New Century Says GE Capital May Hinder Liquidation Efforts
New Century Financial has warned that its effort to liquidate assets could be stymied if General Electric Capital is allowed to proceed with plans to seize computers and other equipment it leased to the bankrupt housing lender.
GE Capital, arguing that New Century owes it $8.7 million on leased equipment and can't stay current on payments, has asked a judge to lift the protection normally granted to companies in Chapter 11. That would enable the firm, a unit of General Electric , to repossess the equipment, which includes computer servers, and chairs.
General Electric is also the parent company of CNBC.
New Century said that would disrupt its effort to wind down operations and repay creditors. The company, once among the biggest U.S. providers of mortgages to people with weak credit, collapsed into bankruptcy April 2. It has since sold key operations and laid off more than 5,000 employees.
"Simply stated, the debtors cannot effectively liquidate and continue to to sell their assets without basic office equipment such as phones, computers printers, monitors and similar items that comprise the equipment," New Century said in papers filed late Thursday with the U.S. Bankruptcy Court in Wilmington, Del.
The company said "much of the data and information" involving its assets and business operations, including accounting information, is stored on the computers, or generated by them.
New Century's accounting is the subject of several investigations, including by the Securities and Exchange Commission and by federal prosecutors in California. The company has said it uncovered accounting errors in its financial statements in 2005 and 2006. The 2005 statements may have involved a "material overstatement" of pretax earnings, New Century's directors said last month.
New Century also said "it is critical for the debtors to use the equipment" so that the loan-servicing business it recently sold to Carrington Capital Management can be kept "operating as a going concern." Carrington paid $188 million for the business.
The committee of unsecured creditors in the bankruptcy case also has opposed GE Capital's bid to seize the computers, saying it marks the third time the company has tried to force New Century to pay more "substantially more" in cash than the value of the equipment. Previous attempts were rejected by U.S. Bankruptcy Judge Kevin Carey, the committee said.
'"If at first you don't succeed, try, try again.' This has been GECC's mantra in the first few months of these cases," the committee said in court papers.
New Century, of Irvine, Calif., argues that it has court permission to sell some of the equipment as part of the sale to Carrington. Under the circumstances, it said, the request to seize the equipment is "premature."
Carey, the bankruptcy judge, is scheduled to consider the matter at a June 15 hearing.