In re Lifeguard Industries, Inc.

Lifeguard Industries, Inc. (Lifeguard) (debtor) was an aluminum-siding manufacturer founded by Louis and Joseph Guttman. As of 1980, Lifeguard’s board of directors consisted of Joseph’s son Fred Guttman; Joseph’s daughter Shirley Onie; and Joseph’s widow, Marion Guttman. All three owned shares of Lifeguard, and Fred was also Lifeguard’s president, secretary, and chief operating officer. Lifeguard began suffering financial troubles and filed for Chapter 11 bankruptcy in 1982. In 1983, Fred caused Lifeguard to file a proposed reorganization plan that left Fred and Lifeguard’s vice presidents of marketing and manufacturing, Louis Epstein and James Wendell, as the only shareholders. Shirley and Marion sought to protect their interests by electing new directors at a shareholder meeting. The bankruptcy court allowed the shareholder meeting to proceed but required the newly elected board to seek approval of any proposed changes to Lifeguard’s management personnel or operating procedures. Following the shareholder meeting and vote, Lifeguard’s new directors were Shirley, Gary Sycalik, and John Hevener. The new directors sought the court’s approval to change Lifeguard’s management structure by ousting Fred and installing Sycalik as president, Hevener as secretary, and Shirley as treasurer. The new directors proposed leaving Epstein and Wendell, who were both highly qualified, in their same employment positions. However, Epstein and Wendell expressed that they would likely leave Lifeguard if Fred were ousted. None of the new directors had any industry knowledge or knowledge of Lifeguard’s business, none of them planned to invest their own assets to assist Lifeguard during the bankruptcy, and none of them had a plan for operating Lifeguard. Additionally, Hevener and Sycalik expected to be paid for their services and also proposed paying for a crisis-management team of consultants. In seeking approval of the proposed changes, the new directors argued that Fred had mismanaged Lifeguard to the point that it was no longer a viable company. However, evidence before the bankruptcy court suggested that Fred had been trying hard to turn around Lifeguard’s business, including cutting operating costs, cutting his own salary, and refocusing Lifeguard’s operations on vinyl siding. Lifeguard was expected to show a profit based on those efforts. The bankruptcy court considered the arguments and evidence and decided whether to allow the new directors to take over Lifeguard’s day-to-day operations.