IN THE UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION In re: COLLINS & AIKMAN CORPORATION,

et al.1 Debtors. ) ) ) ) ) ) ) ) Chapter 11 Case No. 05-55927 (SWR) (Jointly Administered) (Tax Identification #13-3489233) Honorable Steven W. Rhodes

DEBTORS OBJECTION TO MOTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS FOR AN ORDER DIRECTING EXAMINATION AND PRODUCTION OF DOCUMENTS FROM DAIMLERCHRYSLER CORPORATION, GENERAL MOTORS CORPORATION, FORD MOTOR COMPANY, AND THEIR RESPECTIVE ADVISORS, PURSUANT TO RULE 2004 OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE The above-captioned debtors (collectively, the Debtors) hereby submit this objection (the Objection) to the Motion of the Official Committee of Unsecured Creditors for an Order Directing Examination and Production of Documents from

DaimlerChrysler Corporation, General Motors Corporation, Ford Motor Company, and Their

The Debtors in the jointly administered cases include: Collins & Aikman Corporation; Amco Convertible Fabrics, Inc., Case No. 05-55949; Becker Group, LLC (d/b/a/ Collins & Aikman Premier Mold), Case No. 05-55977; Brut Plastics, Inc., Case No. 05-55957; Collins & Aikman (Gibraltar) Limited, Case No. 05-55989; Collins & Aikman Accessory Mats, Inc. (f/k/a the Akro Corporation), Case No. 05-55952; Collins & Aikman Asset Services, Inc., Case No. 05-55959; Collins & Aikman Automotive (Argentina), Inc. (f/k/a Textron Automotive (Argentina), Inc.), Case No. 05-55965; Collins & Aikman Automotive (Asia), Inc. (f/k/a Textron Automotive (Asia), Inc.), Case No. 0555991; Collins & Aikman Automotive Exteriors, Inc. (f/k/a Textron Automotive Exteriors, Inc.), Case No. 05-55958; Collins & Aikman Automotive Interiors, Inc. (f/k/a Textron Automotive Interiors, Inc.), Case No. 05-55956; Collins & Aikman Automotive International, Inc., Case No. 05-55980; Collins & Aikman Automotive International Services, Inc. (f/k/a Textron Automotive International Services, Inc.), Case No. 05-55985; Collins & Aikman Automotive Mats, LLC, Case No. 05-55969; Collins & Aikman Automotive Overseas Investment, Inc. (f/k/a Textron Automotive Overseas Investment, Inc.), Case No. 05-55978; Collins & Aikman Automotive Services, LLC, Case No. 05-55981; Collins & Aikman Canada Domestic Holding Company, Case No. 05-55930; Collins & Aikman Carpet & Acoustics (MI), Inc., Case No. 05-55982; Collins & Aikman Carpet & Acoustics (TN), Inc., Case No. 05-55984; Collins & Aikman Development Company, Case No. 05-55943; Collins & Aikman Europe, Inc., Case No. 05-55971; Collins & Aikman Fabrics, Inc. (d/b/a Joan Automotive Industries, Inc.), Case No. 05-55963; Collins & Aikman Intellimold, Inc. (d/b/a M&C Advanced Processes, Inc.), Case No. 05-55976; Collins & Aikman Interiors, Inc., Case No. 05-55970; Collins & Aikman International Corporation, Case No. 05-55951; Collins & Aikman Plastics, Inc., Case No. 05-55960; Collins & Aikman Products Co., Case No. 05-55932; Collins & Aikman Properties, Inc., Case No. 0555964; Comet Acoustics, Inc., Case No. 05-55972; CW Management Corporation, Case No. 05-55979; Dura Convertible Systems, Inc., Case No. 05-55942; Gamble Development Company, Case No. 05-55974; JPS Automotive, Inc. (d/b/a PACJ, Inc.), Case No. 05-55935; New Baltimore Holdings, LLC, Case No. 05-55992; Owosso Thermal Forming, LLC, Case No. 05-55946; Southwest Laminates, Inc. (d/b/a Southwest Fabric Laminators Inc.), Case No. 05-55948; Wickes Asset Management, Inc., Case No. 05-55962; and Wickes Manufacturing Company, Case No. 05-55968.

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0555927060905000000000018

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Respective Advisors, Pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure [Docket No. 3135] (the Motion). represent as follows: Preliminary Statement 1. The Official Committee of Unsecured Creditors (the Committee) seeks In support of this Objection, the Debtors respectfully

overly broad discovery with respect to tenuous causes of action for which it lacks standing at a particularly sensitive juncture in these cases. Such discovery also would be duplicative of an investigation currently being conducted by the Debtors. In particular, the Committees generic allegations appear to be without any basis and likely will serve to harass the Debtors principal customers and, in the process, jeopardize the success of these cases. Simply put, under the guise of its Rule 2004 Request (as defined below), the Committee has turned to an ill-timed effort to gain negotiation leverage with respect to the Debtors plan of reorganization. These tactics directed at the Customers (as defined below) are not only outside the permissible scope of Bankruptcy Rule 2004 (as defined below) but also place the success of the Debtors ongoing negotiations with the Customers, regarding the global resolutions necessary for the Debtors to emerge from bankruptcy, and, potentially, these cases at risk. Relevant Facts 2. On May 17, 2005, the Debtors filed their voluntary petitions for relief

under chapter 11 of the Bankruptcy Code, 11 U.S.C 101-1330 (the Bankruptcy Code). 3. On May 24, 2005, the United States trustee appointed the Committee

pursuant to section 1102 of the Bankruptcy Code. 4. On June 29, 2005, the Committee filed its (a) motion [Docket No. 533] for

an order directing examination and production of documents pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure (Bankruptcy Rule 2004) with respect to potential 2
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avoidance actions (the Initial Rule 2004 Request) and (b) motion [Docket No. 537] for authorization to commence avoidance actions on behalf of the Debtors estates (the Avoidance Action Motion). 5. On July 7, 2005, the Court denied the Initial Rule 2004 Request. In

particular, the Court held that the Initial Rule 2004 Request was so broad, burdensome and unreasonable, that it ought to be denied without prejudice to the [C]ommittees right to reformulate a much narrower and focused demand. See Transcript of July 7, 2005 Hearing p. 64. 6. On July 28, 2005, the Court entered an order [Docket No. 809]

(the Adequate Protection Order), granting, among other things, adequate protection to the Debtors prepetition senior secured lenders (the Lenders). 7. On October 14, 2005, the Court approved the Debtors renegotiated

contracts with their six principal customers, including DaimlerChrysler Corporation (DCX), General Motors Corporation (GM) and Ford Motor Company (Ford). These renegotiated contracts were a critical component to ensuring the Debtors going-forward liquidity and preserving the Debtors long-term relationships with their principal customers. 8. On August 11, 2006, the Committee filed the Motion, requesting

(the Rule 2004 Request) the examination and production of documents from DCX, GM, Ford and their respective advisors (collectively, the Customers) pursuant to Bankruptcy Rule 2004. 9. On August 30, 2006, the Debtors filed the Joint Plan of Reorganization of

Collins & Aikman Corporation and Its Debtor Subsidiaries [Docket No. 3234] (the Plan) and the disclosure statement related thereto [Docket No. 3233] (the Disclosure Statement).

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10.

As reflected in the Disclosure Statement and the Plan, the value of the

Debtors enterprise appears to be substantially below the debt owed to the Lenders. In fact, the Plan, filed with the support of the agent to the Lenders, provides no distribution other than equity, even for the Lenders. 11. In connection with the confirmation of the Plan, the Debtors have been,

and continue to be, engaged in productive discussions with the Customers, regarding the award of future new business, the resolution of outstanding commercial issues and the reconciliation of prepetition claims. Argument A. The Committee Seeks To Explore Tenuous Causes Of Action, For Which It Lacks Standing, At A Time That Would Jeopardize The Success Of These Cases 12. The Committee seeks to assert avoidance actions against the Debtors

principal customers based on a novel, untested legal theory that performance by the Debtors pursuant to unprofitable contracts constitutes a fraudulent transfer claim. As this Court is well aware, decisions made with respect to the commencement of avoidance actions are squarely and solely within the Debtors province. Indeed, courts have held that under the explicit language of sections 544 and 548 of the Bankruptcy Code initiation of avoidance actions is clearly at the discretion of a debtor. See In re Fletcher, 176 B.R. 445, 453 (Bankr. W.D. Mich. 1995)

(asserting that right to commence avoidance actions, without court authority, belongs to debtorin-possession, not its creditors); see also Official Comm. of Cybergenics Corp. v. Chinery, 330 F.3d 548, 568 (3d Cir. 2003) (asserting that a debtor acts as a gatekeeper and prevents independent avoidance actions by creditors that might prejudice the estate and rival creditors); In re Xonics Photochemical, Inc., 841 F.2d 198, 202 (7th Cir. 1988) (finding that the right to bring avoidance actions belongs to the debtor-in-possession, not to unsecured creditors). 4
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13.

In certain limited circumstances courts have granted derivative standing to

creditors committees to initiate avoidance actions only when a debtor, unlike the Debtors in these cases, has violated its fiduciary duty to maximize its estates value by unjustifiably refusing the creditors committees demand to commence a viable avoidance action. See, e.g., Chinery, 330 F.3d at 568 (derivative standing permissible when the trustee is delinquent); In re The Gibson Group, Inc., 66 F.3d 1436, 1442-43 (6th Cir. 1995) (derivative standing permissible where debtor abuses discretion or defaults in its duties); Xonics Photochemical, 841 F.2d at 202 (derivative standing permissible where debtor does not act in good faith or shirks statutory responsibilities); In re Louisiana World Exposition, Inc., 832 F.2d 1391, 1397-98 (5th Cir. 1987) (derivative standing permissible where debtor refusal is unjustified). Indeed, the Court of

Appeals for the Sixth Circuit has noted that the granting of derivative standing to creditors to pursue avoidance actions is an extraordinary remedy to be used when a debtor-in-possession abuses its discretion in not bring[ing]an avoidance action[instead] us[ing] its discretionas a sword to favor certain creditors over others, rather than as a tool to further its reorganization for the benefit of all creditors. Gibson Group, 66 F.3d at 1440-41 (6th Cir. 1995). 14. The Debtors submit that, in light of the novel nature of the Committees

theory that performance under an arms-length contract (even an unprofitable one) could legally form the basis of a fraudulent transfer claim, it is incumbent upon the Committee to articulate, with some specificity, the legal basis or support for its theory before the Committee should be entitled to its Rule 2004 Request. The Committee, however, does not (and cannot) even cite to or mention any legal support for its desired avoidance actions.

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15.

In fact, to date, the Debtors have not found any case law or authority

supporting the Committees theory i.e., where a fraudulent transfer claim is premised on the transfer of value from a party that is (or becomes) insolvent to a third party by performing its obligations under an arms-length contract or agreement that was (or has become) unprofitable for the insolvent party in the ordinary course of business between such parties. To the contrary, courts in this circuit and elsewhere have held that a fraudulent transfer claim does not arise from a transaction simply because the financial position of the debtor did not improve as a result of such transaction. See, e.g., In re Universal Clearing House Co., 60 B.R. 985, 999 (D. Utah 1986); In re Churchill Mortgage Investment Corp., 256 B.R. 664, 681 (Bankr. S.D.N.Y. 2000); In re Auto Specialties Mfg. Co., 153 B.R. 457, 499 (Bankr. W.D. Mich. 1993). Without such legal support, it is possible that the Committees theory has little, if any, likelihood of success and, therefore, would not even constitute a colorable claim. 16. Notwithstanding the Committees novel, untested theory, the Debtors, in

accordance with their fiduciary duties, currently are conducting an investigation to determine whether any valid causes of action exists against any third parties, including the Customers. Upon completion of this investigation, the Debtors will share their results with the Committee. Until such time, however, any fraudulent conveyance causes of action against the Customers based upon the Committees theory remain tenuous at best. 17. Likewise, it is not clear on what basis the Committee seeks to pursue

potential antitrust causes of action, as the Committee fails to articulate with any specificity any basis or support for such causes of action. Rather, via its Rule 2004 Request, the Committee seeks to go on a fishing expedition with the hope of finding something.

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18.

In particular, in connection with renegotiating their contracts with the

Customers, the Debtors established and maintained a process on a customer-by-customer basis centered on confidentiality. As this Court is well aware through the various pleadings filed under seal in these cases and by the various closed hearings, the Debtors and each of the Customers have been very meticulous in conducting the negotiation process in a confidential manner. Accordingly, the Debtors submit that each of the Customers has embraced the

confidential process, and nothing would suggest that the Customers have not complied with the confidential protocol implemented by the Debtors in these cases. 19. Despite any similar terms among the renegotiated contracts, the Debtors

clearly have different agreements between different customers for different products. Indeed, prior to approving such contracts, the terms of each of these contracts were disclosed to the Committee, subject to discovery and fully vetted before this Court. 20. Not only are the Committees potential causes of action clearly tenuous at

best, but the Committee also seeks to investigate such causes of action at a time that would jeopardize the success of these cases. In particular, the Debtors are facing the critical juncture in these cases, during which the Debtors prospects for a successful reorganization will heavily rely on their ability to reach global resolutions with each of their principal customers, including the Customers. In fact, the Plan requires constructive relationships between the Debtors and their principal customers, which happen to be the very parties that the Committee is seeking to harass via its Rule 2004 Request. To that end, the Debtors have been, and continue to be, engaged in productive discussions with the Customers, regarding the award of future new business, the resolution of outstanding commercial issues and the reconciliation of prepetition claims. It is,

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therefore, imperative to the viability and success of these cases that the negotiations between the Debtors and the Customers remain unfettered and not be subjected to the Rule 2004 Request. 21. Furthermore, if settlements were to be reached between the Debtors and

the Customers, such settlements would be submitted to this Court and subject to this Courts approval. At such time, the Committee would have an opportunity to object to such settlements and seek discovery if the Committee still deemed it to be necessary. To permit discovery prior to any such time would be to place the cart before the horse. B. The Rule 2004 Request Is Intended To Harass The Customers And Therefore Exceeds The Permissible Scope Of Bankruptcy Rule 2004 22. A proposed examination exceeds the permissible scope of

Bankruptcy Rule 2004 where it is untethered to the Rules underlying purpose. It is well accepted, however, that examination under Bankruptcy Rule 2004 may not be used for purposes of abuse or harassment. See Snyder v. Society Bank, 181 B.R. 40, 42 (S.D. Tex. 1994), affd, 52 F. 3d 1067 (5th Cir. 1995) (denying Bankruptcy Rule 2004 request and noting that [e]xaminations under Rule 2004 cannot be used to harass or oppress the [examinee]); In re Duratech Indus., 241 B.R. 283, 289-90 (E.D.N.Y. 1999) (finding that Bankruptcy Rule 2004 application did not pass the smell test as movant was merely attempting to harass and abuse [the examinee] under the pretext that it was committed to proposing a plan of reorganization for the benefit of creditors); 9 Collier on Bankruptcy 2004.02[2] (Alan N. Resnick & Henry J. Sommer eds., 15th ed. rev. 2005) (noting that grounds for quashing a requested Bankruptcy Rule 2004 examination include abuse or harassment). 23. Here, it seems that the Committees request is intended for the purpose of

harassing the Customers. The Debtors respectfully request that the Court view the Motion in its true light a harassment tactic being used in an effort to gain leverage in negotiations with 8
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respect to the Plan. Indeed, the Debtors find the timing of the Rule 2004 Request particularly suspect and reflective of the Committees true intentions, as the Committee filed its Avoidance Action Motion over a year ago and merely five weeks into these cases without any basis. Conclusion 24. For all of the foregoing reasons, the Debtors respectfully submit that the

Court should deny the Motion.

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WHEREFORE, the Debtors respectfully request that the Court enter an order, substantially in the form attached hereto as Exhibit A, (a) denying the Motion and (b) granting such other and further relief as is just and proper. Dated: September 5, 2006 KIRKLAND & ELLIS LLP /s/ Ray C. Schrock Richard M. Cieri (NY RC 6062) Citigroup Center 153 East 53rd Street New York, New York 10022 Telephone: (212) 446-4800 Facsimile: (212) 446-4900 -andDavid L. Eaton (IL 3122303) Ray C. Schrock (IL 6257005) Marc J. Carmel (IL 6272032) 200 East Randolph Drive Chicago, Illinois 60601 Telephone: (312) 861-2000 Facsimile: (312) 861-2200 -andCARSON FISCHER, P.L.C. Joseph M. Fischer (P13452) 4111 West Andover Road -- Second Floor Bloomfield Hills, Michigan 48302 Telephone: (248) 644-4840 Facsimile: (248) 644-1832 Co-Counsel for the Debtors

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EXHIBIT A

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IN THE UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION In re: COLLINS & AIKMAN CORPORATION, et al.1 Debtors. ) ) ) ) ) ) ) ) Chapter 11 Case No. 05-55927 (SWR) (Jointly Administered) (Tax Identification #13-3489233) Honorable Steven W. Rhodes

ORDER DENYING MOTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS FOR AN ORDER DIRECTING EXAMINATION AND PRODUCTION OF DOCUMENTS FROM DAIMLERCHRYSLER CORPORATION, GENERAL MOTORS CORPORATION, FORD MOTOR COMPANY, AND THEIR RESPECTIVE ADVISORS, PURSUANT TO RULE 2004 OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE Upon the Motion of the Official Committee of Unsecured Creditors for an Order Directing Examination and Production of Documents from DaimlerChrysler Corporation, General Motors Corporation, Ford Motor Company, and Their Respective Advisors, Pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure [Docket No. 3135] (the Motion), it is hereby
1 The Debtors in the jointly administered cases include: Collins & Aikman Corporation; Amco Convertible Fabrics, Inc., Case No. 05-55949; Becker Group, LLC (d/b/a/ Collins & Aikman Premier Mold), Case No. 05-55977; Brut Plastics, Inc., Case No. 05-55957; Collins & Aikman (Gibraltar) Limited, Case No. 05-55989; Collins & Aikman Accessory Mats, Inc. (f/k/a the Akro Corporation), Case No. 05-55952; Collins & Aikman Asset Services, Inc., Case No. 05-55959; Collins & Aikman Automotive (Argentina), Inc. (f/k/a Textron Automotive (Argentina), Inc.), Case No. 05-55965; Collins & Aikman Automotive (Asia), Inc. (f/k/a Textron Automotive (Asia), Inc.), Case No. 0555991; Collins & Aikman Automotive Exteriors, Inc. (f/k/a Textron Automotive Exteriors, Inc.), Case No. 05-55958; Collins & Aikman Automotive Interiors, Inc. (f/k/a Textron Automotive Interiors, Inc.), Case No. 05-55956; Collins & Aikman Automotive International, Inc., Case No. 05-55980; Collins & Aikman Automotive International Services, Inc. (f/k/a Textron Automotive International Services, Inc.), Case No. 05-55985; Collins & Aikman Automotive Mats, LLC, Case No. 05-55969; Collins & Aikman Automotive Overseas Investment, Inc. (f/k/a Textron Automotive Overseas Investment, Inc.), Case No. 05-55978; Collins & Aikman Automotive Services, LLC, Case No. 05-55981; Collins & Aikman Canada Domestic Holding Company, Case No. 05-55930; Collins & Aikman Carpet & Acoustics (MI), Inc., Case No. 05-55982; Collins & Aikman Carpet & Acoustics (TN), Inc., Case No. 05-55984; Collins & Aikman Development Company, Case No. 05-55943; Collins & Aikman Europe, Inc., Case No. 05-55971; Collins & Aikman Fabrics, Inc. (d/b/a Joan Automotive Industries, Inc.), Case No. 05-55963; Collins & Aikman Intellimold, Inc. (d/b/a M&C Advanced Processes, Inc.), Case No. 05-55976; Collins & Aikman Interiors, Inc., Case No. 05-55970; Collins & Aikman International Corporation, Case No. 05-55951; Collins & Aikman Plastics, Inc., Case No. 05-55960; Collins & Aikman Products Co., Case No. 05-55932; Collins & Aikman Properties, Inc., Case No. 0555964; Comet Acoustics, Inc., Case No. 05-55972; CW Management Corporation, Case No. 05-55979; Dura Convertible Systems, Inc., Case No. 05-55942; Gamble Development Company, Case No. 05-55974; JPS Automotive, Inc. (d/b/a PACJ, Inc.), Case No. 05-55935; New Baltimore Holdings, LLC, Case No. 05-55992; Owosso Thermal Forming, LLC, Case No. 05-55946; Southwest Laminates, Inc. (d/b/a Southwest Fabric Laminators Inc.), Case No. 05-55948; Wickes Asset Management, Inc., Case No. 05-55962; and Wickes Manufacturing Company, Case No. 05-55968.

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ORDERED that the Motion is denied in its entirety.

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CERTIFICATE OF SERVICE I, Ray Schrock, an attorney, certify that on the 5th day of September, 2006, I caused to be served, by e-mail, facsimile and by overnight delivery, in the manner and to the parties set forth on the attached service lists, a true and correct copy of the foregoing Debtors Objection to Motion of the Official Committee of Unsecured Creditors for an Order Directing Examination and Production of Documents from DaimlerChrysler Corporation, General Motors Corporation, Ford Motor Company, and their Respective Advisors, Pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure.. Dated: September 5, 2006 /s/ Ray Schrock Ray Schrock

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