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CHARLESTON, W.Va. — A federal judge on Tuesday told lawyers for Freedom Industries to simplify a disclosure statement meant to explain the bankrupt company’s current finances to its creditors, including thousands of residents seeking payments related to the January 2014 chemical leak at Freedom’s Elk River terminal.

U.S. Bankruptcy Judge Ronald Pearson declined to immediately approve the latest version of Freedom’s 35-page disclosure statement, saying it was “almost unintelligible” and would not make sense to residents who have filed claims in the company’s ongoing liquidation proceeding.

“We’re going to need to see some clarification,” Pearson said. “I think we need to say what we mean and say it in a way people will understand.”

During a hearing Tuesday afternoon in Charleston, Pearson peppered Freedom bankruptcy lawyer Mark Freedlander with questions about the wording of the disclosure.

The document is meant to give creditors enough information about Freedom’s finances that they can understand and make a decision on an eventual creditor vote on the company’s bankruptcy plan. Freedom filed for Chapter 11 bankruptcy shortly after the chemical leak. While Chapter 11 is typically for troubled companies to reorganize, it can also be used for liquidation, which is the route Freedom is taking.

Freedom’s liquidation plan is built on a complex set of interconnected settlements worked out over months of negotiations between the company’s chief reorganization officer and lawyers for area residents, Freedom’s former owners, the state Department of Environmental Protection and other parties. The settlements aim to resolve potential lawsuits by leak victims against Freedom and its former owners, as well and any legal disputes with the DEP over remediation of the leak site.

Changes worked out last month would bring in about $2.5 million in new payments from Freedom and from Chemstream Holdings — the company that bought Freedom about a month before the Elk River leak — to fund the cleanup of the Elk River facility where the leak of Crude MCHM occurred.

Generally speaking, the Freedom disclosure statement outlines a brief history of the company’s finances and explains how various creditors would be paid and where the money for such payments would come from.

The formula is greatly complicated by the fact that more than 3,800 claims have been filed against Freedom for amounts that total about $176 million. Prior to the recent legal settlements, Freedom’s major remaining asset was a $3 million insurance payment for the leak. But without the settlements, that money could remain tied up for years if former Freedom officers continued to fight to have the insurance pay their ongoing legal bills.

Under the plan, $500,000 would be set aside for payments to one group of leak victims known as the “convenience” claim class. These are residents who filed bankruptcy claims against Freedom for amounts less than $3,000. It would also provide nearly $1.5 million to be distributed to other leak victims by an administrator.

Among other things, Pearson said he thought the disclosure statement needs to more clearly explain which leak victims belong in which class for claims purposes, under what circumstances victims could opt to move from one class to another, and how the administrator would manage the process of distributing claims.

“I wish it were more clear,” the judge said.

Pearson also said he wants more information on how much money the bankruptcy lawyers and other professionals believe they should be paid on top of the nearly $1.3 million that’s outlined already in the disclosure statement.

At Tuesday’s hearing, the judge did approve a separate motion from Freedom that allowed the company to hire a new consultant, CORE Environmental Services Inc., to work with the company and the DEP on the site cleanup. The previous consultant, ARCADIS, split with Freedom and the DEP in a dispute over how it would be paid for further work and over the firm’s concerns that it was not yet clear how much more work needed to be done at the site.

ARCADIS was the only party that filed a formal objection to the judge approving Freedom’s financial disclosure statement. ARCADIS and another previous cleanup contractor, Civil & Environmental Consultants, are both still owned money for their work at the site.

Lawyers for the formal committee of Freedom’s creditors submitted a statement in support of the judge approving the disclosure statement.

Reach Ken Ward Jr. at kward@wvgazette.com, 304-348-1702 or follow @kenwardjr on Twitter.

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