IN THE UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION In re: COLLINS & AIKMAN CORPORATION,

et al.1 Debtors. ) ) ) ) ) ) ) ) Chapter 11 Case No. 05-55927 (SWR) (Jointly Administered) (Tax Identification #13-3489233) Honorable Steven W. Rhodes

DEBTORS OBJECTION TO THE MOTION OF THE UNITED STATES TRUSTEE FOR THE APPOINTMENT OF AN EXAMINER The above-captioned debtors (collectively, the Debtors) hereby object (this Objection) to the Motion of the United States Trustee (the UST) for the Appointment of an Examiner [Docket No. 4198] (the Motion). respectfully state as follows: Preliminary Statement These difficult, complex chapter 11 cases have been pending for 21 months. Now, on the eve of confirmation of a chapter 11 plan that is supported by every major constituency with an
1 The Debtors in the jointly administered cases include: Collins & Aikman Corporation; Amco Convertible Fabrics, Inc., Case No. 05-55949; Becker Group, LLC (d/b/a/ Collins & Aikman Premier Mold), Case No. 05-55977; Brut Plastics, Inc., Case No. 05-55957; Collins & Aikman (Gibraltar) Limited, Case No. 05-55989; Collins & Aikman Accessory Mats, Inc. (f/k/a the Akro Corporation), Case No. 05-55952; Collins & Aikman Asset Services, Inc., Case No. 05-55959; Collins & Aikman Automotive (Argentina), Inc. (f/k/a Textron Automotive (Argentina), Inc.), Case No. 05-55965; Collins & Aikman Automotive (Asia), Inc. (f/k/a Textron Automotive (Asia), Inc.), Case No. 05-55991; Collins & Aikman Automotive Exteriors, Inc. (f/k/a Textron Automotive Exteriors, Inc.), Case No. 05-55958; Collins & Aikman Automotive Interiors, Inc. (f/k/a Textron Automotive Interiors, Inc.), Case No. 05-55956; Collins & Aikman Automotive International, Inc., Case No. 05-55980; Collins & Aikman Automotive International Services, Inc. (f/k/a Textron Automotive International Services, Inc.), Case No. 05-55985; Collins & Aikman Automotive Mats, LLC, Case No. 05-55969; Collins & Aikman Automotive Overseas Investment, Inc. (f/k/a Textron Automotive Overseas Investment, Inc.), Case No. 05-55978; Collins & Aikman Automotive Services, LLC, Case No. 05-55981; Collins & Aikman Canada Domestic Holding Company, Case No. 05-55930; Collins & Aikman Carpet & Acoustics (MI), Inc., Case No. 05-55982; Collins & Aikman Carpet & Acoustics (TN), Inc., Case No. 05-55984; Collins & Aikman Development Company, Case No. 05-55943; Collins & Aikman Europe, Inc., Case No. 05-55971; Collins & Aikman Fabrics, Inc. (d/b/a Joan Automotive Industries, Inc.), Case No. 05-55963; Collins & Aikman Intellimold, Inc. (d/b/a M&C Advanced Processes, Inc.), Case No. 05-55976; Collins & Aikman Interiors, Inc., Case No. 05-55970; Collins & Aikman International Corporation, Case No. 05-55951; Collins & Aikman Plastics, Inc., Case No. 05-55960; Collins & Aikman Products Co., Case No. 05-55932; Collins & Aikman Properties, Inc., Case No. 05-55964; Comet Acoustics, Inc., Case No. 05-55972; CW Management Corporation, Case No. 05-55979; Dura Convertible Systems, Inc., Case No. 05-55942; Gamble Development Company, Case No. 05-55974; JPS Automotive, Inc. (d/b/a PACJ, Inc.), Case No. 05-55935; New Baltimore Holdings, LLC, Case No. 05-55992; Owosso Thermal Forming, LLC, Case No. 05-55946; Southwest Laminates, Inc. (d/b/a Southwest Fabric Laminators Inc.), Case No. 05-55948; Wickes Asset Management, Inc., Case No. 05-55962; and Wickes Manufacturing Company, Case No. 05-55968.

In support of this Objection, the Debtors

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economic stake in these cases and nearly four months since a lone creditor requested a fee examiner, the UST, without contacting the Debtors or any other major constituency in these cases, came to the bewildering conclusion that an examiner is necessary in these cases. The Motion is an abuse of discretion that, among other things, (a) has the potential to rack up substantial costs (the very thing the UST purports to be concerned with), (b) does not even consider how the examiner would be paid and (c) threatens to derail a chapter 11 plan that forms the basis to sell the Debtors assets, maximize value of the estates, maximize job preservation, ensure orderly parts production and emerge from bankruptcy. In sum, the Motion is

ill-conceived at best and will likely exacerbate the very situation the UST purports to be concerned about. Indeed, the Motion goes beyond what even Third Avenue Value Fund (Third Avenue) has requested. As this Court is aware, in November 2006, Third Avenue objected to the interim fee applications filed by certain of the estates professionals with respect to the third quarter of 2006.2 In its objections, Third Avenue (a) criticized certain of the estates professionals for their alleged failure to recognize sooner that the Debtors could not be reorganized and (b) asserted that, as a result of this failure, certain of the estates professionals incurred more fees than necessary during the third quarter of 2006 pursuing a reorganization as opposed to a sale strategy to emerge from chapter 11. To that end, Third Avenue requested that the Court appoint a fee examiner to review the fee applications filed by the estates professionals in these cases, particularly with respect to the fees incurred during the second and third quarters of 2006.

Third Avenue did not object to the interim fee applications filed by Carson Fischer, PLC (local counsel for the Debtors) or Butzel Long, PC (local counsel for the Committee).

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Admittedly, much time was spent since the filing of these cases with the support of every major constituency in an effort to reorganize the Debtors businesses intact. As the record in these cases demonstrates, the Debtors have managed these cases through a transparent process in which the Debtors confronted all significant business, financial, strategic and tactical issues hand-in-hand with their major creditor constituencies. In particular, the Debtors have provided the advisors to the agent (the Agent) for the Debtors senior, secured prepetition lenders (the Lenders),3 the official committee of unsecured creditors (the Committee) and the Debtors major customers with extraordinary, daily, on-site access to the Debtors management, personnel, records, professionals and manufacturing operations. For instance, at the insistence of the Lenders, the Committee, the Debtors major customers and GECC, in excess of 50 representatives from the financial advisory firms representing creditor constituencies, including Capstone Advisory Group, LLC, BBK, Stout Risius Ross, Inc. (now Grant Thornton), Chanin Capital Partners LLC, Giuliani Capital Advisors LLC and Alvarez & Marsal, LLC, have maintained offices at one time or another during these cases at the Debtors corporate headquarters, and the Debtors estimate nearly that many financial advisors maintain offices at the Debtors headquarters currently! In addition, many of these firms have had professionals spend significant time during these cases at the Debtors manufacturing locations throughout North America. Every step of the way, each of the Debtors major creditor constituencies were kept advised of the Debtors progress and financial performance. Through monthly operating reports, regular court hearings with evidence regarding the Debtors issues and the Debtors open-door

For simplicity, references to the Lenders in this Objection refer to representatives acting on behalf of the Agent.

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policy in providing requested information, the UST has been, or should have been, well aware at all times of the status of these cases and the demands on all professionals. The Debtors are proud of their efforts to reorganize, much of which was insisted upon by the Committee and Third Avenue, and are confident that every reasonable effort was made to keep the enterprise intact, save jobs and maximize recoveries. Ultimately, however, in

October 2006, after further production cuts announced by the Debtors major customers and after intense negotiations with the Lenders, the Committee and the Debtors major customers regarding long-term supply arrangements proved unsuccessful, the Debtors, with the support of these constituencies, determined that the businesses should be sold rather than reorganized intact to maximize recoveries and save jobs. As the Court and parties in interest are well aware, the Debtors always maintained this option as part of their dual-track strategy and even maintained the option to sell in the Debtors plan of reorganization filed with the Court in August 2006. Accordingly, the Debtors major creditor constituencies the Agent, the unofficial steering committee (the Steering Committee) for the Lenders, the Committee and the Debtors major customers have agreed to support the Debtors chapter 11 plan that achieves just that. Now, in the denouement of these proceedings and months after Third Avenue filed its limited objections the UST seeks to ride Third Avenues coattails by seeking yet another broad hindsight analysis by an examiner, and ironically requests that such examiner have the ability to hire even more professionals in these cases. Indeed, the UST without so much as a telephone call at any time during these cases to the Debtors, the Committee or the Lenders to express any concern or to request any information with respect to the Debtors financial situation or the direction of these cases (other than with respect to monthly operating reports, to which the Debtors promptly responded) now seeks to expand on the allegations made by Third Avenue

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without any knowledge or basis whatsoever for doing so. The Debtors submit, however, that the UST has waived its right to now obtain an examiner as a result of its inactivity and silence throughout these cases. In any event, the relief requested in the Motion only will add more uncertainty and expense to these cases, thereby reducing the value of an already excessively burdened debtor. If the Motion is not denied, any remedy granted by this Court should be proportional to the perceived issue at hand. That is, if the Court should find that the appointment of an examiner is necessary, the examiner should be a fee examiner along the lines suggested by the Debtors, the Committee and the Agent that will facilitate an exit from these cases, not mire these cases down with more expenses and second-guessing. Further, any review performed by a fee examiner should be limited in scope to the review of final fee applications and limited to matters that are particular areas of concern. Background 1. On May 17, 2005 (the Petition Date), the Debtors filed their voluntary petitions

for relief under chapter 11 of the Bankruptcy Code, 11 U.S.C. 101-1330 (the Bankruptcy Code). 2. On June 9, 2005, the Court entered the Administrative Order Establishing

Procedures for Monthly Compensation and Reimbursement of Expenses for Professionals and Official Committee Members [Docket No. 290]. 3. On or about October 13, 2006, estate professionals filed their interim fee

applications for compensation and reimbursement for expenses for services rendered during the period of May 1, 2006 through August 31, 2006 (collectively, the Interim Fee Applications). 4. On or about November 8, 2006, Third Avenue filed objections (the Third

Avenue Fee Objections) to the Interim Fee Applications, objecting to such professionals fees 5
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and expenses and requesting the appointment of a fee examiner to review the fee applications filed by such professionals. 5. On December 14, 2006, the Court overruled the Third Avenue Fee Objections and

approved the Interim Fee Applications. The Court, however, reserved judgment on the issue of a fee examiner and requested that interested parties file a statement with respect to this issue. 6. On January 24, 2007, the Debtors filed the First Amended Joint Plan of Collins & On

Aikman Corporation and Its Debtor Subsidiaries [Docket No. 3976] (the Plan).

January 26, 2007, the Court entered an order approving the Debtors amended disclosure statement related to the Plan [Docket No. 3988]. Pursuant to this order, the Debtors commenced the solicitation process in connection with the Plan. The Plan is supported by the Agent, the Steering Committee, the Committee and the Debtors major customers. The hearing on

confirmation of the Plan is scheduled for April 19, 2007 (the Confirmation Hearing). 7. On February 20, 2007, the Debtors filed their statement with respect to the

appointment of a fee examiner [Docket No. 4166] (the Debtors Statement). Likewise, on February 20, 2007, the Committee and the Agent each filed its own statement with respect to the appointment of a fee examiner [Docket Nos. 4158 and 4159, respectively]. 8. On February 23, 2007 over 21 months into these cases, nearly four months

after Third Avenue filed the Third Avenue Fee Objections and 55 days prior to the Confirmation Hearing the UST filed the Motion.

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Argument A. The UST Waived Its Right to Obtain the Appointment of an Examiner 9. Courts are split on the issue of whether the appointment of an examiner under Regardless of whether

section 1104(c)(2) is mandatory or within the courts discretion.4

section 1104(c)(2) is mandatory or discretionary, however, a party in interest may waive its right to obtain the appointment of an examiner by its inaction during the bankruptcy case. See In re Bradlees Stores, Inc., 209 B.R. 36, 39 (Bankr. S.D.N.Y. 1997) (holding that creditor waived its right to seek the appointment of an examiner by its inaction); In re Schepps Food Stores, Inc., 148 B.R. 27, 30 (Bankr. S.D. Tex. 1992) (holding creditor may waive its right to an examiner where creditor first brought up appointment at disclosure statement hearing). Although the Bankruptcy Code states that the Court may appoint an examiner any time before a plan is confirmed, a creditor cannot use the provision to disrupt the proceedings. See In re Schepps Food Stores, 148 B.R. at 30. Indeed, the Bankruptcy Code is a careful attempt to protect the rights of creditors and debtor alike, while vesting the court with the authority to manage the process in a way that both protects those rights and efficiently concludes disputes and ends the bankrupt status, whether by reorganization or otherwise. Id. 10. Here, the UST appears to go even further than Third Avenue by seeking an

examiner not only to review fee applications filed by the estates professionals but also to
4 The Debtors acknowledge that the Sixth Circuit has held that the appointment of an examiner is mandatory if the conditions of section 1104(c)(2) are satisfied. See In re Revco D.S., Inc., 898 F.2d 498, 501 (6th Cir. 1990). The Debtors, however, submit that the circumstances in these cases differ from those presented in Revco. In Revco, the request for an examiner was made at the beginning of the case only two months after the bankruptcy filing. Indeed, the Sixth Circuit noted this fact and explicitly stated that it was not deciding the issue of whether last-minute demands for an examiner constitute abuse. See Revco, 898 F.2d at 501. In addition, the Debtors respectfully note that numerous courts outside the Sixth Circuit have reached a different conclusion, holding that the appointment of an examiner under section 1104(c)(2) is discretionary. See In re Rutenberg, 158 B.R. 230, 233 (Bankr. M.D. Fla. 1993) (denying appointment of examiner where it would cause further delay in the administration of the case); In re GHR Companies, Inc., 43 B.R. 165, 171, 175-76 (Bankr. D. Mass. 1984) (denying appointment of examiner because of costs); In re Shelter Resources Corp., 35 B.R. 304, 305 (Bankr. N.D. Ohio 1983) (stating courts do not have to slavishly and blindly follow so-called mandatory dictates of section 1104(c)(2)); see also In re SA Telecommunications, Inc. et al., Case Nos. 97-2395-2401 (PJW) (Bankr. D. Del. Mar. 27, 1998) (finding that section 1104(c)(2) is not mandatory and that the appointment of an examiner would not be in the best interests of creditors).

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examine the conduct of the Debtors management, the Committee and the estates professionals throughout these cases. This request is hollowly predicated upon the need to investigate, among other things, the progress of this case through chapter 11, with a particular emphasis on whether appropriate and timely decisions were made by debtors management, the creditors committee, and their professionals regarding whether the company should remain a going concern or should be liquidated. See Motion 13. The UST, however, makes its request without any actual knowledge or basis for doing so. Indeed, at no time since the filing of the Third Avenue Fee Objections or at any other period during these cases for that matter did the UST contact the Debtors, the Lenders or the Committee to express any concern with respect to the Debtors financial situation or the direction of these cases (other than with respect to monthly operating reports, to which the Debtors promptly responded). 11. Instead, the UST waited nearly four months after Third Avenue filed the

Third Avenue Fee Objections to file the Motion and sat in silence while: (a) the Debtors filed their Disclosure Statement and their Plan; (b) the Court approved the Disclosure Statement and scheduled the Confirmation Hearing; and (c) the Debtors initiated the solicitation process in connection with the Plan. 12. Accordingly, this Court should hold that the USTs silence and inactivity

throughout these cases and, particularly, within the last four months constitutes a waiver of its right to obtain an examiner. B. The Scope of an Examiners Investigation Should Be Limited 13. Even assuming this Court were to determine that the UST did not waive its right

to obtain an examiner, for the reasons set forth in more detail in the Debtors Statement, the

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Debtors respectfully submit that the appointment of an examiner in these cases is unnecessary, unfair and would only result in increased fees, expenses and administrative burden.5 Nevertheless, if the Court were to determine that an examiner is mandatory under section 1104(c)(2) or otherwise necessary in its discretion, the Debtors respectfully submit that it would be appropriate for the Court to limit the scope of the examiners investigation solely to the review of the final fee applications filed by the estates professionals and to matters of particular concern. Even where section 1104(c)(2) of the Bankruptcy Code has been held to be mandatory, the bankruptcy court retains broad discretion to direct the examiners investigation, including its nature, extent, and duration. In re Revco, 898 F.2d at 501. Specifically, section 1104(c)(2) states that the court shall appoint an examiner to conduct such an investigation of the debtor as is appropriate. See 11 U.S.C. 1104(c)(2) (emphasis added). 14. Here, it would be important for any examiner to review the work performed and

the professional fees incurred during these cases in the context of how these cases have proceeded. As the Debtors stated on the record at the December 14, 2006 hearing before this Court, these cases can fairly be divided into four phases. 15. The first phase consists of the Petition Date through October 2005. The Debtors

refer to this phase as the severe crisis period, during which time the Debtors filed their first day motions, obtained postpetition financing from their debtor-in-possession lenders and their major customers, hired a new management team, including a chief executive officer and other senior management executives, and renegotiated customer contracts for immediate price relief and other

In the interest of brevity, the Debtors will not restate here the full discussion set forth in the Debtors Statement and, instead, incorporate that argument herein by reference.

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related benefits. It was not until the end of this phase that the Debtors were in a realistic position to begin the development of a business and turnaround strategy. 16. The second phase ranges from the end of October 2005 through May 2006.

During this phase, the Debtors developed and implemented initiatives intended to generate operational improvements and cost savings and simultaneously began exploring various plan of reorganization alternatives. Specifically, after the Debtors completed the hiring of their new operating management team, management provided an initial financial forecast for 2006 and began to implement the Debtors business plan. With these initial projections in place, the Debtors, with the help of their investment bankers and other professionals, were able to begin the development of information memorandums and the pursuit of a dual track process for a plan of reorganization or M&A emergence. In April-May 2006, the Debtors began to get indications that the operational restructuring initiatives implemented and turnaround strategies pursued by the Debtors new operating management team were not generating the level of cost savings, revenue enhancements and cash flow improvements originally anticipated, and that, as a result, operating performance expectations needed to be revised downward. This meant that both the purchase offers that the Debtors were soliciting for a possible M&A transaction and the value of the enterprise under a stand-alone plan or with a new investment needed to be reassessed. 17. During the third phase of these cases from the summer of 2006 through

September 2006, the Debtors pursued a stand-alone plan of reorganization. This phase is of particular importance as it is the specific time period addressed by the Third Avenue Fee Objections. During this phase, the forecasted financials for 2006 were revised based upon the Debtors operational performance and continuing dramatic changes in the automotive industry. Based upon the updated forecasts, the Debtors received the final M&A bids, which came in

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lower than the Lenders secured debt. After much negotiating with the bidders and the Lenders, the Steering Committee informed the Debtors that it was not prepared to support or pursue any of the bids. The Lenders, however, indicated a willingness to sponsor a stand-alone plan if

acceptable long-term supply agreements could be negotiated with the Debtors major customers. Accordingly, the Lenders and the Debtors agreed to pursue the stand-alone plan of reorganization filed in August 2006, conditioned on the ability to reach agreements. At that point, the Debtors then conducted what they believed at the time to be the most arduous, extensive and exhaustive negotiations with the Lenders, the Debtors major customers and the Committee, attempting to secure long-term supply agreements with each of the Debtors major customers intended to decrease the Debtors operating risk profile, increase the prospects for a successful ongoing enterprise and allow the Debtors to pursue a stand-alone plan of reorganization. Ultimately, however, certain of the Debtors major customers were not willing to agree to the material, fundamental changes in the relationships outlined in the proposed long-term supply agreements that were required by the Debtors and the Lenders to pursue the stand-alone option, and the Debtors major customers were simultaneously announcing severe production cuts that further changed the Debtors economic prospects. As a result, the Debtors and their major creditor constituencies jointly concluded that, based on the current conditions in the automotive industry, the state of the Debtors businesses and the Debtors operating risk profile, pursuing a stand-alone plan of reorganization, while still possible, was a very high-risk proposition. Consequently, the Debtors and their major creditor constituencies jointly

determined that selling the Debtors businesses would preserve the most jobs and maximize recoveries.

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18.

During the final phase of these cases, from the middle of October 2006 to date,

the Debtors have been pursuing a one track exit strategy through a sale of the Debtors businesses. To that end, in November 2006, the Debtors successfully negotiated an agreement with the Agent, the agent for the Debtors senior, secured postpetition lenders and the Debtors major customers that, among other things, provides for a framework to facilitate the orderly sale of a majority of the Debtors businesses with the support of these constituencies (the Customer Agreement). In addition, as a result of the Customer Agreement, the Debtors

successfully negotiated and filed their Disclosure Statement and their Plan with the support of the Agent, the Steering Committee, the Committee and the Debtors major customers the major creditor constituencies in these cases. At the end of January 2007, this Court approved the Disclosure Statement and the Debtors initiated the solicitation process in connection with their Plan. The Debtors now are approaching the conclusion of these cases through the

implementation of the consensual sale process and the confirmation of their consensual Plan. 19. Throughout the phases of these cases, the Debtors actions and thought

processes were well known. Major actions, of course, required Court approval after a showing that the Debtors had exercised their reasonable business judgment. All parties in interest, including the UST, had the opportunity to object to any significant action and cross-examine the Debtors witnesses. In this context, as stated at the outset, the Motion is ill-conceived and can only delay emergence and impair the remaining value of the Debtors estates.

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Conclusion In light of the foregoing, the Debtors respectfully request that the Court deny the Motion and grant such other and further relief as is just and proper. Dated: March 9, 2007 KIRKLAND & ELLIS LLP /s/ Ray C. Schrock Richard M. Cieri (NY RC 6062) Citigroup Center 153 East 53rd Street New York, New York 10022 Telephone: (212) 446-4800 Facsimile: (212) 446-4900 -andDavid L. Eaton (IL 3122303) Ray C. Schrock (IL 6257005) Marc J. Carmel (IL 6272032) 200 East Randolph Drive Chicago, Illinois 60601 Telephone: (312) 861-2000 Facsimile: (312) 861-2200 -andCARSON FISCHER, P.L.C. Joseph M. Fischer (P13452) 4111 West Andover Road West - Second Floor Bloomfield Hills, Michigan 48302 Telephone: (248) 644-4840 Facsimile: (248) 644-1832 Co-Counsel for the Debtors

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