The decision by Judge Joseph Scott Jr. of the U.S. Bankruptcy Court for the Eastern District of Kentucky to convert the six-month-old case from Chapter 11 reorganization to Chapter 7 transfers control over any asset sales to a court-appointed trustee.
M3, formed May 11, 2010, by co-owners Douglas McClaim and James Miceli, filed bankruptcy last April, saying it owed more than $4 million to its 20 largest creditors. On July 27, 2010, M3 acquired assets from several companies, including Chas Coal, Aspen Century, Liberty Leasing and Equinox Leasing, as well as Mitco Enterprises, Jadco Enterprises and Charles Collins. It then began mining at two underground mines, Booger Mountain in Knox County and Butcher Branch in Bell County, both in eastern Kentucky. Those mines and others opened by M3 were never major producers, turning out less than 50,000 tons a year.
In his conversion order, the judge noted M3 “made it clear from the beginning of the case that [it] does not have an ability to reorganize absent a substantial cash investment and that the best possible outcome in this case is for the debtor to sell substantially all of its assets.”
In August, M3 advised the court it had two potential buyers—Bayside/Millennium and Great Eastern Timberland LLC. But an asset purchase deal never was filed with the court. Then, in early September, M3 said a Lexington, Ky., company, Five Star Investments, was performing due diligence for a possible $45 million asset sale.
Ultimately, Scott concluded M3 had run out of time, ceased all operations and was insolvent. Moreover, he said M3 failed to maintain insurance on its assets, thus posing a risk to the debtor’s estate and the public.