NEW YORK — One can’t accuse Charles Conaway, Kmart’s one-time chairman and chief executive officer, of a lack of nerve.
This story first appeared in the February 10, 2003 issue of WWD. Subscribe Today.
Conaway, who appeared to be Kmart’s savior before coming to be regarded as the bankrupt discounter’s nemesis, is seeking financial assistance from his former employer’s insurer to help him pay his legal bills.
The request was filed with the Chicago bankruptcy court last week.
Once a company files for Chapter 11, as Kmart did on Jan. 22, 2002, bankruptcy procedures require the court overseeing the case to put on hold — referred to as the automatic stay — all other legal actions until the restructuring is completed. In order for Conaway to get paid proceeds from the policies, the bankruptcy court has to “lift” the stay to allow his claim to proceed.
According to court documents, National Union Fire Insurance Co. is the primary insurer under the policies held by Kmart for directors’ and officers’ liability insurance. The face value of the policies totals $200 million.
Kmart spokesman Jack Ferry said: “It would be inappropriate for Kmart to comment on the Conaway filing at this time.”
Conaway said in his request that National doesn’t object to paying on the claim so long as the bankruptcy court approves.
The former ceo also said: “These payments are vital to Conaway’s effective defense of litigation and of other threatened claims in connection with his service to Kmart as its chairman and ceo.”
Conaway was hired as chairman and ceo on May 31, 2000. He held both positions until Jan. 17, 2002, when James B. Adamson replaced him as chairman. Conaway relinquished the ceo spot and his membership on the board when he left Kmart on March 11, 2002.
Conaway is currently a defendant to a consolidated shareholder class-action lawsuit pending in a Detroit federal court and to an employee class-action lawsuit involving a pension claim, also in Detroit. Kmart is not a party to either lawsuit.
Conaway was also the sole defendant in a third case involving Softbank Technology Ventures Fund, which was dismissed last month by a Detroit federal court judge.
The former ceo is seeking the benefit from the insurance policy to pay for his defense in the three actions, as well as for legal representation in connection with testimony still to be provided in a pending investigation by the Securities and Exchange Commission, according to court papers.
The court document he filed does not request financial assistance for legal representation in connection with either of the two ongoing investigations, one by the Federal Bureau of Investigation in Detroit and the other by Kmart’s board.
At present, no criminal indictments have been issued against Conaway.
According to Kmart’s reorganization plan on file with the Chicago bankruptcy court, former senior executives benefited at the expense of the company, such as from the use of company jets for personal travel.
Some of the same executives, who remained anonymous in the court filing because of the continuing investigation, allegedly knew about the company’s pending cash shortage, but kept mum.
They also reportedly squeezed vendors for more concessions, failed to pay them for merchandise received and inflated projections to give others a picture of a retailer free of financial distress.