January 12, 2021 – The Court hearing the Ample Hills Holdings cases issued an order dismissing the Debtors’ Chapter 11 Cases [Docket No. 482].
On March 15, 2020, Ample Hills Holdings, Inc. and 15 affiliated Debtors (“BSA” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the eastern District of New York, lead case number 20-41559. At filling, the Debtors, a Brooklyn-based ice cream maker noted between estimated assets between $1.0mn and $10.0mn; and estimated liabilities between $10.0mn and $50.0mn.
The Debtors’ dismissal motion stated [Docket No. 423], “The Debtors are administratively insolvent and do not currently operate any businesses. Accordingly, the estates cannot handle any further expense or delay…..Accordingly, the Debtors submit that the settlement and compromise embodied in the Stipulation and Order is appropriate in light of the relevant factors, is fair and equitable, and should be approved….The Debtors’ inability to effectuate a chapter 11 plan of reorganization provides cause for the dismissal of the Chapter 11 Cases.
The Debtors sold substantially all of their assets, paid their secured creditor, counsel for the Committee, and the Consumer Privacy Ombudsman, keeping only the funds reserved for the payment of any fees of the Clerk of the Court and the U.S. Trustee and any unpaid fees and expenses of professionals of these estates under paragraph 12 of the Final Cash Collateral Order. The Debtors have no assets and insufficient funds to confirm a chapter 11 plan under the circumstances. The Committee’s Final Report indicates that the Committee will not be pursuing any causes of action on behalf of the Debtors’ estates, providing no reason to convert the Debtors’ Chapter 11 Cases to chapter 7. The interest of the Debtors and their creditors would be better served by dismissal under section 305(a), which provides the most efficient method of concluding the administration of these Chapter 11 Cases… The Debtors respectfully submit that, due to the sale of all of the Debtors’ assets and the Debtors’ lack of existing operations, cause exists for all orders, settlements, and stipulations entered in the Debtors’ Chapter 11 Cases to remain valid and in effect, and that such orders, settlements, and stipulations remaining valid and in effect is in the best interests of the estates and all parties in interest. Accordingly, voluntary dismissal of the Debtors’ Chapter 11 Cases is desirable and appropriate under the circumstances.”
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Smith Declaration”), Phillip Brian David Smith, the Debtors’ CEO, detailed the events leading to the Debtors’ Chapter 11 filing. The Smith Declaration states: “Unfortunately, Ample Hills experienced numerous setbacks with the opening of its state-of-the art factory located in the Red Hook section of Brooklyn (the ‘Factory’), which included legal issues with the construction, cost overruns on the machinery and equipment, problems with the cement flooring, and a slower than expected ramp-up in production. Ample Hills estimated that it would take one year to build out the Factory. In all, it took a full year and a half longer than estimated before the Factory was operational. Ample Hills’ total investment in the Factory was roughly $6.7 million, which was $2.7 million higher than its original budget. Because the Factory delays impacted Ample Hills’ expansion strategy, the Factory has not been as fully utilized as Ample Hills originally planned, which has led to continuing operating losses.
Also contributing to the challenges, Ample Hills underestimated the volume that the Factory needed to produce in order for the company to experience the economies of scale, and cost-savings that were necessary to justify the Factory’s existence. In practical terms, Ample Hills built out a Factory in order to increase volume and lower its costs, but the opposite happened, and the losses have mounted. While sales have continued to grow year over year from 2010, Ample Hills began to lose money as they started construction on the Factory. Unfortunately, as a result of the continuing losses stemming from the Factory, Ample Hills recognized a looming liquidity crisis in June 2019. During the second half of 2019, Ample Hills contacted dozens of investors, including current shareholders, as well as many new potential investors. Ample Hills diligently shopped the business through the fall of 2019. In addition, Ample Hills spent months in talks with the company’s largest investor, a real estate group (and the landlord at the Factory) that previously invested $4 million. In the end, though, due to the debt and the overhead of the Factory, Ample Hills failed to secure additional funding. Faced with continuing losses and decreasing liquidity, Ample Hills determined to seek relief under the Bankruptcy Code for the purpose of finding a buyer for its business and maximizing the value of its assets.
On July 8, 2020, the Court hearing the Ample Hills Holdings cases issued an order approving the $1.0mn sale of Debtors’ assets Ample Hills Acquisition, LLC, a New York limited liability company (“Buyer”) [Docket No. 320].
On June 9, 2020, further to an April 13, 2020 bidding procedures order [Docket No. 91], the Debtors notified the Court that they had (i) cancelled a scheduled June 11th auction and (ii) designated Schmitt Industries, Inc., the only qualified bidder, as the successful bidder for substantially all the Debtors’ assets [Docket No. 259].
As of the Commencement Date, the Debtors have outstanding funded debt obligations in the amount of approximately $9.9mn, consisting of (i) approximately $3.5mn outstanding under loan facilities with Flushing Bank, including a Small Business Administration (SBA) loan in the amount of $1.75; and (ii) approximately $6.4mn outstanding under a series of convertible promissory notes held by multiple investors.
As of March 15, 2020, the Debtors estimated that their aggregate amount of trade claims outstanding was approximately $1.5mn.
About the Prepetition Debtors
According to the Debtors: “Ample Hills Creamery was founded in the spring of 2011 by married couple, Brian Smith and Jackie Cuscuna. Novice entrepreneurs and new parents, Brian and Jackie spent their days juggling the responsibilities of running a business and raising two kids. When they opened their first scoop shop, they were terrified no one would show up…and wildly unprepared when they did. In just four days, Brian and Jackie sold out of ice cream. They hadn’t prepared to be so popular; to churn enough ice cream for the never-ending line, they had to close. While Ample Hills has grown a lot since those days, Brian and Jackie are still balancing it all: imagining new flavors, managing the day-to-day and taking care of their children. With their boundless creativity and inexhaustible passion for dessert, we’re lucky to have Brian and Jackie steering the ship. Just like day one.”
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