Faced with mounting claims from creditors that could total nearly $3 million, American IronHorse on Tuesday filed Chapter 11 in the U.S. Bankruptcy court's Northern Texas district.
In what could be called a tersely worded filing. AIH agreed to efforts forcing the custom OEM to reorganize under Chapter 11 bankruptcy protection. The involuntary bankruptcy push originated with a trio of investors seeking payment on back debts and then ballooned as more creditors joined the case. "Debtor hereby consents to relief requested in the involuntary petition and respectfully requests that this Court enter an order for relief under chapter 11 of the Bankruptcy Code," the company stated in its filing.
"I feel bad because we've got to do a Chapter 11, but we just don't have any other choice," AIH CEO Buck Hendrickson told Dealernews last week. "There's no way that we could work our way through the debt load that we had, especially with the market being the way it is. We're trying to do what we need to do to keep the brand alive. At this point in time we've got to flush [our debt] and have new seed money to go forward."
Hendrickson could not be reached for comment Tuesday.
The filing comes three weeks after three investors filed a petition to force the OEM into involuntary bankruptcy, claiming that the Fort Worth-based OEM owes $60,000 to A.G. Nichlos Jr. and $30,000 each to William E. Buford and Jim Graham. An attorney for the three, Troy D. Phillips, said the trio represent a much larger group of investors seeking about $2 million.
As of Tuesday's filing, the amount sought by unsecured and secured creditors who have since joined the claim totaled $268,567, much of that in the form of property taxes claimed by local and county agencies. Smaller amounts are claimed by one of the company's suppliers and by Robert Monical and Jayna Monical.
Another creditor is RC Components, which has not yet indicated how much money it will seek from American IronHorse. However, the Bowling Green, Ky-based company in July 2007 filed a civil suit against AIH, claiming the OEM is in arrears for already delivered or specifically ordered products amounting to $612,256.53. According to RC?s complaint, filed in Warren County Circuit Court, the wheel manufacturer had been under contract to supply parts to American IronHorse since 2005. Under the agreement, the wheel builder was required to keep an inventory of material on-hand to supply AIH with just-in-time deliveries.
RC Components claims that American IronHorse owes $327,414.39 for parts already received, and another $284,842.14 for finished products and raw material that AIH had ordered. RC Components also seeks unspecified attorney's fees and associated expenses in its civil suit.
When Hendrickson last spoke with Dealernews, he could not share any details about the group of potential investors other than to say that "they understand the business. They understand how dealerships work." He said some of them could be current American IronHorse management investing their own money in the company. "These are individuals who run businesses and have been successful and have accumulated some wealth…They're not looking for a quick turn and burn," he added.
While it will be up to the courts to determine the impact on American IronHorse's dealer network and suppliers, Hendrickson said that the company will eventually decide which dealers it plans to keep because the bankruptcy will negate its dealer agreements. Hendrickson said IronHorse has between 80 and 100 dealers. American IronHorse held a conference call with its dealers March 20, briefly telling them of the bankruptcy plans and of the potential buyout.