Antioch/Creative Memories Bankruptcy Update

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.