In a bankruptcy court filing, U.S. Trustee Kelly Beaudin Stapleton asked the court to fire the management of subprime lender New Century Financial and replace it with a trustee.
Stapleton maintained that management’s failure “to ensure accurate financial accounting and to institute adequate internal controls” is sufficient cause for such an appointment, according to Reuters. Under bankruptcy law, the wire service noted, a trustee can be appointed “for cause including fraud, dishonesty, incompetence or gross mismanagement,” before or after a bankruptcy case begins.
New Century filed for Chapter 11 protection earlier this month.
According to the report, Stapleton also asserted that New Century’s announcements in early February that it would need to restate prior results due to rising loan defaults “clearly reflect that New Century’s board of directors and executive officers failed properly to fulfill their fiduciary roles.”
Stapleton reportedly moved that if the court does not install a trustee, that it appoint an examiner for New Century. “An examiner’s report on those irregularities…will enable the court and parties in interest to evaluate the genesis of those irregularities and to identify the persons against whom the estate might have claims or rights of action,” Stapleton wrote, according to the Associated Press.
An examiner generally has fewer powers than a trustee, Reuters noted, but he or she still can investigate possible misconduct when it is in the creditors’ interest or when the debtor owes more than $5 million.
“The company strongly disagrees with the motion, because it is unnecessary and potentially disruptive to its efforts to maximize the value of its assets for the benefit of creditors and shareholders,” New Century spokeswoman Laura Oberhelman told Reuters.