A U.S. Trustee has sued the owner of a bankrupt company for allegedly accounting for a $524,367 loan improperly.
Marianne T. O’Toole, the trustee, accused Michael J. Pareti, president and owner of KNM Sheet Metal Inc. in Beacon, of unjust enrichment and breach of fiduciary duty, in a complaint filed on Oct. 9 in U.S. Bankruptcy Court in Poughkeepsie.
KNM filed for Chapter 11 bankruptcy reorganization last year, and the case was later converted to Chapter 7 liquidation.
Pareti of Cortlandt Manor did not respond to a voicemail message requesting comment.
O’Toole said Pareti filed KNM’s 2015 income tax return showing $524,367 as a “loan to shareholder” from KNM. Pareti is the only shareholder.
Pareti has a duty to repay the loan, she said, but has refused to do so. As a result, creditors have been damaged because money that could be used to pay debts has been diverted from KNM.
O’Toole claims that Pareti, as the sole shareholder and officer, breached his fiduciary duty by allowing KNM assets to be diverted and by making distributions to himself instead of repaying the loan.
The bankruptcy petition listed assets of $193,755 and liabilities of $897,304. The company had grossed nearly $1.8 million in 2015, more than twice as much as the previous year.
A $653,000 debt to Sheet Metal Workers’ Local 38 Fringe Funds is listed as the largest unsecured obligation. The union has since claimed that KNM owes $1,065,063 for unpaid fringe benefit contributions.
Pareti claimed that the union rejected a payment plan and then refused to supply workers, forcing the company into bankruptcy.
KNM’s bankruptcy filing also lists unsecured claims by Pareti, including $34,580 in wages and $22,000 for money he had loaned to the company. The filing does not disclose a KNM loan to Pareti.
Pareti filed for personal bankruptcy in September, claiming assets of $584,050 and liabilities of $1,578,150.