BATH — At the end of October, a federal bankruptcy judge ordered that a federal trustee be named to take over the operations of M.W. Sewall, which provides heating oil and propane, and runs several convenience stores in the midcoast. The trustee would attempt to stabilize the company in the face of ongoing family disputes.

M.W. Sewall has been a Bath fixture since 1887, and currently employs about 150 people. For many years, it was well known as a stable company in the midcoast.

Throughout the 1800’s, the Sewall family operated one of five major ship building yards along the Kennebec River. In 1905, the square masted schooner, the Edward Sewall, delivered kerosene throughout the Caribbean for Texaco, and in 1910 horse drawn sleds and wagons delivered coal and ice to the Bath community.

Things were going well just a few years ago, when Howie Kirpatrick sold his family’s Bath Fuel Company to Ned Sewall to become part of the greater M.W. Sewall enterprise.

But trouble was on the horizon. The three Sewall brothers - Edward (called Ned), Phillip, and Mark - did not always see eye-to-eye. During their parents’ lifetime, Ned, who had served as president for 12 years, was more intimately involved in the day-to-day running of the family operation than his brothers were.

When the parents died, however, the estate was split three ways, and Phillip and Mark moved to seize control. They voted Ned out, so Ned sold his shares to his brothers as well as a trustee for his children, and left the company in 2007. Phillip took over as president, while Mark occupied a position on the board, according to court records. Many senior employees were asked to leave with Ned at that time, and others left of their own accord.

According to the trustee’s office, Ned’s severance agreement was $2 million in cash and $2.5 million in a promissary note. Also according to the trustee, Phillip and Mark threatened litigation if Ned did not leave the company, something that the lawyer for M.W. Sewall denied in an objection filed subsequently. However, the objection does not deny the trustee’s report that, following the company’s late March filing for Chapter 11 bankruptcy, the firm filed a lawsuit against Ned Sewall and TD Bank, alleging that “the transaction which separated Ned from his corporate office in exchange for his stock violated Ned Sewall’s fiduciary duties to the company.”

In other words, allegedly Ned Sewall unwillingly lost his position in the family company, but accepting his brothers’ terms for his departure somehow violated the company’s best financial interest.

From that point on, things went south fast. The company began to lose money. There were computer problems that led to failures to deliver oil, in some cases, causing burst pipes and damage that M.W. Sewall had to correct. Part of the problem, according to sources no longer with the company, was that there were few experienced personnel at the helm. At the same time, a major computer system change meant that everyone, including those who had been there for a while, was learning the system from scratch.

By the time of the bankruptcy filing in March, M.W. Sewall & Co. was in serious trouble. It had posted a loss of nearly $564,000 in 2007 and an estimated net loss of more than $1.78 million in 2008. The largest unsecured creditor was Citgo Petroleum, but Ned Sewall held a significant interest in the outcome of the filing, too, since he held a note for $2.5 million.

According to court documents, the two remaining brothers owe a considerable amount of money to the company. Phillip owes $112,000, while Mark owes over $60,000.

In Phillip’s case, according to Stephen Morrell, an assistant trustee with the U.S. Department of Justice Trustee Program, some of the funds went to fund another company that Phillip regarded as a division of M.W. Sewall, but which has a unique corporate name - C&J Corporation. This company runs a series of car washes in the area.

Because some M.W. Sewall funds were being used for Phillip’s other corporation, the Judge James B. Haines Jr.’s ruling determined that Phillip had a serious conflict of interest while trying to represent the best interests of M.W. Sewall’s other shareholders. Haines also expressed concern that the way some of the business dealings were handled - verbal deals as opposed to written deals with companies with which Sewall did business, for instance, was also a conflict.

Most troubling to Haines was that certain witnesses who had been or were in the process of being deposed to discuss matters that dealt with some of these issues were summarily terminated, even though the judge made it clear that their jobs were protected by the court. The firings could lead to even more serious legal penalties for the Sewall family.

M.W. Sewall & Co. has submitted a reorganization plan, which could be confirmed by Judge Haines within two to three months. In the meantime, the trustee who was appointed by Morell, Mark F. Stickney of Cumberland, was directed to determine whether the case should remain in Chapter 11 - reorganizaton - or be moved to Chapter 7 - liquidation.

Stickney, in his capacity as trustee, will run M.W. Sewall & Co. rather than any of the Sewall brothers, at least until the company emerges from bankruptcy proceedings. Ned Sewall, who might have been considered as trustee otherwise, has too many financial interests at stake in the outcome, the judge said.

What the future will hold for M.W. Sewall & Co., its employees and shareholders, remains unclear. For now, no layoffs are expected, no Clipper Mart stores are to be closed, and oil deliveries are expected to continue uninterrupted. But whether a once-proud Bath family institution will overcome its current difficulties, both financial and personal, and reestablish itself as one of the preeminent Bath businesses remains to be seen.

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