Turnaround Executive Lynn Tilton to Testify About Failed Ambulance Company

By Peg Brickley Features Dow Jones Newswires

As her collection of troubled companies continues to struggle, distressed investing executive Lynn Tilton will face questioning under oath about the demise of one of them, failed emergency-care transport company Transcare Corp.

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Over the past year, Ms. Tilton has gone to trial in New York and Delaware over her handling of what was once a $2.5 billion empire, spending days on the witness stand. Sometime this summer, Ms. Tilton will take questions about the fate of Transcare, which shut down suddenly last year, leaving more than 1,200 workers jobless, and many allegedly unpaid.

The questions will come from bankruptcy trustees, who have been issuing subpoenas and getting court orders to fill in the gaps in the ambulance company's financial records. More than a year after Transcare closed down, bank and tax records were missing, court documents say.

Creditors are also entitled to participate. That means ambulance workers that were allegedly handed rubber checks for their final pay, and who have sued for damages over lost benefits, are entitled to ask Ms. Tilton about Transcare's fate.

In a statement this week, Ms. Tilton said she and her Patriarch Partners management firm aren't responsible for the lost pay and benefits. Neither she nor Patriarch was the employer, the statement said.

Transcare was at one time part of what was known as the Patriarch portfolio of companies, a collection of businesses in trouble that Ms. Tilton vowed to reclaim. More than a decade ago, Ms. Tilton launched an effort to draw in investor funds to fuel the turnaround effort, raising money through collateralized loan obligation vehicles known as the Zohar funds. Two of the Zohar funds have defaulted and she has resigned as their manager, but she holds on to her position as person in charge of a dwindling collection of businesses.

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Many of the companies, like Transcare, have shut their doors in recent years, often with no explanation. Ms. Tilton says there is enough value in the remaining companies to pay back all the Zohar debts, and return a profit to her. Zohar investors hope she's right.

The questioning in Transcare's bankruptcy case has been long delayed. After more than a year of no-shows at the meeting Transcare is required to have with its creditors, bankruptcy trustee Salvatore LaMonica finally sought a court order to compel Ms. Tilton and other company representatives to show up.

She agreed -- no court order will be necessary -- and said this week she will attend a Transcare creditor meeting in June or August.

The Transcare bankruptcy meeting is a far cry from Ms. Tilton's other trials, which took place in courtrooms presided over by judges. In a New York federal courtroom last fall, Ms. Tilton faced civil fraud charges leveled at her by the Securities and Exchange Commission. She denies the allegations, which focus on whether she hid losses from investors in the Zohar funds, the vehicles that fed money to the businesses she controlled.

In a Delaware corporate law tribunal, she battled the Zohar funds' new managers, the restructuring firm of Alvarez & Marsal, over portfolio company business records, and lost. Months later, she fought an effort by the Zohar funds to oust her from control of some of the better companies in the portfolio.

A decision is awaited in the SEC case and on the Delaware fight for control. Separately, the Zohar fund managers have filed a racketeering lawsuit against Ms. Tilton and Patriarch in federal court in New York which Ms. Tilton has sought to have thrown out as baseless. It alleges she improperly took cash and assets from investors.

This week the Zohar funds, under Alvarez's control, asked a federal judge to let them start gathering evidence in the racketeering case, arguing, "The ongoing and repeated failures of Zohar Fund portfolio companies comes at significant economic and human cost."

Ms. Tilton's lawyers, in reply, said the Zohar funds had "smeared" her, and attempted to "vilify" her with "inflammatory public accusations," and in so doing, damaged the companies.

The fate of the Transcare workforce -- sudden job loss, unpaid wages and benefits -- has been shared by workers at other Patriarch-run businesses, from New England to Cambodia, that have failed and shut down abruptly over the past 18 months.

Records of an arbitration conducted after a Tilton-controlled textile plant in Cambodia closed its doors suddenly in June of last year show hundreds of workers, most of them with years on the job at the plant, were owed more than a month's wages at the time. The monthly wage for those Cambodian workers was $147, arbitration records show. The figure includes $10 for not missing a day's work.

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

June 08, 2017 15:15 ET (19:15 GMT)