Creative Memories parent company The Antioch Company filed for voluntary Chapter 11 bankruptcy protection yesterday (April 16th) for the second time in less than 5 years. Petitions are also pending for the company’s six subsidiaries and affiliates. The cases are being handled jointly by the court.
The company had previously filed Chapter 11 bankruptcy in November 2008. That bankruptcy case was closed in early 2009, but a lawsuit brought by former employee shareholders who lost their retirement in the bankruptcy is still pending against various company executives.
According to the bankruptcy filing, The Antioch Company has in the range of $10 million to $50 million in debt, and in that same range of assets. The company claims to have somewhere between 10,000 and 25,000 creditors – a huge number (even for a corporate bankruptcy) that is obviously swelled by Creative Memories’ large network of consultants. The company has more than 20,000 consultants worldwide, and any consultant still owed a payment on the date of the bankruptcy filing is now a creditor of the company.
Among the top 30 unsecured creditors of the company, some names are familiar to those in the scrapbook industry. Adhesive manufacturer 3L is owed $350,000. Nancy O’Dell, through her company Nancy O’Dell Enterprises, is also owed over $260,000, presumably for the work she did on her signature line for Creative Memories. As in the previous bankruptcy, the majority of the company’s top 30 unsecured creditors are listed as “benefit plan participants”, meaning they are former employee shareholders who are owed buy-outs of their shares after leaving the company or being laid off.
As part of their bankruptcy filing, The Antioch Company also filed several “first day” motions requesting orders they need from the court to continue operating while in bankruptcy. Most of the orders are fairly routine, requesting access to bank accounts and other assets and the right to continue paying payroll. Two motions stand out, however.
One is a request that the Bankruptcy Trustee in control of the company’s assets be ordered to release the approximately $2 million balance in a “rabbi trust” that was being used pre-bankruptcy to fund the company’s deferred compensation plan for consultants to the company to fund ongoing day-to-day operations post-bankruptcy. Since the deferred compensation plan functions as a pseudo-retirement plan for consultants, this request rings echoes of the retirement of the former employee shareholders disappearing in the company’s previous bankruptcy. The second motion requests that certain vendors be designated as critical by the bankruptcy court because the company needs them to continue doing business, which would allow for the company to pay those companies’ bills. The list of vendors the company has requested the designation for includes shipping companies and some of its product supply chain, including adhesive supplier 3L.
There is also a first day motion to allow the company to continue paying its consultants.
Hearing on all of the first day motions will be held tomorrow, April 18th, at 1:30pm in room 2B of the Federal Courthouse in St. Paul, Minnesota.
Can the company recover from this? Creative Memories’ sales have suffered in recent years from growing competition in the scrapbook marketplace from local stores and the internet. The viability of the company’s survival under the 2008 bankruptcy plan relied on unrealistic predictions of the company’s sales increasing, particularly in the digital segment that the company had been aggressively pursuing. But the company’s attempt to enter the digital segment and find a new market there has fallen flat. In the new filings, the company blames stiff competition in the digital market, in particular from Shutterfly, and a declining scrapbook industry, for their inability to make the 2008 bankruptcy plan viable.
According to the St. Cloud Times, the company laid off 70 employees at its Minnesota headquarters when it made the bankruptcy announcement yesterday, nearly a third of the company’s staff. One of the laid-off employees, technical support specialist Rene Fuentes, told the St. Cloud Times that the company is in the process of restructuring its product line and slashing it to only about 50 items, down from 350, to concentrate on its core business. This is backed up by background statements in the bankruptcy court motions:
The Company believes that this bankruptcy filing will provide it the opportunity to reestablish the Company’s core business by exiting certain lines of business and focusing on a smaller product line of photo solution products geared to a broader customer base. Combined with a much simpler and easier business model for the Consultants, the plan will seek to provide creditors a substantial recovery in cash and/or equity in the reorganized company.
Fuentes was very pessimistic about the company’s future to the Times, though, describing Tuesday’s actions by Creative Memories as a “Hail Mary” and saying that “They’re trying to do whatever they can to save the company from shutting down. I hope they make it, but I just don’t see how they’re going to run the company with all the sales, marketing and technical people I saw let go today.”