Bye Bye Vesta Bye Bye
Vesta officers face bills in suit
Company covering execs asks court if it can pay legal fees
Tuesday, October 10, 2006
RUSSELL HUBBARD
News staff writer
The insurance company covering executives of bankrupt Vesta Insurance Group against lawsuits has asked the court if it's OK to pay their legal fees.
Bermuda-based XL Insurance said in a filing last week with U.S. Bankruptcy Court in Birmingham that Vesta executives including Chairman Norman Gayle want money to defend a Jefferson County lawsuit that accuses them of ruining the company.
XL Insurance said in its filing that the executives have asked for legal fees after being sued in Jefferson County Circuit Court and accused of "maliciously, wantonly and negligently" mismanaging the company. Unpaid bondholders filed the suit in July.
During corporate bankruptcies such as Vesta's, most financial transactions require a supervising judge's approval. XL Insurance said it knows such payments from an insurer to executives of a bankrupt company aren't usually subject to court supervision, but that it filed its motion "out of an abundance of caution."
The payment of the legal fees is set for a hearing later this month. Birmingham-based Vesta, an auto and homeowner's insurer, was thrown into bankruptcy by angry creditors in August. It is now wrapping up operations after it went insolvent this summer and was shut by regulators from Texas, Hawaii and Florida, where the company did most of its business.
More than half the 300 employees who worked at the headquarters on River Run Road were cut in August, and court documents suggest more have been dismissed.
That's because a liquidation company hired by the Texas Insurance Department to shutter the company told the court in documents last month that it has already moved some operations to a smaller building, and needs time to find other accommodations before it can vacate the vast corporate headquarters. The few employees who are left are performing mop-up jobs, such as refunding premiums and closing the books.
Chief Executive David Lacefield and General Counsel Donald Thornton, who ran the company as it plunged into bankruptcy, were still being paid by Vesta at the end of September. That's according to late September court filings by creditors who objected to their continued employment. The document doesn't say how much each man is set to earn for October, but an earlier pot of money approved by the court for executive salaries amounted to $6,000 a week apiece.
Vesta was once one of Birmingham's top publicly traded companies, with a stock price of $50 a share in 1998. That's when the first case of improper accounting hit, costing CEO Robert Huffman his job and most of the company's market value after tens of millions of profits were erased and shifted to periods other than their original ones.
More accounting problems emerged. The company didn't file quarterly reports with the Securities and Exchange Commission for the two years ended July, citing unspecified problems with the books. Bankruptcy documents later showed Vesta had a $17.3 million loss in 2004, a year during which it spent $316,000 on new vehicles for top executives and $676,000 to improve a hunting lodge it owns in Clarke County.
Vesta has assets of $14.9 million and liabilities of $214.3 million. Bondholders who lent money expecting to be repaid with interest are owed $58.8 million.
A trickle of new money might be flowing in to the company. Vesta last month asked the court for permission to hire an auctioneer to sell "miscellaneous assets," which together aren't expected to fetch more than $500,000.
