UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION In re: ) ) ) COLLINS & AIKMAN CORPORATION, et al.

) ) ) Debtors in possession ) Chapter 11 Case Number 05-55927 (SWR) Jointly Administered

Honorable Steven W. Rhodes

OBJECTION OF THE STATE OF NEW HAMPSHIRE DEPARTMENT OF ENVIRONMENTAL SERVICES TO DEBTORS DISCLOSURE STATEMENT FOR THE FIRST AMENDED JOINT PLAN OF COLLINS & AIKMAN CORPORATION AND ITS DEBTOR SUBSIDIARIES The State of New Hampshire Department of Environmental Services (the State of New Hampshire), by its attorneys, the Office of the Attorney General, hereby objects to the Disclosure Statement for the First Amended Joint Plan of Collins & Aikman Corporation and Its Debtor Subsidiaries (the Disclosure Statement). The State objects because the Disclosure Statement does not provide adequate information concerning the Debtors intention with respect to their responsibility for and the disposition of certain environmentally contaminated sites in New Hampshire owned or operated by the Debtors. In addition, the Disclosure Statement does not provide sufficient information to creditors such as the State of New Hampshire concerning the dividend they might expect from the plan. In support hereof, the State respectfully represents as follows: A. 1. The Debtors Owned and Operated Sites In New Hampshire The Debtors, through debtor subsidiaries, own and/or operate sites located in

Farmington, New Hampshire and Dover, New Hampshire, which include the Farmington Plant, the Cardinal Landfill, and 16 & 74 Industrial Park, Dover (the Debtor Sites).

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The Debtor Sites are contaminated by hazardous wastes released into the soil

and groundwater originating in the Debtors manufacturing processes. The wastes, in general terms, consist primarily of chlorinated solvents, their by-products, and dense nonaqueous phase liquids also known as DNAPL, but also include other compounds. 3. At the Farmington Plant site, the Debtor, Collins & Aikman Automotive

Interiors, Inc. (C&A Interiors), is the holder of a groundwater management permit, which requires ongoing groundwater monitoring and other remedial activities. 4. At 16 and 74 Industrial Park, C&A Interiors has been directed by the State of

New Hampshire to perform certain remedial activities, which order has not yet been complied with by the Debtors. 5. At the Debtors Cardinal Landfill site, the Debtors are required to operate a

soil vapor extraction system, which protects residents of a nearby manufactured housing community from gases emanating from the Debtors landfill. The Debtors are also required to design and implement a groundwater remedial action plan, maintain a groundwater management zone, meet objective groundwater quality criteria, and prevent degradation of adjacent surface water and a municipal water supply well. B. Requirements For a Disclosure Statement.

Before a plan proponent may solicit acceptance to a proposed Chapter 11 plan, it must first prepare a disclosure statement, which must be approved by the court. Bankruptcy Code 1125(b). A disclosure statement may not be approved if it does not contain adequate information. Id. Adequate information means information of a kind and in sufficient detail as far as reasonably practicable in light of the nature and history of the debtor and the condition of the debtors books and records that would enable a hypothetical reasonable
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investor typical of holders of claims or interests of the relevant class to make an informed judgment about the plan. Bankruptcy Code 1125(a)(1). Courts review the adequacy of disclosure statements using nineteen factors as a yardstick. See In re Cardinal Congregate I, 121 B.R. 760, 765 (Bankr. S.D. Ohio 1990); In re Malek, 35 B.R. 443 (Bankr. W.D. Mich. 1983). Among the factors relevant to the State of New Hampshires interests are: (3) the anticipated future of the debtor, (7) information regarding claims against the estate, (8) a liquidation analysis, and (16) the actual or projected value that can be obtained from avoidable transfers. Cardinal Congregate, 121 B.R. at 765. The Debtors Disclosure Statement should contain all material information relating to the risks posed to the State of New Hampshire under the Debtors plan and how the plan will affect the States rights. Id.; Malek, 35 B.R. at 444. C. The Debtors Disclosure Statement Does Not Describe What It Intends To Do With Respect to the Debtors Obligations for the New Hampshire Sites.

The Debtors Disclosure Statement describes a plan that will vest unsold assets other than the Debtors Chapter 5 claimsin the Post-Consummation Trust. Disclosure Statement at 48. The specific terms of the Post-Consummation Trust have not yet been disclosed. The Debtors Chapter 5 claims will vest in the Litigation Trust. Id. at 49. The expenses of the Post-Consummation Trust are to be determined by an undisclosed budget but are described in general terms in the Disclosure Statement. Id. As set forth in the State of New Hampshires objection to the Debtors motion to approve the Customer Agreement, the Debtors liabilities for environmental compliance at the Debtor Sites are entitled to administrative expense status. See In re Wall Tube & Metal Prods. Co., 831 F.2d 118, 121 (6th Cir. 1987). Moreover, neither the Debtor, nor the trustee
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of the Post-Consummation Trust is entitled to disregard the environmental laws of the State of New Hampshire or the requirements of the Debtors environmental permits. 28 U.S.C. 959(b); In re Wall Tube & Metal Prods. Co., 831 F.2d at 122 (trustee cannot maintain or possess property of the estate in continuing violation of environmental laws); see also Midlantic Natl Bank v. New Jersey Dept. of Envtl. Protect., 474 U.S. 494, 501 (1986) (bankruptcy does not provide general exemption from state environmental laws). The State of New Hampshire cannot determine from the Disclosure Statement with any certainty whether the Post-Consummation Trust will pay the expenses associated with the Debtor Sites in New Hampshire that are not sold prior to the effective date of the plan. It is clear, however, that the Debtors themselves do not intend to continue paying these expenses after the Debtors plan is confirmed. See Stipulation Between Debtors and State of New Hampshire, dated January 10, 2007 [doc. No. 3878] at 2. Thus, the State of New Hampshire cannot determine whether the Post-Consummation Trust will pay the proper expenses associated with the Debtor Sites, or if instead, the State of New Hampshire will be faced with covering those costs. This latter situation would constitute an impermissible constructive abandonment. The State of New Hampshire also cannot determine what the Debtors future plans are for the ultimate disposition of the Debtor Sites. See Cardinal Congregate, 121 B.R. at 767. If the Debtor Sites are not sold prior to the effective date it appears that the Debtor Sites vest in the Post-Consummation Trust. Assuming the Debtor Sites do vest in the PostConsummation Trust, then what? It appears that the trust will hold the Debtor Sites until they are sold or five years. But what happens to the Debtor Sites if the Post-Consummation Trust does not sell them within five years? Will the Post-Consummation Trust continue
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indefinitely managing the Debtors environmental responsibilities for the Debtor Sites on Court granted extensions? The trust itself will not have powers of abandonment outside of bankruptcy; will the trust eventually resort to bankruptcy and seek to abandon the unsold Debtor Sites pursuant to Bankruptcy Code 554? If this is what is contemplated then the Debtors Plan should not be confirmable because this methodology is not anywhere proposed in the plan. Bankruptcy Code 1129(a)(11); Debtors Plan, Art. VIII (H) (trust will terminate by fifth anniversary unless extended as necessary to complete liquidation or distribution). If the Debtors Plan is not confirmable, the Disclosure Statement should not be approved. See In re Beyond.com Corp., 289 B.R. 138, 140 (Bankr. N.D. Cal. 2003). If neither of these possibilities is what is contemplated, then the ultimate disposition of assets that cannot be sold by the trust is an unknown. Adequate disclosure should not include such enigmas. D. The Disclosure Statement Does Not Provide Sufficient Information For Creditors To Estimate Their Possible Dividend

The Disclosure Statement describes that the Debtors plan will vest the Debtors Chapter 5 claims in the Litigation Trust, which will liquidate those claims and make distribution to unsecured creditors. Disclosure Statement at 49-50. The Disclosure Statement indicates that the Debtors made approximately 96,000 payments totaling approximately $618 million to different entities during the preference period. Disclosure Statement at 27. The recoveries of these payments will make up the property to be distributed among the Debtors $42.6 billion in unsecured claims. Disclosure Statement at 28. In addition, while the Debtors stress that they believe that unsecured claims can be reduced through objections to $539 million, none of the numerous assumptions that form
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the basis for the Debtors estimated 79-fold decrease in the presumptively valid filed claims are set forth in the Disclosure Statement. See id.; 11 U.S.C. 502(a); Cardinal Congregate, 121 B.R. at 767 (disclosure statement should clearly identify all assumptions used in calculating bottom line for creditor recovery). Moreover, if the return on the Chapter 5 claims is no more than a conservative 10%, the dividend for unsecured creditors will be miniscule. Regardless of whether the unsecured claims are $539 million, 79 times higher, or somewhere in between, the basic problem remains: creditors holding unsecured claims cannot determine from this Disclosure Statement whether they will get 4/10ths of one cent on the dollar or something else, because there is nothing describing the recoverable value of the Chapter 5 claims. See Cardinal Congregate, 121 B.R. at 767. WHEREFORE, the State prays that this Court enter an order denying the approval of the Disclosure Statement and granting such other and further relief as may be just. Respectfully submitted, STATE OF NEW HAMPSHIRE DEPARTMENT OF ENVIRONMENTAL SERVICES KELLY A. AYOTTE ATTORNEY GENERAL Date: January 16, 2007 /s/ Peter C.L. Roth Peter C.L. Roth Senior Assistant Attorney General Environmental Protection Bureau 33 Capitol Street Concord, New Hampshire 03301-6397 (603) 271-3679