The first hearing in the Chapter 11 bankruptcy case that was filed yesterday by The Antioch Company (parent company of Creative Memories) took place today in Ohio Southern District Bankruptcy Court.
It appears that the judge granted all of the “First Day” motions that were filed yesterday by Antioch that they had indicated in court filings they believed were critical to their ability to continue to operate while undergoing bankruptcy proceedings. These motions included authorizing the continued operation of their employee benefit plan, keeping their utilities on, authorizing them to use their cash collateral for operations, and authorizing payments to consultants to continue.
An order was also issued scheduling a hearing on Dec. 18th about Antioch’s disclosure statement and regarding confirmation of their bankruptcy plan. Any objections to the adequacy of the disclosure statement or the confirmation of the bankruptcy plan must be filed with the court and served to the appropriate attorneys by Dec. 12th.
Creative Memories is working hard to present the Chapter 11 filing to its consultants as being part of a simple refinancing of the debt of an otherwise profitable company. A copy of the message reportedly sent to consultants that was posted on the Two Peas message board describes Creative Memories as a “profitable business” that is “constrained by the debt of our parent company”. The company goes on to say that “The object is to position ourselves for growth.”
However, news reports, court filings and former employees seem to tell a different story of the company’s state.
In court filings, the company reported sales have decreased dramatically in the past several years, and that their assets outweighed their liabilities, making them insolvent. (See Scrapbook Update’s previous post for full details on the sales figures and the bankruptcy plan.) The company also describes in court filings needing forbearance agreements to forestall default action on their debt twice in the past five months. In addition, Antioch is facing a lawsuit over missed payments to a former landlord in a settlement they made over a broken lease involving a facility they moved out of in the Richmond, VA area last year. (Antioch has filed to have action in that suit suspended due to the bankruptcy proceedings.)
A timeline in the St. Cloud Times, where Creative Memories is headquartered, details a series of layoffs and office closures at the company in the past few years (the timeline is definitely incomplete). By contrast, the company states in court filings that between 2004 and 2007, 800 of the company’s 1150 employees “resigned” due to “incentive for many employees to terminate employment in order to lock in their stock value”.
Heidi Everett was the Communications and PR Manager for Creative Memories for 10 years, and is credited as co-writer of the book Creative Memories: The Ten Timeless Principles Behind The Company That Pioneered The Scrapbooking Industry by Creative Memories co-founder Cheryl Lightle.
Everett told Scrapbook Update today that not all of those 800 employees resigned:
Starting in November 2005, hundreds of us showed up for work Friday morning and were told to pack our things. At least 4 rounds of layoffs occurred from November 2005 through November 2006. This also doesn’t include the approximately 200 people in Sparks, Nevada, 50-some people in Canton, South Dakota, approximately 200 people in Yellow Springs, Ohio, and approximately 200 people in Richmond, Virginia who were told their facility was shutting down immediately within the last 2 years.
Of the 800…two-thirds were shown the door.
Everett herself was laid off in Dec. 2005. As part of the termination of her retirement plan, she was issued a promissory note to repurchase her company stock from her. Everett says the company is now in default on her note and others like it:
Each layoff had a different retirement agreement. Those in my December group were given a promissory note with a guarantee of 1/5 payout installments over 5 years. Those laid off after me were told they could draw their funds in 5 years from the layoff. A few others had different arrangements.
Since June 2008, those of us with Promissory Notes have been receiving Notice of Default letters on our notes. We are pursuing legal action to get our retirements, especially since officers of the company and some employees close to the officers were allowed to cash out their retirements in full.
The financial claims of the holders of the defaulted notes were addressed in the company’s disclosure statement filed yesterday. Antioch described the missed payments and stated the default on the notes was caused by their lenders limiting their use of cash in the forbearance agreements of June 21st and October 10th. The company indicated the notes are insured and that they are pursuing a claim on behalf of the holders of the notes with the guaranty company for the overdue amounts since the company is unable to pay them.
Related Stories:
- Breaking News: Antioch Bankruptcy Plan Confirmed By Court
- Creative Memories Parent Company Antioch Files Bankruptcy
- Key Points from The Antioch Company/Creative Memories Bankruptcy
- Interesting Thoughts on Creative Memories
- Creative Memories Bankruptcy Extended Into 2009
- Google Trends Update on Scrapbooking (& Creative Memories)
- Background on the Antioch/Creative Memories Bankruptcy Hearing Tomorrow
- Creative Memories Covered on Minnesota Public Radio
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Nancy – I appreciate your coverage on this! I am always sad to see company’s go down this road – especially this one that seemed to be reviving itself over the past year and a half. I will keep checking back here for the latest! Thanks for all your work on this! Joy
Thanks for this great article. I’m so sick of companies like this stringing along their consultants and using them. I wish more CM consultants would open their eyes before it’s too late.
The Morgans convinced the company to buy back all the family shares at a premium price and then turn the company to 100% ESOP so that the family was completely protected from a down turn and they were set. http://www.morganfamilyfdn.org/family.html
Now most of the employees that have worked there for years to make them millions- have nothing but a pat on the back and a big cheer to say- let’s start over. This will be a perfect case study at MBA schools all over the country on how a company that had so much going for it- could be driven to its death by such poor leadership. Truly a waste…but I guess if it can teach others how not to run a business- then there is silver lining in there somewhere.
Supporting this company and their products, undermines the promises to the employees that have not been kept, How would you feel? losing all of your vested retirement savings and having the same exact management running a new company which assets came directly from these (your) funds.
YOUR LIFE, Your Story, OUR WAY,,,,,,SUCker
One of the biggest problems now being being faced by CM has been brought on by the fact that they converted into a 100% employee-owned company by instituting an Employee Stock Ownership Plan (ESOP).
Here’s some more background on the situation, from the book “Small Giants” (pg. 166):
“The downside has to do with two sets of liabilites that you take on when you start an ESOP. First, there’s the money that the ESOP usually has to borrow to cash out the founders. It gets the stock only as the loan is repaid. That debt can represent a significant burden for the company, sometimes more than it can bear. The second set of liabilities is potentially even more dangerous, mainly because it’s frequently overlooked. When contemplating an ESOP, people tend to forget that, if it works as intended, the shares held by all those employee-owners could be worth a lot of money in the future — and eventually the employee-owners will leave and expect to get paid. Unless the company has a plan for cashing them out, it could be forced to look for a buyer, thereby defeating at least one of the purposes for setting up the ESOP — namely, keeping ownership in the hands of the people working there.”
A friend of the family is devasted as she is included with the CM employees that were let go with a retirement agreement that included a guaranteed promissory note to be paid in installments. Now they discover that the guarantee company that “guaranteed” the notes is also bankrupt!
I am a former (laid-off) CM/Antioch employee who just lost 3/4 of entire retirement funds from this. I would encourage others who are in the same boat to pursue legal counsel. You do not have to accept their weak offering of 20% common stock. By signing the release you are signing away your rights to sue for money owed. We can either lay down and be victims or stand up to them and reject their plan as a group. When you read the plan that they filed with the court, the ESOP group is the last group to receive restitution, Class #7. So all of the other classes of claims are paid first, then the former ESOP participants’ claims (may be) paid. Be informed, get counsel and stand up to those who would take your hard-earned funds away, after saving their own from risk.
If you reject a 20% offering, you could well end up with nothing – AND be forcing the company to close, causing hundreds others to loose their jobs. That’s not standing up for your rights, that’s just vindictive. And the people who suffer will be those who get nothing – no retirement funds, no jobs, nothing.
Its easy for people to stand back and let stuff go bu not me I am not getting screwed twice by the same compamy!
I had just signed up to be a consultant, and once I paid my $$, was dropped like a hot potato. I have e-mailed everyone I could, and no one will give me a refund, or even talk to me. I just wanted to make storybooks for my 5 kids…..looked easy, but the program is full of faults. I have worked on many similar type graphic programs, and this one just has too many bugs to be efficient and get the job done!! Bottom line….give me back my money, or I will find every site to trash CM and prevent others from losing their shirt in a bad business plan!!