Insolvency: As Easy as ABC

Unpaid contributors, employees and other creditors of the former BowTie Inc. have been notified that the company has ceased to exist and that an assignee has been charged with  “closing down all BowTie business,” including unpaid contributor payments and other debts leading to BowTie’s insolvency.

For the new I-5 employees, this provides a nice and legal way to dodge the collection calls that had been dogging them for months: pass the buck, so to speak.

“The Assignee is the only person who can address BowTie accounts payable questions from this point forward,” wrote chief content officer June Kikuchi in a letter to contributors.

What the letter did not explain was that there was no guarantee that contributors would be paid fully.

BowTie opted to retain Insolvency Services Group Inc. of Los Angeles and to execute a general assignment for the benefit of creditors, also known as an ABC. An ABC is an alternative to a bankruptcy filing and its main benefits are speed and simplicity by avoiding bankruptcy court delays and bureaucracy. So the resolution of the case is quicker and less expensive, and creditors should be paid sooner (within the year).

But like a Chapter 7 bankruptcy, it is very much a liquidation of the company. The main assets were already sold to I-5, so the assignee’s role now is to send notices of general assignment to the company’s creditors, followed by formal proof of claim forms to all creditors, as listed by the assignor, within 30 days. Creditors typically have between 150-180 days to submit their claims.

The company’s remaining assets are then sold and proceeds distributed to creditors, with secured creditors paid first, followed by tax and wage claims, and lastly unsecured creditors. Any surplus is returned to the assignor. But it seems unlikely that there would be a surplus, or even sufficient assets to pay off all the debt.

So in the case of BowTie’s contributors, they are toward the back of the line, behind many current I-5 and former BowTie employees that lost accrued vacation pay (wages) when the assets were sold, the government, the banks and the assignee. Also at the back of the line are other service providers of BowTie, which likely include cleaning and landscape services, paper suppliers, other publishers and information providers, sales rep groups, and more.

While the ABC does not discharge the assignor from its debts, the reality is that the assignor has no real assets, so an unhappy creditor may not have many viable options for collection. Creditors that object to the general assignment could also file documents to force an involuntary bankruptcy on the assignor, but because the claims priority is the same, the involuntary bankruptcy usually would not be beneficial.

So, as I wrote in my prior post "New Beginnings: Zoetis, I-5 Emerge from Past Lives," I-5 will face a challenge in restoring much of the goodwill BowTie had lost over the past few years as the company struggled. While the new company could argue that they had saved the publications and therefore a market for the contributors, it would do well also to remember that these faithful contributors were instrumental parts of, in the words of interim CEO Mark Harris, “the talented, passionate teams that have built such a robust content engine.” It would also do well to restore the vacation pay of the former BowTie employees. Such an investment in human capital could pay off for many years to come.

To contact the BowTie assignee, call 949-494-7160 or email claims@managementprotem.com.