Company in West Virginia chemical spill files for bankruptcy

Reuters News
Posted: Jan 17, 2014 4:19 PM

By Tom Hals

(Reuters) - Specialty chemicals maker Freedom Industries Inc filed for Chapter 11 bankruptcy protection on Friday, eight days after a leak from one of its storage tanks contaminated drinking water for hundreds of thousands of West Virginia residents.

A chemical used to process coal spilled into the Elk River in Charleston, prompting the state's governor to declare a state of emergency in nine counties and ban the use of drinking water for more than 300,000 people in the region.

More than 200 people have visited hospital emergency rooms, complaining of nausea.

As a result of the January 9 leak, vendors have demanded that Freedom pay in cash, draining the company of finances and prompting it to seek bankruptcy protection, according to documents filed in the U.S. Bankruptcy Court in Charleston, West Virginia.

"Likewise, the defense of the numerous suits filed against the debtor will exhaust the debtor's liquidity," Freedom said in a filing.

The bankruptcy filing will put a stay on more than 20 lawsuits filed against the company over the spill.

The company filed an emergency motion seeking court authority to borrow an initial $4 million from WV Funding LLC.

The company estimated it had up to $10 million in both assets and liabilities, according to the filings.

The move for Chapter 11 protection came the same day a do-not-use water advisory was lifted for nearly all affected areas, clearing residents to shower and drink from the tap for the first time in more than a week.

Officials at West Virginia American Water, the state's largest water utility, told customers that "out of an abundance of caution, you may wish to consider an alternative drinking water source for pregnant women."

In the Chapter 11 filing, Freedom Industries acknowledges that a chemical known as 4-methylcyclohexane methanol, or crude MCHM, apparently leaked from one of its storage tanks upstream on the Elk River, compromising the water supply and closing a number of businesses.

"The debtor understands the water service is in the process of being restored," the filing reads.

The Chapter 11 filing will help protect the company's assets, shielding it from further lawsuits while allowing it to remain in business.

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Lawyers started filing lawsuits against the company less than 24 hours after the first alarms were sounded about the release of an industrial chemical into the Elk River.

One of the lawsuits was brought by a dialysis patient whose kidney transplant was delayed because of a lack of clean water. Another was filed by the owner of a local Mexican cafe who told employees not to come to work, causing them to lose days of pay, according to attorney Roger Decanio.

Freedom Industries was founded in 1986 and describes itself as a leading producer of chemicals for the mining, steel and cement industries.

(Reporting by Tom Hals in Wilmington, Delaware and Victoria Cavaliere in New York; Editing by David Gregorio, Jonathan Oatis and Gunna Dickson)