IRS objects to Katy Industries' asset disbursal plan

Workers at Continental Commercial Products come and go during a shift change around 6:30 p.m. Thursday, March 1, 2018. Continental's parent company Katy Industries filed for Chapter 11 bankruptcy protection in 2017.
Workers at Continental Commercial Products come and go during a shift change around 6:30 p.m. Thursday, March 1, 2018. Continental's parent company Katy Industries filed for Chapter 11 bankruptcy protection in 2017.

A plan to disburse the assets of plastics conglomerate Katy Industries could be held up by objections from the IRS.

Katy Industries, former parent of Jefferson City plastics manufacturer Continental Commercial Products, filed for Chapter 11 bankruptcy protection last May. After its sale in July, creditors sued the buyer while trying to recover part of sums they said Katy owes them.

In court filings this week, the IRS objected to a plan to disburse assets to creditors because the agency alleges Katy failed to pay taxes for 2017.

The IRS filed court filings Monday in federal bankruptcy court in Delaware objecting to a plan to disburse Katy's assets between its buyers and creditors. The bureau also alleged the company owes the IRS $10,000 for an administrative expense.

Court documents list the IRS as one of at least 47 creditors and parties in Katy's bankruptcy proceedings. The exact size of the bureau's claim is unknown because of the company's alleged failure to file its 2017 income tax returns, according to the IRS filings.

"The IRS is unable to determine the amount of its claims in this case as the result of the debtor's failure to file a federal corporate income tax return," the IRS said in court documents. "The IRS is not consenting to the compromise or settlement of its claims, and this provision is unfairly prejudicial to the rights of the IRS."

Katy Industries filed for Chapter 11 bankruptcy protection May 14, 2017, partially because of higher-than-expected expenses relating to the relocation of its Continental Commercial Products subsidiary from Bridgeton to Jefferson City in 2015. In July, Chicago investment firm Victory Park Capital Advisors and Los Angeles private equity firm Highview Capital bought Katy for $63 million.

Shortly after a group of unsecured creditors sued Victory Park and Highview, alleging Victory Park had no reasonable expectation that money the firm gave Katy beginning in July 2016 would be repaid as Victory Park bought a majority of Katy's stock.

The re-organized entity now continues operations as American Plastics, and CCP's Jefferson City factory remains open. Brian Nichols, American Plastics' vice president and chief business officer, declined to comment Wednesday.

Court documents dated April 1 show Jefferson City firms Capitol Projects Inc., MO Warehouse LLC and the Missouri Department of Natural Resources among the creditors. Staffing firms Job Finders Employment Services and C&S Business Solutions also are creditors in the suit.

In mid-February, a group of creditors and lawyers representing Katy's assets submitted a plan to divide Katy's assets between the company's buyers and other creditors. A sticking point with the court had been whether the company could terminate benefits for the former Katy retirees.

The parties held a hearing in Delaware on April 5. No other hearing is scheduled in the case.