April 16, 2021 saw engineering and project management consultant AMEC Construction Management, Inc. (ACMI) file for Chapter 7 bankruptcy in the court of New York state’s southern district, casting its future into doubt in the face of its likely liquidation.
This continues a series of misfortunes surrounding the Wood Group’s 2017 £2.2 billion ($3.07 billion) acquisition of ACMI’s former parent company, Amec Foster Wheeler, and ACMI’s 2009 guilty plea and over $60 million penalty for violations of the US government’s Anti-Kickback Act and False Claims Act .
Currently based in Oakville, Ontario, ACMI listed unsecured claims reaching a total of $67,535,212.89 and spread between 275 creditors at the time of their filing — as well as 22 parties with whom ACMI has an executory contract or unexpired lease. Of this group, a large majority of the claims are based in either legal services or insurance services, alongside 12 claims for worker’s compensation.
However, the vast majority of the claimed monetary liability is for intercompany loans to affiliates of the London-based Wood Group, with a total of $67,494,746.21 claimed.
ACMI further reported cash assets totalling just $1,757.63, along with $0 in business and non-business gross revenue. However, it is worth noting that between February 13, 2020 and December 17, 2020 a total of $175,934 was moved in further intercompany loans to Oakville, Ontario’s AMEC FW Ventures and Wood Group USA, Inc., both affiliate branches of the Wood Group.
In a situation such as this, Chapter 7 bankruptcy provides for the sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors, allowing a debtor to address its debts without a plan of repayment and for the release of liability from any discharged debts. In many cases, filing a Chapter 7 bankruptcy results in full liquidation of the company, ruling out future reorganization.
Acquisitions and shift in focus may shed light on ACMI bankruptcy
Individual issues at ACMI are not solely to blame for its current state, as its parent companies have undergone significant transformations over the course of the last decade. The Wood Group’s 2017 acquisition of Amec Foster Wheeler came on the heels of Amec’s 2014 £1.9 billion ($2.65 billion) merger with Swiss engineering conglomerate Foster Wheeler.
The events of the period between these consolidations is likely what caused Amec Foster Wheeler’s absorption into the Wood Group. With a mid-2010s shift away from upstream energy (which involves companies that are involved in the identification and extraction of raw materials) causing a rise in project cancelations and reduction in industry spending, the company publicly announced in June 2015 their plan to shift focus away from the development of new projects and towards brownfield investments (involving the purchase or lease of existing projects), as well as prioritizing a more internationally concentrated market.
At the time, George Hernandez — the newly appointed president of Amec Foster Wheeler’s US operations — felt that this would minimize certain levels of risk.
“All of our customers right now are focused on cost benefit, so we’re having a heavier focus on asset life cycles, rather than the big greenfield projects,” said Hernandez. “Being heavily weighted in brownfield is always a good way to minimize peaks and valleys when they come.”
Unfortunately, these moves did not result in the desired outcomes. At the time Samir Brikho was ousted as Amec Foster Wheeler’s chief executive in January 2016, company shares had fallen by 49 percent over a 12-month period, and the company was attempting to refinance over £1 billion ($1.4 billion) in debts, ultimately leading to its need for an acquisition.
Repercussions may still be felt from prior legal penalties
ACMI’s bankruptcy filing and the background of the Wood Group’s acquisition of former parent company Amec Foster Wheeler come into clearer context when considering the issues of its affiliate corporations.
Perhaps most notably, ACMI’s 2009 resolution of litigation surrounding Morse Diesel International, Inc. dba AMEC Construction Management, Inc. v. United States resulted in a penalty of $7,292,213 paid to the US government, and the forfeiture of $53,534,679.16 in claims from violations of both the Anti-Kickback Act and the False Claims Act.
These violations came as the result of four federal construction contracts to complete work on the Thomas F. Eagleton Federal Courthouse in St. Louis, Missouri, the U.S. Customs House in San Francisco, California, and the Federal Courthouse in Sacramento, California, almost certainly causing significant damage to ACMI’s ability to secure lucrative future US government contracts.
Though ACMI took the position that “the alleged fraud on these contracts was not pervasive,” that ACMI was “limited to only a few mid-level employees,” and was “unknowing,” United States Federal Court of Claims judge Susan G. Braden disagreed.
“‘Knowingly’ is defined to mean that ‘a person, with respect to information…has actual knowledge of the information,’ Braden noted. “Where plaintiff ‘knew’ of a false claim, specific intent to defraud is not required.”
Reactions from the Department of Justice at the time seemed to confirm this feeling: “Federal contractors who commit fraud against the government will be pursued aggressively and will be held accountable for their violations of law,” said Michael F. Hertz, former Acting Assistant Attorney General of the Department of Justice’s Civil Division.
“This settlement is an example of the Department’s determination to ensure that federal funds are protected from fraud and abuse.”