based rival WorkflowOne LLC. (The transaction, valued at $218 million, was financed by assuming $210 million of long-term debt and the issuance of warrants, with an estimated value of $8 million.)

As Law360 reported, Shannon said the trustee failed to prove that Standard Register Co. directors were not acting with the company’s best interests in mind when the 2013 acquisition occurred.

“While [Standard Register Co.’s] decision to acquire WorkflowOne, and, the trustee argues, balloon Standard General's debt by more than $200 million, may not have had the favorable outcome anticipated, the court is not permitted to use ‘a hindsight analysis’ when making its decision," he said, according to Law360.

Here’s some background information. In April 2015, the Dayton Daily News reported that a committee of unsecured creditors were “concerned” that Silver Point Capital, a hedge fund based in Greenwich, Conn., had “orchestrated” Standard Register Co.’s acquisition of WorkflowOne. As a result of the transaction, the paper wrote, Silver Point Capital controlled 29.6 percent of Standard Register Co.’s common stock. Court documents later revealed that Standard Register Co. faced revenue loss and “severe liquidity issues” within 16 months of the acquisition.

Standard Register Co. filed for Chapter 11 bankruptcy in March 2015. The company also entered into a $275 million acquisition agreement with Silver Point Capital. As we previously reported, the agreement “contemplated a court-supervised auction process, designed to facilitate a competitive sale process.”

In June 2015, an attorney for the unsecured creditors committee filed a lawsuit after the court gave standing to the committee to take legal action. Silver Point Capital and certain Standard Register Co. executives involved in the 45-page lawsuit were charged with 15 counts of fraudulent transfers related to the WorkflowOne acquisition. That same month, Shannon approved Mankato, Minnesota-based Taylor Corp.’s $307 million purchase of Standard Register Co. and its assets.