Court appoints trustee in CrimsonBikes bankruptcy case
BOSTON (BRAIN) – CrimsonBikes is now in the hands of a Chapter 11 bankruptcy trustee after creditors including SmartEtailing and Giant Bicycle said store owner Charles James was managing it poorly and appeared to mix assets between several companies it owns.
Last year, SmartEtailing sued the Cambridge store in Minnesota court to recover at least $ 400,000 in credit card chargebacks.
In a statement to BRAIN about the Minnesota lawsuit, CrimsonBikes said it had made “extraordinary efforts to secure bikes or refunds from customers” during the sales spike due to the pandemic. But the statement said last fall that “the system has broken down between CrimsonBikes, SmartEtailing and Stripe, the credit payment processor.”
In March, SmartEtailing and two other creditors filed an involuntary Chapter 7 claim against CrimsonBikes. SmartEtailing, who said he then owed about $ 650,000, was joined by a Massachusetts consumer who said he paid $ 1,061 for a bike he never received, and CVI-TCB Commercial, owner a Boston-area non-profit real estate development organization. In the petition, CVI-TCB said CrimsonBikes owed it $ 200,000 and was in breach of contract. Giant was not a party in the Chapter 7 petition.
A Chapter 7 bankruptcy would have led to the company’s liquidation quickly, but in May the court granted CrimsonBikes’ request to convert the case to Chapter 11, allowing for a reorganization.
Chapter 11 cases do not always have a court-appointed trustee, who acts as the CEO of the company on behalf of creditors. But in certain circumstances, the court will appoint one.
At a virtual creditors’ meeting on June 22, James and his attorney, John M. McAuliffe, the creditors questioned James about financial records he couldn’t produce and three related companies.
James said he was the director of an e-commerce company, CrimsonBikes, LLC, first established in 2015 as a student bike program when James was a student at Harvard University. He then set up a physical business, BeSpoke, and a bicycle import business that was formed last year called CrimsonBikes Imports. He revealed that CrimsonBikes LLC recently laid off most of its employees, but said they were offered work through BeSpoke. CrimsonBikes LLC is currently the only company named in bankruptcy filings.
Shortly after that meeting, creditors including SmartEtailing, Giant and CVI-TCB petitioned the court to appoint a trustee, claiming transfers between business entities appeared fraudulent and James’ inability to produce financial documents. was evidence of “prolonged serious mismanagement”.
James filed a response explaining the purpose of each of the companies. He said the three operated under the trade name “CrimsonBikes”, but they were separate and distinct entities and all transactions were recorded for each entity.
Jamers also said he keeps detailed records but has been hampered by the unintentional bankruptcy and pandemic. He said he would make all necessary documents available by the end of July.
In a video hearing last Friday, U.S. bankruptcy judge Janet E. Bostwick considered the motion to appoint a trustee. McAuliffe said his client was not opposed to the appointment, but that it was “critical” that the trustee consider restructuring the company rather than liquidating it.
Bostwick agreed with creditors that James’ multiple business entities were troubling. “There is a clear conflict of interest for Mr. James. He wears three hats, he moves property between debtors and affiliates… while appropriate, it raises (concerns about) what is in the best interests of creditors, ”says Bostwick.
However, Bostwick said she would leave it to an administrator to investigate the situation. She also said the trustee would determine whether a liquidation or reorganization was in the best interests of creditors.
On Thursday, she approved the appointment of Massachusetts attorney John J. Aquino as a director.
Besides Giant and SmartEtailing, CrimsonBikes’ industry unsecured creditors include Bikeco (owed $ 44,000), Bern ($ 3,000) and Tifosi Optics ($ 1,100).
According to a summary of assets and liabilities filed with the court on June 15, CrimsonBikes owns property worth $ 745,000. Claims secured by property total $ 597,000. Priority unsecured claims total $ 50,000 and non-priority unsecured claims total $ 1.8 million.