Creative Memories Bankruptcy Resolved…Or Is It?

Scrapbook Update has obtained a statement from Heidi Everett, who participated in Friday’s bankruptcy proceedings regarding The Antioch Company, that sheds some light on what occurred in court on Friday – and what the next step might be:

As a representative for former employees, we are pleased with the outcome of Friday’s bankruptcy hearing. For our part, we were able to secure our rights to pursue third-party claims against officers of the company and some of the company’s contracts. For example, our $21 million in ‘secured’ retirement notes were supposedly backed by a surety bond. The terms of that arrangement are quite questionable at this point. Since Creative Memories did not see our retirement worthy of any payment in the bankruptcy, pursuing the surety bond — or the masterminds behind the bond agreement — may be a logical next step.

We are pleased that our friends and former colleagues at Creative Memories are now able to move forward with business as usual, and we wish them success as they emerge from bankruptcy. For former employees, however, our battle is just beginning.”

The St. Cloud Times has a story up about the hearing that includes a brief quote about moving forward from Creative Memories President and CEO Asha Morgan Moran.

Some background on the Scrapbook Update statement’s source and it’s content:

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. Because she was laid off in Dec. 2005, Everett was part of the group of former employees who were owed money to buy back their company stock from them – debt the company was in default on when they filed bankruptcy.

The former employees’ promissory notes were supposedly insured by a bond company which would pay them if they were defaulted on, but that bond company is now raising questions about whether Antioch/Creative Memories met their obligations under the bond contract, which would get the bond company out of paying the insurance claim.

The original bankruptcy plan that the company submitted to the court called for the ESOP noteholders (the former employees who were owed money to buy back their stock) to be compensated by being given partial ownership in a new trust that would own stock in the newly restructured Antioch Company after the bankruptcy. It was acknowledged that the noteholders would only be receiving at most a fraction of what they were owed, and to even receive that compensation, the proposed plan required that the former employees sign releases giving up their right to ever sue the company or its directors. This would mean they would be essentially giving up their rights to ever try to recover any more of their retirement money.

The bankruptcy plan and the requirement to sign the releases to receive compensation was unacceptable to the former employees – especially given the questionable status of the insurance bonds that they are owed. Multiple objections were filed to the plan, both by the official Unsecured Creditors Committee appointed by the court, and by private attorneys hired by some of the employees. Everett was party to two of these objections, as a member of the Unsecured Creditors Committee and through a private attorney.

From Everett’s statement and from court records, the parties apparently negotiated a modified version of the bankruptcy plan on Friday that preserves at least somewhat the former employees’ right to sue various parties to recover their retirement funds.

The bankruptcy may technically be over with the approval of the plan in court (although it seems the order has yet to be signed by the judge due to the revisions), but one major issue that lead into it in the first place – the ESOP notes – appears to still be hanging over the company’s head. Until the matter of the surety bonds on the notes is resolved between Creative Memories, the former employees and Condor Guaranty, nothing is truly done about this.

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