1. The Strange Case of Irving Tanning How the bankruptcy process may pose a threat to states’ self-insured workers’ compensation programs Presented by Liz Wyman, AAG, State of Maine To State Self-Insurance Guaranty Fund Administrators June 3, 2012

2. Introduction Irving/Prime Tanning processed leather for use in manufacture of shoes. Two facilities in Maine and one in Missouri Came through Chapter 11 bankruptcy in 2005 Irving/Prime Tanning filed a second Chapter 11 in Maine bankruptcy court on November 16, 2010 Initial skirmish over self-insurance funds through a TRO process Irving sold its business to Tasman Leather Group in February, 2011 As a liquidating chapter 11, it is no longer about reorganizing and “saving jobs in Maine”

3. The Self-Insurance Funds Maine: Irving was secured through the Vista Trust, held in a private bank trust account, in the amount of $330,000 as of bankruptcy filing; currently 74 open claims Prime funds originally held through letter of credit. Terminated self-insurance in 2008. When Prime declined to renew LOC in 2010, Superintendent demanded payment of the full value: $718,000, which was paid into an account held by the Treasurer of the State of Maine. As of December 31, 2011, $392,000 in fund, with 6 open claims and unknown number of potential claims (within 6-year statute of limitations) Cash collateral held by Acstar to secure surety bonds issued to Missouri and New Hampshire

4. Irving sets the trap: claims bar date On May 11, 2011, Irving files a motion to set a bar date for all workers’ compensation claimants to file a proof of claim Court enters an order allowing a bar date of September 19, 2011 Irving sends the order to all former employees Only 9 workers’ compensation claimants file claims The self-insurance funds file protective claims

5. The Plot Thickens The Plan of Reorganization Highlights (or low blows) Channeling injunction Requires turnover of all self-insurance funds to the bankruptcy estate Allows the bankruptcy court to estimate the value of workers’ comp claims Bars workers’ comp claims Irving expects to pay only $230,000 to claimants $1,000,000 to go to the estate Third party releases The plan prohibits the self-insured guarantee funds to pay claims to workers

6. The Process Irving files adversary complaint and TRO against Missouri Missouri responds with Maine’s help Maine and Missouri file objections to plan of disclosure Hearings: February 2 and February 28, 2012 Current procedural posture

7. The Legal Argument Self-insurance funds are not property of the estate – As a matter of state statute: Maine statute prohibits distribution of security to creditors – As a matter of contract law: the trust documents and the letter of credit state that the funds may only be used for payment of workers’ compensation claims (no diverted purpose allowed) – All the debtors have is a “chose in action” (the right to request the Superintendent to adjust the security and release any excess when he deems it appropriate) – The right to “excess proceeds” of a letter of credit requires that the claims be liquidated (there are 80 open claims subject to liability for six years from the date of last payment – we are probably undersecured)

8. Keeping the Bankruptcy Court out of State Law Matters Workers’ comp is uniquely within the province of the state – it is not for the bankruptcy court to estimate the claims or determine what is sufficient amount of money to be available to satisfy these claims Workers’ comp claimants are not typical tort claimants: the claims have a very long tail and the claimants are statutorily entitled to recovery

9. What Happens Next? If the Court rules against Maine and Missouri, we file an appeal to the Bankruptcy Appellate Panel of the First Circuit Court of Appeals Request for amicus filings Worst-case scenario – seek amendment of the Bankruptcy Code to create a special classification for workers’ compensation claims