WEBSTER CITY - Webster City officials said Friday they are "working vigorously" to recoup a $790,000 economic development loan that a Webster City manufacturer planned to use to assemble electric cars.
City Manager Ed Sadler said the city has hired special legal counsel to address its interests in the bankruptcy filed by Joe Fleming, owner of the defunct Auto Manufacturing Systems Inc.
Fleming filed a Chapter 7 personal bankruptcy on April 2 in the U.S. Bankruptcy Court of the Southern District of Iowa. Fleming and his wife, Marjorie, of Fort Dodge, listed four solely owned businesses in the bankruptcy documents: AMS Inc.: Eagle Manufacturing Inc., doing business as Tour Designs Ltd.; Access Media Ltd.; and Drive Tek Inc.
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Car chassis for electric cars rolled into Webster City in August 2010 after Auto Manufacturing Systems Inc. was awarded the contract to assemble the vehicles. AMS owner Joe Fleming recently filed for bankruptcy and the city of Webster City is one of the creditors listed. Fleming had received a $790,000 economic development loan from the city.
The purpose of a Chapter 7 bankruptcy, according to court documents, is to discharge debts. It is a liquidation of assets, rather than a reorganization of debt.
The filing documents list Fleming's total assets of $426,017 with total liabilities of $1,776,721.28. Sixty-six creditors are listed in the document.
Sadler said the city has been involved in meetings pertaining to the bankruptcy filing.
"We did attend the meeting with the trustees and have retained special legal counsel for this," Sadler said. "Yes, we have collateral for the loan. The attorneys we have hired are, indeed, going through the paperwork for the collateral. We will have lots of things to check into and investigate."
Sadler said it's too early to predict how much of the funds will be recovered.
"We will have things to look at with the trustees, the attorneys for the Flemings. There will be things to sort out, as this is a personal filing. He was the sole owner of many businesses, so those assets count towards it," Sadler said.
"We do have collateral in the form of equipment and buildings," he said, adding that the city is second in line to United Bank of Iowa in terms of creditors.
"We didn't go into this with nothing. Whether or not we retrieve all $790,000 worth of assets, I don't know. It's too early to tell."
Sadler said the city is "working vigorously to protect its interests" in the matter.
The impact of this transaction could have some bearing on how future loans are handled, he said.
"I think this has to affect how we handle future economic development loans," said Sadler. "But what I hope it doesn't do is make us go hide."
When major corporations and industries move into a city, they likely are not looking for cash, he said, but rather seek out land, incentives and tax credits. Smaller industries and businesses are doing that, he said.
"There is always risk to get industry and businesses here. There is a certain level of risk," according to Sadler.
Looking at Webster City's history, the city manager said the community was built on those many small homegrown businesses.
"Webster City was never a city of corporate giants. It was always a city of entrepreneurs who started their own businesses. Of course, eventually, they may have grown big enough for someone else to buy them," Sadler said. "Naden's, Nissen's, Vantec, Tasler's, Van Diest, Webster City Products, Beam Industries - all of them homegrown businesses.
"That is our history and it's probably our future," he said.
Sadler said the city will always try to minimize its risk and do its homework with economic development loans.
"I think it will come out that there were some external reasons for what happened here," he said.
"There is a lot more to this than will meet the eye for anyone who just looks at a bankruptcy filing," Sadler said. "It's a lot like an iceberg. The part you see is very small."
Some history
Fleming and the city jointly announced in July 2010 that Auto Manufacturing Systems Inc. - Fleming's company - had signed an agreement with EnVision Motor Co., of Ames, to assemble a line of all-electric cars. At that time, Fleming said he hoped to bring as many as 300 jobs to the community by the second quarter of 2011.
That didn't happen.
Fleming said in a December 2010 interview that his company had been plagued by delays due to the unavailability of parts and design concerns with the battery system.
In April 2011, Electric Motor Cars of Iowa took AMS Inc. and Fleming to court to retrieve the 46 car chassis that were delivered to Webster City for assembly. A Hamilton County District Court judge ruled that the chassis, valued at an estimated $876,850, would stay in Webster City in Fleming's hands.
"(The ruling) was certainly good news," Fleming said then. "It's kind of like winning the battle, but the war goes on."
Webster City's City Council initially awarded $300,000 to AMS in August 2010. The term of the loan was for 18 months. In January 2011, the Council granted an additional $490,000 to DriveTek Iowa, formerly known as AMS Inc. The loan was to come due in six months and the company offered up equipment and buildings as collateral.
An extension of that loan was approved in August 2011, making the note due on Feb. 1, 2012.
In October 2011, Fleming announced a new focus for his business - producing electric scooters and pontoon boats.
The Council approved a one-month extension on the note earlier this year, setting the due date at March 1. City officials said in a January memo to the Council that they continued to receive updates from Fleming on Drive Tek Iowa's progress, but that the company "continued to be impacted by outside factors."
When no payment was received in March, the Council on March 19 directed City Attorney Gary Groves to write a letter to Drive Tek Iowa concerning the past due note. At the time, Sadler said he hoped the company would make the payment within 30 days or make a better proposal to the council.
Two weeks later, Fleming filed for bankruptcy.