Creditors who are owed more than $550 million by FairPoint Communications are asking a U.S. Bankruptcy Court judge to appoint an examiner to investigate whether top managers misrepresented the company's prospects for recovery and are trying to profit from the proposed reorganization.

The creditors also question management's decision to enter into a financial settlement with a consulting firm that installed FairPoint's trouble-plagued computer system.

And they wonder why a $23 million dividend was paid to shareholders early last year, just as financial problems were mounting.

These and other issues are contained in a motion filed in FairPoint's Chapter 11 bankruptcy case in New York City. A hearing on the motion is set for Nov. 18; parties in the case must respond by Nov. 13. The judge has until Dec. 10 to act on FairPoint's restructuring proposal.

FairPoint declined to specifically address any charges at this time. It issued this statement: "We adamantly dispute the allegations in the motion filed by the ad hoc committee of bondholders and we will deal with the allegations in due course through the bankruptcy court process."

Attempts last week to reach lawyers representing the creditors were unsuccessful.

At the heart of the motion is a high-stakes tussle between private equity firms and other unsecured creditors – referred to in the motion as FairPoint noteholders – and the banks that loaned the company money. The noteholders complain that FairPoint's proposed reorganization plan squeezes them out.

The public may have little sympathy for angry, private investors who stand to lose money in a high-risk venture. But the concerns raised in the motion are of interest to state officials. They offer a behind-the-scenes look into management decisions at a company that borrowed heavily to buy Verizon's landline network, stumbled during the technical takeover and is now seeking a court-ordered restructuring to restore and expand the telecommunications backbone for northern New England.

"It raises a number of issues, some that we've been aware of but were not able to act on," said Richard Davies, Maine's Public Advocate.

Appointing a court-ordered examiner would be a good way to investigate the charges in open view, Davies said. The dispute may form the crux of the case, he added, and help define whether FairPoint has the resources to emerge from bankruptcy and competently run the region's phone system.

FairPoint's plan would wipe $1.7 billion of debt owed to creditors from its balance sheet. It would convert $1.1 billion in debt held by banks and other lenders into equity, and transfer 98 percent of the ownership to them. At the same time, the deal would give up to 10 percent of the equity to top management, in the form of restricted stock, incentive programs and stock options.

Just how much money top managers would receive under this plan would depend on how the company is ultimately valued and the price at which stock and options are set. But assuming a value of $2 billion – a figure the noteholders say is too low – top management could end up with roughly $100 million, based in part on long-term incentive plan documents filed by the company.

Additionally, the documents show the company is proposing a 10-year term for the options. That could make the package worth twice as much over time, noteholders contend, if the company is successful.

"It is incredible," lawyers representing the noteholders wrote in the motion, "that the very same management team that has brought the debtors to this point could now seek to so richly reward themselves while wiping out unsecured creditors."

In the motion, the noteholders summarize months of private negotiations over the summer between them and FairPoint, as the company sought to reduce debt on its balance sheet and stay out of bankruptcy. Those talks broke down in late August,...