REXDALE, Ontario (May 19, 2000)—Receivership, bankruptcy and alleged double-dealing have led to the breakup and, probably, the end of Canadian tire maker and distributor United Tire & Rubber Co. Ltd.
The production-related assets of Rexdale-based United Tire, founded as a tire distributor in 1944, were sold in late March by its receiver and manager, Ernst & Young Inc., which took control of the financially strapped company Feb. 15.
The lender for New York-based Pensler Capital Corp., owner of 81 percent of United Tire, placed the off-the-road tire company into receivership because the firm was losing money, Pensler President Sanford Pensler said. His firm had wanted to reorganize United Tire and continue production in Rexdale, he said.
If Pensler had been able to regain control of United Tire, it likely would have become a separate Canadian subsidiary of Denman Tire Corp., the Leavittsburg, Ohio-based tire maker also owned by Pensler, said Denman President and CEO Charles Wright. Denman was United Tire´s biggest customer, he said.
United Tire´s manufacturing machinery and equipment was sold March 30 to Indiana, Pa.-based tire company Specialty Tires of America Inc. But Specialty Tires had to file suit against Ernst & Young in Ontario Superior Court of Justice on April 28 to take ownership of the equipment, after it discovered the receiver allegedly was reneging on its deal, said Elaine Anderson, vice president of Specialty Tires´ parent, Polymer Enterprises Inc.
Specialty Tires had sent trucks to pick up the equipment the week of April 4, but was turned away at the plant by Ernst & Young representatives, who said the company did not have a sales agreement, Ms. Anderson said. A letter to Specialty from the receiver dated April 27 said Ernst & Young had a "committed transaction in process" for the equipment in which Specialty Tires had shown interest, she said.
Mr. Wright said Pensler officials were negotiating with Ernst & Young to buy the plant equipment and try to restart production. Ernst & Young had shut down the Rexdale facility in mid-March after trying to supply on-order tires, Mr. Wright said.
"We thought we had a contract for the raw materials and factory-related assets," he said. "A couple of weeks ago we were prepared to close. We had wired money to Canada and had even talked to the union about the recall mechanism."
But then Pensler was told by Ernst & Young that the equipment wasn´t available anymore, Mr. Wright said. That´s because Specialty Tires previously had made an agreement to buy the machinery, as the provincial judge ruled May 4.
"The receiver and manager negotiated with others, one of which was Specialty Tires," Mr. Wright said. "Specialty filed a lawsuit against them, and the judge agreed with STA."
Ms. Anderson said her company had had no choice but to file suit against Ernst & Young in Canada after the receiver reneged on its agreement.
"We´re extremely disappointed and shocked," Ms. Anderson said, referring to Ernst & Young´s handling of the machinery sale.
Specialty Tires is in the process of getting the equipment—which includes presses, molds, cutting machinery, a bead former and a small extruder—from Rexdale and moving it to its plants in Indiana, Pa., and Unicoi, Tenn., for bias-ply tire production, she said.
No other significant pieces of United Tire have been sold to other parties yet, said Joe Pernica of Ernst & Young. But Robert L. Hagerman, president of Toronto-based AirBoss of America Corp., said his firm and Dynamic Tires Corp. now control the collection of receivables.
The two suppliers to—and creditors of—United Tire had sought to buy the company while it was in receivership. They decided to bid on the receivables, because "we wanted to make sure (they) were collected," Mr. Hagerman said.
AirBoss, which was owed about $600,000 at the time United Tire went into receivership, and Dynamic guaranteed a minimum collection and will get a small cut for any money over that minimum, he said.
AirBoss and two other creditors—American Biltrite (Canada) Ltd. and Kumho Industrial Co. Inc.—forced United Tire into involuntary bankruptcy March 14 by petitioning a Canadian court.
"We wanted a bankruptcy because we wanted a trustee," Mr. Hagerman said. "A trustee can help to ensure the receiver does a good job.... A trustee in place means a landlord can´t throw you out."
The bankruptcy didn´t change anything that Ernst & Young was doing at the time, said Harlan Schonfeld, owner of Toronto-based Schonfeld Inc., which served as the trustee in the United Tire bankruptcy case. "Bankruptcy and receivership basically operated in tandem," he said.
Details about the remainder of the assets hadn´t been confirmed at press time May 11.
The Rexdale plant—which United Tire had leased—is inoperable in the short term without the equipment, Mr. Wright said. And United Tire´s 50 production workers, now on layoff, likely will remain there, he said.
"It´s a tragedy. Those people were counting on going back to work," Mr. Wright said.
Denman has been using leftover inventory to continue its off-the-road business, but eventually will have to look for another supplier or alter its manufacturing capacity in Leavittsburg, he said.
And in Rexdale, the future of what once was United Tire looks bleak, Mr. Wright said.
"It isn´t encouraging. It´s safe to say United Tire is finished," he said. "To keep operating at all, we would have to make arrangements in the stock prep department, and we need the proper molds. I don´t see that happening."