Editor's note: this story was updated Monday afternoon, Nov. 9, to reflect 9 new cases filed on Monday, joining the 14 filed Friday. Also on Monday the court approved settlements with J&B and GU. The story is updated throughout with the new information.
DURHAM, N.C. (BRAIN) — Nearly two years after Advanced Sports Enterprises and its subsidiaries filed for bankruptcy, ASE's brands have moved on to new lives: Performance Bike, Nashbar, and the former ASI bike brands of Fuji, Kestrel, SE, and others have new owners distinct from the old company.
But the case continues and the estate for ASE, now named AE Bike Liquidation, Inc., is now trying to recover so-called "preferential payments" that suppliers received from Performance and the other brands in the weeks before than bankruptcy filing on Nov. 16, 2018.
Bankruptcy law generally allows the trustee for the estate to recover those payments; the proceeds are added to the estate's assets and eventually distributed to the creditors.
In August, the estate's trustee sent demand letters to 30 suppliers, offering to settle the debt for a bit less than the total. It reached settlements with 16 companies, recovering $355,000. On Friday and Monday the trustee filed suit against 23 companies that have not agreed to settle, seeking a total of $2.6 million in judgments from them.
The founder of one company that received a demand letter in August said it left him feeling "violated."
"Just when you think the (expletive deleted, take your pick) at Performance couldn't screw you more, this comes up," he said in an email to BRAIN this summer.
"We wrote off a bunch in the bankruptcy, and now they want us to give them more. I'm learning it's part of the bankruptcy process, but definitely feel violated. It's amazing how the bad business decisions of some, keep on giving to legitimate businesses. Some formerly respected people in the industry keep on giving a lot of pain."
Companies that reached settlements include Saris Cycling, Vittoria North America, Accell North America, Park Tool, GU, and J&B. The court has approved the settlements with Park, Saris, Vittoria and ANA. It has not yet approved the settlement with CatEye. Hearings are scheduled on those settlements later this month.
Bike industry companies being sued include Shanghai Global Sports, Garmin, Nite Rider, Hammer, JP Sportswear, Leemarc, Clif Bar & Co., Active Cycle, Skratch Labs, Shimano, and PT Insera Sena. (Individual judgment amounts demanded is below).
The preferential clawbacks are especially galling to some suppliers because they are often unsecured creditors to the bankruptcy as well. So they are owed money for services or goods they delivered after the bankruptcy, and have little hope they will receive more than pennies on the dollar for that debt. Then on top of that, they are now asked to return the payments they did receive.
But, that's the law. The reasoning is that the policy discourages aggressive collection activities that can force a debtor into bankruptcy. It also curtails companies that are on a path to bankruptcy from paying friends or insiders while they can, at the expense of other creditors.
There are some defenses against a preference suit. The defendant (the supplier) can argue that the payment was received "in the ordinary course of business," such as a monthly utility bill.
They also can use the "new value defense" and show that goods or services were provided to the debtor after one or more of the preference payments were made. Then the value of those new goods are services can offset the preference payment.
The trustees anticipated the new value defense and the settlements proposals subtracted any known new values the trustee could document.
The suits filed also account for the new value defense. For example, Shimano received payments from the ASI companies totaling over $731,000 in the weeks prior to the bankruptcy. But Shimano then provided new goods valued at $530,000, according to the trustee. So the suit is seeking a judgment of $197,000 from Shimano.
BRAIN is aware of at least one company that received a demand letter but which has not had a settlement presented to the court and which was not among the companies being sued. We don't know how many other companies are in that situation. It could indicate that settlement negotiations are continuing.
The suits are being filed ahead of two-year statute of limitations on preferential claims, which expires Nov. 16.
BRAIN reached out to several of the companies late Friday for comment but has not received any response. None of the companies sued have filed responses.
Bike companies that have reached settlements, and the amount:
- Accell North America: $93,000
- Park Tool: $29,000
- GU: $12,000
- Cateye: $7,000 (not approved)
- J&B: $5,000
Bike companies sued on Friday, and the judgment requested:
- Active Cycle: $784,000
- PT Insera Sena: $339,000
- Shimano: $197,000
- Shanghai Global Sports: $155,000
- Garmin: $72,000
- Clif Bar & Co.: $57,000
- Skratch Labs: $27,000
- Leemarc/Canari: $26,000
- Nite Rider: $20,000
Non-industry companies being sued include American Express, American Diabetes Association, Granite Telecommunications, Card Services, Inc., and Quad Graphics. Settlements have been reached with Coyote Logistics, Bank of America, Ascent Global Logistics, and Southern California Edison, among others.
Unsecured creditors who have also been sued or who received demand letters from the trustee include Active Cycle, PT Insera Sena, Garmin, Shanghai Global Sports, Saris, ANA, J&B, Vittoria, and Clif Bar.
