Federal bankruptcy officials asked a federal judge to dismiss the Chapter 11 application for protection from creditors filed by Sherman Industry Inc., the Westbury geothermal heating and cooling installation company that lost licenses to operate on Long Island after dozens of consumer complaints.
As an alternative to dismissal, the office of United States Trustee William K. Harrington asked federal bankruptcy court judge Alan S. Trust Monday to convert the filing to Chapter 7, in which the company simply sells off all its assets, with the proceeds going to creditors in a process overseen by a judge. Chapter 11 allows a company to reorganize its finances and continue operating. The company's filing was on June 25.
The application filed in federal court in Central Islip by an attorney for the U.S. trustee said, "Since the filing of this Chapter 11 case, the debtor [Sherman] has failed to provide any financial information to the United States trustee . . . [and] has failed to demonstrate to the court and the trustee that it has either the means or the desire to proceed toward a successful reorganization."
The application also noted that Sherman's filing shows zero balance in a legally required escrow account that should contain more than $2 million in customer deposits for work. It also mentioned allegations by homeowners that Sherman has sold assets since filing for Chapter 11 without required bankruptcy court approval.
Attorneys representing Sherman did not return telephone calls seeking comment, but, in an amended Chapter 11 filing Monday they said the company is 100 percent owned by Thomas Hancock Sr., not Thomas Sherman Sr., as previous papers had indicated.
On Friday, an overflow crowd of aggrieved homeowners, some of their attorneys and Sherman employees appeared at the Central Islip courthouse for a meeting at which the Office of the Trustee and the homeowners and other creditors were to question company officials. But the company's owner, then listed in court papers as Thomas Sherman Sr., did not appear on the advice of counsel, and the session was adjourned until Aug. 8.
Separately, an attorney for a Sherman customer, Eileen Doherty of Huntington Station, is seeking class-action status for a suit filed in state Supreme Court in Riverhead against Sherman executives, claiming they violated state law by diverting money, including about $11,000 of hers that should still be in escrow.
Her lawyer, Karl J. Silverberg of Central Islip, said he probably will file Friday or next week formal papers seeking to represent a class of Sherman customers in similar circumstances.