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 NUGAR, S.A. DE C.V.S MOTION FOR WRONG INCLUSION AS CREDITOR OF DURA CONVERTIBLE SYSTEMS INC. The above-captioned debtors (collectively, the Debtors) hereby submit this Objection (the Objection) to the Motion for Wrong Inclusion as Creditor of Dura Convertible Systems Inc. (the Motion) filed by Nugar, S.A. de C.V. (Nugar). In support thereof, the Debtors respectfully represent as follows. Introduction 1. On May 17, 2005 (the Petition Date), the Debtors filed their voluntary petitions for

relief under chapter 11 of the Bankruptcy Code.

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.

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2.

On or around August 10, 2005, Nugar filed the Motion seeking payment of certain

alleged prepetition obligations for raw materials ordered by the Debtors from Nugar pursuant to purchase orders and delivered to the Debtors facility located in Toluca, Mexico (the Toluca Plant). 3. The Debtors and Nugar have engaged in extensive conversations regarding the

Motion and have been unable to reach a mutually acceptable resolution of the relief requested by Nugar in the Motion.2 4. As set forth below, Nugar has failed to provide any basis for the payment of the

Debtors prepetition obligations outside of the context of these cases and the provisions of the Bankruptcy Code, 11 U.S.C. 101 - 330 (the Bankruptcy Code). Argument I. Nugar is a Creditor of the Debtors (a) The Purchase Orders Evidence that the Prepetition Obligations Asserted by Nugar Are the Debtors Obligations Despite the assertion in the Motion that Nugar was wrongly included as a creditor of

5.

the Debtors in these cases, Nugar is a creditor of the Debtors that is properly included in and covered by these cases. Section 101(10) of the Bankruptcy Code defines a creditor as an entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor. 11 U.S.C. 101(10). Based on the Bankruptcy Codes definition of a creditor and the following factors, Nugar is a creditor of Dura Convertible Systems, Inc. (Dura), one of the Debtors.

A letter transmitted by the Debtors to Nugar on August 24, 2005 is attached hereto as Exhibit B.

6.

First, Nugar is a party to blanket purchase orders3 entered into by and between Nugar

and Dura, on various dates preceding the Petition Date. The fact that the purchase orders constitute agreements entered into by and between Nugar and Dura is evidenced on the face of the purchase orders themselves. Specifically, the purchase orders are issued on the letterhead of Collins & Aikman/Collins & Aikman Products Co. Further, the purchase orders are issued in the name of Dura, as purchaser, with Duras Michigan address listed as the purchasers address, and Nugar as supplier. With respect to the reference to the Toluca Plant on the purchase orders, the purchase orders state that the Toluca Plant is the ship to address. In sum, a plain reading of the purchase orders indicates that the purchaser of the raw materials is Dura and the location where such materials are to be delivered is the Toluca Plant. 7. Second, and consistent with the information set forth by the Debtors in the purchase

orders, invoices4 issued by Nugar for the materials sold to the Debtors under the purchase orders indicate that such materials are sold to Dura and shipped to the Toluca Plant. Specifically, the sold to field on each invoice clearly states that that the materials are sold to Dura, whereas the ship to field on each invoice states that such materials are merely shipped to the Toluca Plant. 8. Third, assuming that the allegations made in the Motion and the representations

made during the above-referenced discussions among the Debtors and Nugar are true and correct with respect to the amounts owed to Nugar for materials sold to Dura, which the Debtors do not concede, Dura is indebted to Nugar for approximately $117,000 on a prepetition basis. 9. Accordingly, the Debtors assert that based on the reasons described above, among

others, the purchaser of the materials sold by Nugar under the purchase orders is Dura and the

3 4

The purchase orders are included as exhibits 17 to 20 to the Motion. The invoices are included as exhibits 12 to 16 of the Motion.

Toluca Plant is nothing more than the location where Nugar is instructed to deliver the goods purchased by Dura. 10. Finally, it should be noted that, for the reasons explained below, there is no factual or

legal basis for Nugars assertion in the Motion that Dura is the creditor that should be included in these cases for the products that Nugar delivers to the Toluca Plant. (b) Goods Purchased by the Debtors from Nugar are Delivered to the Toluca Plant Because of the Toluca Plants Role as a Contract Manufacturer Notwithstanding the allegation in the Motion that Dura is listed as the purchaser on

11.

the invoices prepared by Nugar for VAT tax purposes, the reason that Dura is listed as the purchaser on the invoices and the purchase orders, is that Dura is, on the one hand, the purchaser and owner of the materials, while the Toluca Plant, on the other hand, provides the Debtors with competitively priced contract manufacturing services, and ancillary accounting and bookkeeping functions5 related to such manufacturing services, pursuant to Mexicos maquiladora regime.6 12. As a wholly-owned maquiladora facility organized by the Debtors, the Toluca Plant

has neither an independent purpose beyond manufacturing raw materials into components for the

Due to the logistical difficulties associated with verification of shipments, rejection of unacceptable materials, and the associated accounting and payment activities associated with processing payments for materials delivered to a third-party located thousands of miles away, the Toluca Plant also performs such ancillary functions for the Debtors. The performance of such ministerial accounting, bookkeeping, and inventory maintenance functions by the Toluca Plant on behalf of the Debtors is consistent with the limited functions that may be performed by a maquiladora pursuant to the maquiladora regime and to the Toluca Plants role as a contract manufacturer. A maquiladora is a Mexican corporation, wholly or predominantly owned by foreigners (i.e. non-Mexican individuals or entities), which ordinarily exports all of the products it manufactures. Each maquiladora operates under a maquila program approved by the Mexican Secretariat of Commerce and Industrial Development pursuant to the provisions of article 89(1) of the Political Constitution of the United Mexican States. See Morales, Aguilera, & Armstrong, An Overview of the Maquiladora Program, United States Department of Labor Bureau of International Labor Affairs at http://www.dol/gov/ilab/media/reports/nao/maquilad.htm (last visited June 16, 2005) (DOL); see also Rangel v. Dept of Revenue, 25 P.3d 745, 746 (Ariz. Ct. App. 2001) (same). The maquiladora concept is effectuated in its current form under the North American Free Trade Agreement (NAFTA). Maquila programs allow foreigners to temporarily import machinery, equipment, parts and materials, administrative equipment and communications devices, on a duty-free basis, subject only to posting a bond guaranteeing that such goods will not remain in Mexico permanently. See Chemical Waste Management, Inc. v. Templet, 770 F. Supp 1142,1144 n.3 (M.D. La. 1991) (Maquila operations involve the importation of foreign merchandise into Mexico on a temporary basis, where it is assembled, manufactured or repaired and then exported, either to the country of origin or to a third party.); see also DOL. Non-Mexican companies, such as the Debtors, use maquiladoras to reduce manufacturing costs by using competitively priced Mexican labor to assemble, process, or perform manufacturing operations for products that do not typically remain in Mexico. With respect to the Toluca Plant specifically, the Debtors purchase and supply the Toluca Plant with raw materials that are assembled into components that are returned to the Debtors and used in the Debtors production of specialty automotive components. Maquiladoras are used extensively by other automotive suppliers and manufacturers in the United States.

Debtors nor a use for the products that it assembles for the Debtors. Accordingly, the purchase orders are entered into between Nugar and the Debtors, and not between Nugar and the Toluca Plant. 13. Based on the debtor-creditor relationship that exists between Dura and Nugar, as

described above, and the owner-contract manufacturer relationship that exists between Dura and the Toluca Plant, the Debtors hold legal title to all raw materials purchased from Nugar and delivered to the Toluca Plant. Similarly, the Debtors hold legal title to all raw materials processed by the Toluca Plant prior to the return of such processed materials to the Debtors. 14. Further, the terms of the maquila documentation7 indicate that raw materials that are

purchased by Dura from Nugar and delivered to the Toluca Plant are imported temporarily to the Toluca Plant.8 Such raw materials are, thus, owned by Dura and constitute assets of the Debtors estates. Conversely, the Maquila Documentation indicates that the prepetition debts owed to Nugar, are owed by the Debtors, not the Toluca Plant. II. The Debtors Are Not Authorized to Pay Their Prepetition Debts to Nugar 15. For the reasons set forth above, any amounts owed by the Debtors to Nugar for raw

materials supplied prior to the Petition Date constitute prepetition debts that the Debtors are not authorized to pay absent an order from this Court. Although the Debtors have authority to make payments to specific, limited categories of claimants pursuant to certain First Day Orders, none of the First Day Orders authorize the Debtors to pay Nugars prepetition debts. III. Nugars Continued Attempts to Collect a Prepetition Debt from the Debtors is a Violation of the Automatic Stay

Programa de Maquila de Exportacin, Registro Maquila No. 2001-1238 [Maquila Exportation Program, Maquila Registration No. 2001-1238], Toluca, Mex., April 17, 2001 [hereinafter Maquila Documentation]. See Maquila Documentation at 2 (el titular podr importar temporalmente los bienes correspondientes a la(s) fraccin(es)) [stating that the Toluca Plant may temporarily import the goods relating to the approved exporting activities].

16.

For the reasons set forth above, the Debtors believe that Nugars knowing, willful,

and continued attempts to collect prepetition debts and accounts receivable allegedly owed to Nugar constitute a violation of the automatic stay provisions of section 362 of the Bankruptcy Code. Under section 362(a)(3) of the Bankruptcy Code, the filing of a chapter 11 petition operates as a stay, applicable to all entities, of any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate. 11 U.S.C. 362(a)(3). The Debtors reserve all of their rights with respect to Nugars actions.9

The Debtors also note that the Motion does not appear to have been served as required under the First Amended Notice, Case Management and Administrative Procedures [Docket No. 294], entered on the docket on June 15, 2005. The Debtors reserve all rights with respect to this failure.

17.

WHEREFORE, the Debtors respectfully request an entry of an order, substantially in

the form attached hereto as Exhibit A, (a) denying the relief requested in the Motion and (b) granting such other further relief as is just and proper. Dated: August 25, 2005 KIRKLAND & ELLIS LLP /s/ Marc J. Carmel 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) 300 East Maple Road, Third Floor Birmingham, Michigan 48009 Telephone: (248) 644-4840 Facsimile: (248) 644-1832 Co-Counsel for the Debtors

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EXHIBIT A

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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

ORDER DENYING RELIEF REQUESTED IN NUGAR, S.A. DE C.V.S MOTION FOR WRONG INCLUSION AS CREDITOR OF DURA CONVERTIBLE SYSTEMS INC. Upon the objection (the Objection)2 of the above-captioned debtors (collectively, the Debtors) to the Motion for Wrong Inclusion as Creditor of Dura Convertible Systems Inc. (the Motion) filed by Nugar, S.A. de C.V.; it appearing that the relief requested in the Objection is in the best interest of the Debtors estates, their creditors and other parties in interest; it appearing that the Court has jurisdiction over this matter pursuant to 28 U.S.C. 157

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. 0555991; 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. 0555964; 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. Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Objection.

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and 1334; it appearing that this proceeding is a core proceeding pursuant to 28 U.S.C. 157(b)(2); it appearing that venue of this proceeding and this Objection in this District is proper pursuant to 28 U.S.C. 1408 and 1409; and after due deliberation and sufficient cause appearing therefor, it is hereby ORDERED 1. 2. The Motion is denied in its entirety. The terms and conditions of this Order shall be immediately effective and

enforceable upon its entry. 3. The Court retains jurisdiction with respect to all matters arising from or

related to the implementation of this Order.

Dated: __________________, 2005 United States Bankruptcy Judge

2
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EXHIBIT B

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