JACKSON, Miss. (AP) - The state of Mississippi is trying to force biofuel maker KiOR into liquidation, setting up a confrontation with one of Silicon Valley’s most prominent venture capitalists.
KiOR filed for Chapter 11 bankruptcy reorganization last year, with plans for controlling shareholder and financier Vinod Khosla to buy what’s left of the company using a new affiliate.
But the Mississippi Development Authority said that is an inappropriate attempt to reduce the amounts that other debtors might get while allowing the owners to keep the company. In court papers filed Dec. 23 in U.S. Bankruptcy Court in Wilmington, Delaware, MDA asked a judge to convert the case to Chapter 7 bankruptcy liquidation.
The state agency said remaining value is being drained by continuing losses, and that KiOR’s proposed plan to exit bankruptcy would leave other creditors with little.
“The Khosla parties utilize their control over the debtor to act as judge, jury and executioner to deny whatever value might otherwise have been available to the arm’s-length creditors of this estate, while taking the assets of the debtor for themselves,” lawyers for MDA wrote in court papers. “The motive here is not hidden - this is how their actual plan works.”
Khosla, a co-founder of Sun Microsystems who went on to become a billionaire venture capitalist, made a series of investments in alternative energy, including KiOR. He wants to continue pursuing the technology, and the proposed exit plan would take KiOR private. He did not immediately respond to requests for comment Tuesday, but lawyers for the state are scheduled to depose Khosla on Wednesday in East Palo Alto, California.
The Mississippi Development Authority, or MDA, said KiOR’s Mississippi subsidiary, which hasn’t declared bankruptcy, owes it $79 million. The parent company, based in Pasadena, Texas, has not acknowledged that debt. While MDA holds a mortgage on the plant KiOR built in Columbus, Mississippi, it is an unsecured creditor of the parent company.
KiOR meant to make fuel from wood chips. But the $230 million plant never worked as designed. Mississippi is now trying to find a buyer for the complex on the Tombigbee River just west of downtown Columbus. It’s possible that the only money Mississippi will recover will come from the sale of the plant.
MDA says Khosla is misusing the bankruptcy code by proposing to loan more money to KiOR while it’s in Chapter 11, allowing Pasadena Investments to create “false currency” to put it first in line to buy the assets at a court-supervised auction.
MDA calls on the judge to liquidate the company, or alternatively to dismiss the case, saying KiOR has no viable business to preserve, and thus a Chapter 11 reorganization is improper.
“After hundreds of millions of dollars spent and years of effort, the debtor has failed to produce any commercially marketable product,” the authority wrote. “The provisions of Chapter 11 cannot and will not make their failed technology successful, and accordingly this case does not preserve or maximize any value for legitimate shareholders that would be threatened outside of bankruptcy. Rather, the Khosla parties intend on continuing what is essentially a high-risk venture capital scheme for the benefit of the Khosla parties - at the expense of the arm’s-length creditors of the estate.”
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