Motor Parts Maker Tower to Cover Directors’ Defense Costs

In an effort to keep its directors and officers from spending their own cash, Tower Automotive Inc. is seeking for the second time a bankruptcy court’s approval to cover defense costs.

Last week, the auto-parts supplier asked the U.S. Bankruptcy Court in Manhattan to allow another $500,000 disbursement. The request follows the court’s approval of a similar payout in June.

Tower Auto said the court’s approval is needed because of a disagreement with its insurance carrier, Federal Insurance Co., which has so far refused to extend coverage to defray costs in connection with a series of lawsuits based on alleged violations of the Employee Retirement Income Security Act, also known as ERISA.

The company said its directors and officers face a “swarm of shareholder lawsuits,” and that without funds from the insurance proceeds the defendants’ own resources will be needed to fund their defense.

A hearing on the company’s request is scheduled for Oct. 24 in the Manhattan bankruptcy court before Judge Allan Gropper. Objections are due Oct. 20.

Court papers said 11 class actions have been filed against individual defendants, including President and Chief Executive Kathleen Ligocki, who is also a member of the company’s board of directors and the board of each unit of the company; Chief Financial Officer, Secretary and Treasurer James Mallak, who also serves as treasurer of each of the company’s units; and Christopher Hatto, the company’s controller and vice president and assistant secretary of each of the company’s units.

Tower Automotive, of Novi, Mich., filed for Chapter 11 protection Feb. 2, with assets of $787.9 million and debts of $1.3 billion. The company designs and produces truck frames for car companies. Tower Automotive’s European, Asian, Brazilian and Canadian operations weren’t included in the Chapter 11 filing.