Creditors of Advanced Marketing Services Want Bankruptcy Judge To Order Company To Liquidate
Advanced Marketing Services, a bestselling book distributor to warehouse stores, is encountering resistance from creditors to its Chapter 11 bankruptcy reorganization efforts. In a petition filed last week by AMS’s unsecured creditors, a judge is being asked to order the company to cease operations and “transition into liquidation mode.”
A hearing is scheduled today for a federal bankruptcy judge to hear AMS’s proposal for how it will develop a plan to sell, partially sell, or refinance the business. The California-based company says it has formed confidentiality agreements with potential buyers and investors. It wants a bankruptcy judge to grant it permission to sell Publishers Group West, one of its subsidiaries, to publishing and distribution company Perseus Books.
While AMS’s creditors support the sale of Publishers Group West, they believe that the debtor is insolvent and should stop spending money by shutting down its operations. Last week, a committee of AMS’s unsecured creditors filed objections to the company’s proposal, which they are convinced will fail. Penguin Books and Random House are members of the committee.
“Because AMS's business has crumbled, AMS is no longer a viable business entity, and it should quickly ratchet back the scope of the operations and expenses and transition into a liquidation mode,” said a committee member.
AMS owes the top 40 book publishers over $220 million. This amount does not include other debts owed by the company. The publishers have attempted to get back their unsold inventory from AMS, but a bankruptcy judge has said that the banks the company owes money to must first be paid from AMS’s inventory proceeds before any inventory can be returned.
AMS’s attorney, however, says the creditors have made the company’s problems worse by making warehouse store deals with other book distribution companies and cutting off book shipments.
Problems first arose for AMS in 2003, when three former executives pleaded guilty to criminal charges for not telling retailers when they were due credits for promotional and advertising services that the company was unable to fully deliver.
Since 2005, AMS has been looking to either find more financing or sell its assets. It currently employs over 800 workers throughout the U.S. AMS’s creditors say that business has gone down since the company filed for Chapter 11 protection in December.
From Chapter 11 To Chapter 7 Bankruptcy
When a company discovers that it cannot pay creditors, it may decide to file for bankruptcy. A company that files for Chapter 11 bankruptcy makes a commitment to stay in operation while it figures out a reorganization plan to pay back its debts. A bankruptcy court may grant a complete or partial relief from the company’s contracts and debts so the company can get back on its feet. If a company’s debts are larger than its assets, its stockholders (owners) may end up with nothing, while the creditors may become owners in the reorganized company. Unless the creditors go through the bankruptcy court, they cannot collect on debts from a company while the company is under bankruptcy protection. If creditors do not believe that reorganization will allow a company to pay back its debts, they may petition the bankruptcy court to convert the company’s case from Chapter 11 to Chapter 7 “liquidation” bankruptcy. This type of bankruptcy mandates that a company shut down its operations and sell its assets to pay back creditors.
Sagaria Law P.C. is located in Monterey, Fremont, and San Jose. Our attorneys represent clients in Chapter 7, Chapter 11, and Chapter 13 bankruptcy filings. Many of our clients come from the cities of Burlingame, Santa Clara, Cupertino, and Oakland. To schedule a free consultation, contact Sagaria Law, P.C. today.
AMS creditors petition judge for liquidation, Sign On San Diego, January 27, 2007
Chapter 11 Bankruptcy Law Information, Zeromillion.com,
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