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Creditors want Vesta exec's salary reduced
CEO drawing $37,000 a month
Wednesday, October 18, 2006
RUSSELL HUBBARD
News staff writer
Creditors of Vesta Insurance Group have asked a judge supervising the company's bankruptcy to reduce the $37,000 monthly salary of the chief executive who led the company as it plunged into insolvency.
David Lacefield, chief executive of the Birmingham-based company, has been drawing the pay with court permission since the company filed for protection from creditors in August, after it terminated employees because it couldn't pay them. This week, the creditors filed a formal objection to Lacefield's ongoing pay package in U.S. Bankruptcy Court in Birmingham.
"He provides little, if any, benefit to the debtor's estate," said the creditor court filing. "There should be little question the Lacefield salary is excessive and entirely unreasonable" given that the company is winding down operations.
Vesta twice has won court permission to keep paying Lacefield and other executives, saying they were indispensable to wrapping up operations in an orderly manner. Lacefield has led Vesta since February and been with the company since 2001. This year, the company became insolvent, was seized by state regulators and defaulted on payments to lenders.
Vesta hasn't reduced Lacefield's salary despite requests to do so, "no doubt" acting through the CEO, the creditors said in their filing. The creditors said they don't object to paying Lacefield $10,000 per month for whatever limited role he might have.
Vesta terminated about one-third of its 300 Birmingham headquarters employees in August, and an unspecified additional number have left since then, as suggested by court filings that say the company has moved some operations from the vast headquarters complex into smaller accommodations. Insurance subsidiaries selling coverage in Texas, Florida and Hawaii - the company's biggest markets - were seized by regulators from those states in August because they were insolvent.
The Chapter 11 section of the bankruptcy code that Vesta filed under prevents creditors from taking legal action to collect debts while a judge supervises a troubled company's financial affairs. Most payments, including executive salaries, require a judge's approval when a company is in Chapter 11.
Now, an overseer is refunding premiums, selling assets and closing the books of the home insurer. Vesta once also sold auto and catastrophe coverage. It has no insurance subsidiaries regulated by the Alabama Insurance Department, though its out-of-state units did have some Alabama customers.
In 1998, the company faced accounting irregularities that wiped out half of its market value in a day and caused tens of millions of dollars in profits to be reclassified. More accounting problems kept the company from filing SEC reports for the two years ended in July. Shares that once fetched almost $53 before the 1998 accounting crisis are now worthless.
Vesta had assets of $14.9 million and liabilities of $214.3 million when it filed in August. Bondholders who lent money expecting to be repaid with interest are owed $58.8 million. The company had a $17 million loss in 2004. Bankruptcy documents show the company spent almost $1 million the next year on cars for executives and improvements on a hunting lodge in Clarke County.
Vesta hasn't requested additional pay for Chairman Norman Gayle, who preceded Lacefield as CEO. He was earning $41,000 a month, according to the creditor filing. General Counsel Donald Thornton, the company's top lawyer, is earning $20,000 a month, a figure the creditors said they will go along with as long as the court-appointed overseer pays half of it.
