WASHINGTON — Directors of United Press International on Friday authorized managers of the news agency to file for protection from creditors under federal bankruptcy laws. The move was taken as UPI told employees that there was not sufficient funds to meet the current payroll.
It was not known whether UPI Chairman Luis G. Nogales would actually file a petition for reorganization, the agency said in a story transmitted on its news wires. UPI is the nation's second largest news service.
The news story, made available to the Associated Press, said that "although UPI's 2,000 employees were advised their paychecks probably would bounce, the 78-year-old service operated normally today."
The agency's four-member board of directors voted unanimously in Los Angeles to authorize Nogales to file for reorganization under Chapter 11 of the Federal Bankruptcy Act. Nogales is on the board, along with UPI's editor in chief, an officer of the Wire Service Guild and one of the news service's two owners.
Under a Chapter 11 proceeding, a federal court would issue an order freeing a company from the threat of creditor lawsuits until it can develop a plan to put its finances in order. Meanwhile, management activities must be approved by the court, and a majority of company creditors must accept the final reorganization plan.
Editor in Chief Maxwell McCrohon said in a statement: "UPI's basic news, picture and feature report will not be interrupted during this period of financial reorganization. All the financial alternatives open to us mean that our employees will be paid and that the news service will continue to deliver its full report to all subscribers."
Nogales had said earlier that "at present, there are insufficient funds to cover the paychecks dated April 26, and we ask staff to hold on to their checks until the situation is resolved."
An early afternoon UPI story quoted Nogales as saying that he would meet soon with executives of Foothill Capital Corp. of Los Angeles, which is UPI's principal lender, "to discuss resumption of credit," which had been halted Thursday.
Louis Guinn, a Foothill spokesman, said, "We have no comment at this time on UPI."
One UPI story, quoting unidentified company sources, said Friday that UPI "apparently reached a critical financial crunch because (Foothill) was dissatisfied with the Guild's refusal to renegotiate a labor contract and make new wage concessions."
The Guild on March 13 rejected as "entirely unacceptable" a UPI proposal for an 18-month wage freeze and other employee concessions. At the time, employees were being paid 85% of normal wages under a pay cut negotiated in August, 1984.
The news agency began notifying its subscribers this week that it is increasing its rates by 9.9%, effective April 28.
In a letter dated Tuesday, Nogales told subscribers that the increase will "provide essential revenue" needed to keep UPI operating at the break-even point "during a difficult period of recapitalization." A subscriber made a copy of the letter available to the AP.
Besides Nogales and McCrohon, the UPI board of directors includes Guild President William Morrissey and UPI co-owner Douglas F. Ruhe.
The Guild, which represents about 900 UPI editorial employees, said before the board's vote that "it is the union's opinion that a Chapter 11 filing at this time is necessary to protect many employee rights and to protect company assets."
Company spokesman David Wickenden said that the proposed filing was intended "to safeguard UPI and give it some protection," but he stressed that the agency's news operations would continue without interruption.
"UPI is here and will be tomorrow," Wickenden said. "It's business as usual."
The UPI story said that the company is more than $20 million in debt. Previously, the debt was understood to be about $17 million. On March 30, a committee of its creditors agreed to a 90-day debt moratorium to give management more time to trim operating expenses.
In his rate increase letter to subscribers, Nogales said that management had eliminated unnecessary programs and reduced UPI's staff but that "further reductions would make it difficult to maintain proper levels of service."
When asked about UPI's difficulty in covering paychecks, Wickenden said in a telephone interview with the AP that Foothill "in the past has routinely advanced UPI cash beyond its contracted limit when needed."
"This week, UPI expected to obtain sufficient financing to cover the checks, but negotiations with the lender did not progress far enough to make those funds available."
UPI says it serves about 800 newspapers and 1,400 to 1,500 broadcasting outlets.