Financial Advisor to Ch. 11 Trustee of Mobile Phone Retailer

Interim Management, Litigation Support, Receiver

Mobile Phone Retailer

The Bottom Line:    

A struggling mobile phone retailer with nearly 700 kiosks nationwide became insolvent when it could not source inventory to service contracts with 550+ Costco stores and military bases. Stapleton Group was appointed Receiver to provide financial and operational support during the liquidation and wind-down of the business. The company  entered Ch. 11 bankruptcy two months later. We recovered over $62MM as Receiver and then Financial Advisor to the Ch. 11 Trustee through the following key actions:

  • Collected over $30MM in outstanding A/R after our forensic accounting investigation uncovered disputed A/R and credits from large customers (Verizon, AT&T, T-Mobile) and critical vendors;
  • Leveraged key employees to reclaim $18MM in inventory scattered across 550+ Costco stores and military bases;
  • Determined management’s delay in initiating a wind down process prior to the receivership resulted in substantial financial harm to creditors, then supported the Bankruptcy Trustee’s litigation resulting in a $14MM D&O insurance recovery;
  • Untangled substantial operational expenses, critical contracts, and personnel commingled with a sister company;
  • Oversaw the company’s 1,800 employees; and
  • Negotiated with a landlord to successfully exit a $150K+ monthly lease within 3 months of the receivership appointment.

The Business Issue:

The fixed-cost intensive company with thousands of employees nationwide struggled from post-pandemic supply chain challenges. It carried significant payroll, rent, and other overhead expenses and was not profitable. When it failed to receive key mobile phone inventory for the 2022 holiday season, management decided to end its contracts with Costco and military bases and terminated more than 1,800 employees.

Obstacles and Stapleton’s Solutions:

  • Uncovered $18MM in A/R and inventory credits disputed by large customers (Verizon, AT&T, T-Mobile) and critical vendors due to poor billing and collections practices at the company.
    • Stapleton reconciled company records against customer and vendor records to accurately reflect the receivership estate’s assets, avoiding significant legal fees.
    • Stapleton ultimately collected $30MM in outstanding receivables from certain customers and vendors. 
  • $18MM of inventory, including new, used, and demo phones and accessories, was scattered across 550+ Costco stores and military base stores nationwide.
    • Stapleton had the company’s legacy operating personnel coordinate the return of assets.
    • Stapleton designed, received court approval for, and managed an inventory disposition process.
    • Stapleton exercised contractual return rights to return approximately 1MM pieces of encumbered inventory to lienholder at cost, thereby saving administrative costs and minimizing bankruptcy estate claims. 
  • Two months into the receivership, an attorney representing a group of unsecured creditors filed an involuntary bankruptcy petition, resulting in the jurisdictional oversight by the bankruptcy court.
    • Stapleton reported to both bankruptcy and state courts on matters related to assets, contracts, and pending motions in front of the state court.
    • The appointed Bankruptcy Trustee appointed Stapleton to carry out essentially all efforts previously in process as receiver.
    • Stapleton assisted the company with preparing and filing the Initial Bankruptcy Schedules and provided reports to the Trustee for court filings. 
  • The company’s shared services agreement with its sister company created substantial commingling of operational expenses, critical contracts, personnel, etc.
    • Stapleton identified facility, software, IT, and benefits contracts needed for wind-down activities, then submitted an initial motion to the court rejecting approximately 80 executory contracts to save $200,000 in monthly operating costs.
    • Stapleton reconciled shared service amounts due from the sister company and collected over $1.0MM. 
  • Company had a $150k+ monthly lease obligation for its 20,000 square foot headquarters office in Seattle that was approximately 10% occupied after pre-receivership layoffs.
    • Stapleton negotiated with landlord to successfully cancel the lease within 3 months of the receivership appointment.
    • Stapleton, the Trustee, and counsel sought to reject the lease contract in the bankruptcy case to take advantage of the benefits of bankruptcy law’s limit on damages calculation.

Contact Jake DiIorio for more information.

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