By Paul Gable
Bankruptcy trustee Michelle Vieira filed adversary proceeding complaints against directors of AvCraft Technical Services recently in bankruptcy court.
Vieira, the Plaintiff, is the court appointed bankruptcy trustee for KNH Aviation Services Inc. d/b/a AvCraft Technical Services in the matter of the Chapter 7 bankruptcy filing of the company, Case #15-01641-dd in U.S. Bankruptcy Court District of South Carolina.
The causes of action include breach of fiduciary duties by the defendants for capitalization of the debtor, sale and lease agreements with Sun Air, removal of equipment and self dealing.
The defendants are former owners and directors of KNH Aviation Services Inc. d/b/a AvCraft Technical Services, Mike Hill, Donald Kamenz, Derek Nice and Carol Drew along with the owner of Sun Air and former AvCraft director Jesper Lundberg and Sun Air of Scandinavia A/S.
KNH Aviation Services was put together by Mike Hill. He originated the company and got Kamenz, Nice and Drew to come in as investors to buy AvCraft Support Services in a foreclosure sale from AvCraft’s principal debtor, Maple Financial of Toronto.
According to the complaint, Hill, Kamenz, Nice and Drew each invested $50,000 in KNH Aviation and loaned the company an additional $100,000 each. They purchased the assets of AvCraft from Maple Financial for $700,000 with a loan financed by Maple Financial for that amount.
The complaint notes the initial capital investment was $200,000 with the company having an initial debt of $1.1 million. The complaint alleges KNH Aviation was undercapitalized from the beginning.
AvCraft Support Services first came to Myrtle Beach International Airport in January 2004 under the ownership of AvCraft Holdings of Leesburg, Virginia, whose principal owner was Ben Bartel. Included under the AvCraft umbrella was AvCraft GmbH in Germany, which owned the former Dornier aircraft production facility.
The Myrtle Beach facility was to be the completion and maintenance operation for the Dornier factory. Or, as council member Marion Foxworth proclaimed at the time, “Pimp my ride for airplanes.”
Hill first came to Myrtle Beach in 2005 as manager of the AvCraft facility. After AvCraft was foreclosed by Maple Financial in late 2005, Hill was contracted as a consultant to help the company through insolvency.
Maple Financial finally pulled the plug on AvCraft in September 2010 with Hill and his other three investors purchasing the company with the Maple Financial loan the next month.
Almost immediately, KNH Aviation went to Horry County requesting a reduction in rent on the three hangars AvCraft occupied at Myrtle Beach International.
By late 2011, the company was in negotiation with the Myrtle Beach Regional Economic Development Corporation and Horry County government for a new economic development incentive package, which included rent reductions of approximately $1.25 million over five years and some cash incentives. The company promised to create 150 new jobs over five years as part of the incentive package.
MBREDC president Brad Lofton and board chairman Doug Wendel both assured Horry County Council that thorough due diligence was performed on KNH Aviation prior to requesting approval of the incentive package from council.
Lofton told council the MBREDC Prospect Committee, consisting of Billy Alford, Doug Wendel and Jim Apple, had performed all required financial due diligence on KNH Aviation Services Inc. d/b/a Avcraft Technical Services.
The company was found to have “strong performance and related capability for future growth,” Lofton said.
Wendel told council, “I think we’ve illustrated very clearly we’ve done our due diligence. This is a great company. I think it worthwhile of us to give a vote of confidence to this industry and to move ahead (with the economic development incentive package).”
It is unclear what or how due diligence was performed.
According to the complaint filed in bankruptcy court, in November 2011, at the same time AvCraft was negotiating its economic development package, the company sold tooling and equipment assets of AvCraft to Sun Air of Scandinavia for $200,000.
KNH Aviation, then, immediately signed a 10-year lease purchase agreement, with Sun Air, for the same tooling and equipment for a total cost of $500,000 over the lease period.
According to the complaint, the value of the tooling and equipment was “at least $356,000” at the time it was sold for $200,000.
AvCraft sold off assets in order to remain in business. This hardly sounds like the same company described by Lofton and Wendel and the supposed due diligence of the MBREDC.
S.C. Gov. Nikki Haley and Horry County Council chairman Tom Rice, then a candidate for the newly created S.C. 7th Congressional District, weighed in on how wonderful it was that AvCraft agreed to the latest economic development incentive package.
“I am thankful for the company’s commitment to Horry County and proud of our economic development team for this terrific announcement.” – Rice.
“It’s another great day in South Carolina, and we are going to celebrate AvCraft’s decision to expand and create 150 new jobs in Horry County.” – Haley.
These quotes are examples of just how casually politicians and others using public money treat the spreading around of those tax dollars.
According to the complaint, in August 2012 less than eight months after signing the incentive agreement, Hill, Kamenz, Nice and Drew formed a new company, KNH Logistics LLC. KNH Logistics used the hangars, tooling and equipment and personnel of AvCraft Technical Services, without remuneration, to remove parts from aircraft and sell these parts to AvCraft.
In addition, KNH Logistics, again using hangars, tooling and equipment and personnel of AvCraft Technical Services, performed work on third party aircraft without remuneration to AvCraft.
As the complaint alleges, KNH Logistics was using AvCraft’s personnel, facilities and equipment, in direct competition with AvCraft Technical Services, and collecting the proceeds for the parts sold and/or work performed.
The complaint alleges KNH Logistics injured AvCraft’s business by performing services for third parties which AvCraft was capable of and routinely performed.
(Both companies were owned by the same people, but AvCraft was riddled with debt while Logistics was collecting payment on jobs, with no overhead, that should have gone to AvCraft).
The above allegations in the complaint are cited to demonstrate “breach of fiduciary responsibility” on the part of the owners/directors.
There are more allegations of breach of fiduciary responsibility and more court filings to come.
Grand Strand Daily has long criticized MBREDC and Horry County Council for entering into the incentive agreement with KNH Aviation Services Inc. d/b/a AvCraft Technical Services.
AvCraft was undercapitalized since Bartel first brought it here and it never produced any new jobs despite several economic development incentive packages over the years.
However, this latest AvCraft iteration, along with the failure of MBREDC and Horry County to conduct proper due diligence before approving the agreement, brings into question the whole concept of economic development as practiced by MBREDC and financed by Horry County Council.
Complaint against AvCraft Owners/Directors: avcraft adversary (1)
Watch Rice and Lofton justify the AvCraft deal: https://www.youtube.com/watch?v=QIO0G1-mw5A (copy and past to your browser)