Creative Memories Bankruptcy Extended Into 2009
The Antioch Company, parent company of Creative Memories, had planned for its bankruptcy plan to be approved at a hearing today so it could move past bankruptcy before the end of 2008. Due to developments in the case in the past 10 days, the bankruptcy has now been extended at least until January 2009.
The hearing for confirmation of the company's bankruptcy plan and other matters is now scheduled for January 9th at 9:30am.
The reason for the delay of the confirmation hearing until January was a request for more time from the Unsecured Creditors Committee to decide how to respond to the company's bankruptcy plan since it is so harmful to them as a class. The committee represents the interests of the unsecured creditors (those whose debts are not secured by any collateral) against the company.
The major group of unsecured creditors are the members of the ESOP (Employee Stock Ownership Program) Noteholders group, who are owed over $21 million. They are owed the money from the company to buy back their company stock after they left or were laid off from the company. Three of them were appointed to the creditor committee on December 8th, including former Creative Memories Communications and PR Manager Heidi Everett. (Read a statement Everett gave to Scrapbook Update shortly after the bankruptcy filing.)
The members of the ESOP Noteholders group have a lot on the line. Antioch says that it had taken out insurance bonds with a company called Condor Guaranty (CGI) to ensure that the Noteholders got paid if Antioch was unable to pay them. It stated in the early bankruptcy filings that it was pursuing a claim with the bond company on the Noteholders' behalf (although the bond company says it has not received correct notice of that fact). But the bond company, CGI, is also stating now in court filings that it is investigating whether Antioch was meeting the conditions of its bonds, and whether they are payable.
CGI says that they are unsure that Antioch provided them with the required annual financial statements and asset sale notifications. They also stated in court filings that they are "investigating whether material representations were made to CGI in connection with renewal of the Surety Bonds shortly before the initiation of these Chapter 11 proceedings". If any of these statements by CGI hold up in court, the bond contract would likely be cancelled.
The question of whether CGI will pay the ESOP notes was brought up in the bankruptcy court when Antioch requested that CGI be made the Agent (representative) of the ESOP Noteholders to the court after the bonds were paid. Both CGI and an attorney representing some of the Noteholders filed strong objections about that request with the court. CGI objected on the grounds that it felt that an order appointing it as Agent would effectively be a default judgement ordering it to pay the bonds without the proper court process. The Noteholders objected because they were concerned that the order as proposed would limit their future financial claims against Antioch and the bond company.
The question of who will be the Agent for the Noteholders has been postponed until the January 9th hearing. In the meantime, as mentioned above, many of the Noteholders have hired their own attorney to represent them.
