With Eviction Looming, Fate Of Powell Steel Is Unclear ; Business Ordered To ‘Wind Down’ Its Operations

Business Editor

tmekeel@lnpnews.com

It looks as though the beginning of the new year could bring the end of Powell Steel, recent court filings indicate.

Or maybe not.

Powell Steel has withdrawn its opposition to eviction proceedings initiated by its landlord, Fisher Realty.

As a result, the county Sheriff's Office has scheduled the eviction of Powell Steel from its Baumgardner Road plant for Jan. 7 at 2:30 p.m.

In a separate proceeding, a bankruptcy judge has ordered Powell Steel to "wind down" by Dec. 31, as sought by its lender, M&T Bank.

Whether Powell Steel intends to try to deflect the one-two punch is not known.

One source, who asked to not be identified, said Powell Steel held its annual company Christmas party on Tuesday, with no mention of its imminent hurdles.

The company also received 16 truckloads of structural steel last week and early this week for it to fabricate - not the actions of a firm expecting to soon close, the source said.

And the judge's order makes no mention of what will happen to Powell Steel after Dec. 31, perhaps signaling a solution to its woes is being sought.

Time will tell.

Powell Steel was founded by Steve Powell, president, chief executive officer and owner.

He launched the company in 1993 by purchasing the assets of his bankrupt former employer, Fisher Steel.

Powell has been frequently lauded, earning numerous honors for his entrepreneurship, business ethics and leadership.

Powell, who also is the coach of the McCaskey boys' basketball team, could not be reached for comment. Neither could Powell Steel's general counsel, Michael Jackson, or its bankruptcy attorney, Daniel Siedman.

Fisher Realty attorney Susan Peipher and M&T attorney Carol Ann Slocum also could not be reached for comment.

Powell Steel filed for bankruptcy reorganization in February. At that time, the Pequea Township firm posted debts exceeding $6 million. The biggest creditor is M&T, which is owed $3.1 million.

Powell Steel also owes nearly $1 million in withheld but unpaid state and federal payroll taxes, according to the company's filings.

At the time of its bankruptcy filing, Powell Steel also reported having 75 employees and annual sales exceeding $14 million.

However, a budget for Powell Steel, attached to the latest order from the judge, shows that the payroll has dipped to only 20 employees.

Powell Steel has spent much of its bankruptcy case fighting uphill battles against its landlord and lender.

Both persuaded U.S. Bankruptcy Judge Magdeline Coleman to let them move against Powell Steel, despite the bankruptcy code's protection from creditors.

The landlord, Fisher Realty, told Coleman that Powell Steel not only failed to pay its rent but also property taxes on the plant (as required by its lease). In addition, Powell Steel missed a crucial bankruptcy-code deadline for saying whether it wanted to keep leasing the plant.

Coleman allowed Fisher Realty to proceed with evicting Powell Steel. The eviction was set for Nov. 26.

But Powell Steel fought back with a filing in Lancaster County Court.

The firm explained that it hadn't paid the rent because Fisher Realty had allowed a second firm to use "more and more" of the property.

That left the amount owed by Powell Steel unclear, the company said.

Judge Donald Totaro put the eviction on hold while allowing each side to file papers elaborating on its positions.

Then, in a surprising move, without explanation, two weeks ago Powell Steel withdrew its opposition to the eviction.

The eviction has been rescheduled for Jan. 7, said Marc Lancaster, chief deputy sheriff.

Powell Steel likewise has been at odds with its lender, M&T, which has provided three loans plus leases on six vehicles.

M&T argued that its collateral - Powell Steel's cash and accounts receivable - "has so significantly eroded" that the bank's interest is not being adequately protected.

Powell Steel also reneged on a promise to wind down its operations after failing to find a third party to pay Powell Steel's bank debts, the bank alleged.

"Despite numerous requests by M&T, Powell (Steel) has not submitted a wind-down budget, but rather seeks to use cash to conduct business as usual," the bank said.

Coleman sided with M&T, for the most part.

In an order entered Monday, the judge wrote that if Powell Steel "abides by its wind-down budget as approved by M&T, M&T will not proceed to liquidate or otherwise dispose of its collateral and the leased vehicles prior to the end of the wind-down period on December 31, 2013."

The judge also allowed Powell Steel to use the cash collateral to pay expenses such as payroll, taxes and insurance through Dec. 31.

However, Coleman made no mention of what will happen to Powell Steel thereafter.

Coleman, though, did order Powell Steel to let M&T have "reasonable and free access" to its books during normal business hours, with 48 hours' notice.