A lawsuit filed by Opus West, an operating unit of Opus Corp., on behalf of the company’s creditors chares that the parent company “siphoned” $150 million from Opus West,
the
Wall Street Journal
reported.
Opus West filed for bankruptcy protection last year.
Opus Corp. transferred “tens of millions of dollars to its controlling family [the Rauenhorst family of Minnesota] in the years preceding the collapse of the company’s operations,” the article said. Dennis Ryan, an attorney for Opus, told the
Journal
that about $120 million of the $150 million went to family trusts, which used about $80 million of it to pay taxes.
Mr. Ryan says it was done properly and the company couldn’t have anticipated the real-estate downturn. Opus and the Rauenhorst family trusts have filed a motion to dismiss the suit in U.S. Bankruptcy Court in Dallas.
Opus’s former chairman and CEO, Mark Rauenhorst — son of founder Gerald Rauenhorst — told the
Journal
last fall that dividends were paid only out of profits and that the parent company invested tens of millions of dollars into its subsidiaries’ projects.
The fight over the movement of the money raises a question that has bedeviled numerous distressed family-run businesses and their creditors: At what point does the family’s pocketing of the cash cross a legal line? … Legal and accounting experts say that, especially with closely held companies, controlling families have the right to reap big profits as long as it is approved by the board of directors…. But if creditors can prove the company should have known it was on the brink of insolvency, it gets trickier. At that point, there are more legal restrictions on moving money, especially if there are loan covenants designed to protect creditors in distressed situations.
Opus Corp., founded in 1953, built company headquarters for Best Buy and other firms. Through five regional units, including Opus West, the company “bought land, designed and built projects, leased them and then sold them at a significant profit,” the
Journal
article said.
While the subsidiaries were profitable … 75% of pretax earnings were distributed as dividends to the Opus parent company, according to the complaint and confirmed by the company.
When the economy faltered, three Opus subsidiaries were stuck with “dozens of half-built or half-leased projects that couldn’t be sold or refinanced,” the
Journal
reported. Opus South and Opus West are in Chapter 11; Opus East has been liquidated, the article said.
Gerald Rauenhourst had donated tens of millions of dollars to Catholic universities, the report noted.
(Source:
Wall Street Journal,
April 7, 2010.)
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