CENTRAL ISLIP, NY (BRAIN)—The CIT Group filed an objection on Wednesday to allegations of financial misconduct leveled against them by Asian suppliers of bankrupt Iron Horse Bicycle Company.
The CIT Group, Iron Horse’s secured lender, disputed allegations by Fairly Bike Manufacturing, Acetrikes and Bo-An Bike Company, that CIT gave consent to Iron Horse to fraudulently sell its assets for less than a fair price without first notifying the suppliers.
Iron Horse, which stopped doing business on Jan. 31, owes its Asian suppliers more than $5 million in back debt. The brand recorded $16.4 million in sales in 2008.
On March 6, the suppliers filed a petition in bankruptcy court asking the judge to order CIT and other Iron Horse affiliates to attend a hearing and hand over any documents relevant to its dealings with Iron Horse.
In a 13-page objection filed by its attorneys on Wednesday, CIT Group said the suppliers’ allegations are not only erroneous, but that it has cooperated with the group to produce the documents that it has been able to locate.
Further the suppliers’ requests should not be allowed to delay attempts by CIT and Iron Horse to get the highest and best price on a sale of Iron Horse’s assets.
“With the summer season fast approaching, certain big box retailers have expressed interest through various channels to purchase the [Iron Horse’s] bicycle inventory. [Iron Horse] must strike now while demand is high for the current season, or risk its inventory becoming obsolete with minimal value,” the filing said.
According to court documents, Iron Horse owed CIT Group $19 million in mid-Spring 2008. From May to December, Cliff Weidberg, president of World Wide Cycle Supply, Iron Horse’s parent company, worked with CIT to reduce the debt to $10 million. However, Iron Horse remained in default under its agreement with CIT, and CIT sent a letter to Iron Horse on Dec. 17 demanding payment of the entire debt of $9.2 million.
In February, CIT retained an advisory group to help determine the liquidation value of Iron Horse’s inventory of finished bikes, property and the brand name. That figure worked out to be between $1.2 million and $2.7 million. At that time, Iron Horse owed CIT Group $5 million.
Under the rights in its agreement with Iron Horse, CIT move ahead with foreclosure on its collateral. The Uniform Commercial Code permits that to be done in either a public or private sale, the filing said.
Initially, CIT worked a deal to sell the Iron Horse inventory to Randall Scott’s company (Weidberg’s son) for $400,000 cash and a $1.25 million promissory note, and non Iron Horse-branded business (K2, Jeep and Columbia) to Jeff Bruno, a former Iron Horse employee and current president of East Coast Cycle Supply, for $800,000.
That deal never closed due to issues surrounding Iron Horse’s ability to transfer the brand licenses to Bruno.
The next month, Dorel Industries negotiated to buy all the Iron Horse and non Iron Horse branded inventory and the Iron Horse trademark for $2 million. The closing date was scheduled for Feb. 23.
The suppliers balked over the private sale, but they were not entitled to notification of the sale because as unsecured creditors, they didn’t hold any “valid security interest and did not notify CIT of any claim they may have had in the collateral,” according to the filing.
CIT postponed the sale to Dorel twice to allow the suppliers an opportunity to formulate a plan to sell Iron Horse’s assets in which they would be guaranteed financial recovery by CIT. When that didn’t happen, they filed an involuntary bankruptcy petition against Iron Horse on March 2.
CIT claims that even if the suppliers’ allegations of a fraudulent sale were true, it wouldn’t impact the bankruptcy estate because CIT is the first priority as Iron Horse’s secured creditor, and even if Iron Horse received 100 percent of the costs basis of its inventory—$3.9 million—it would still owe CIT more than $600,000.
CIT also says the suppliers are asking for documents that are irrelevant to Iron Horse’s assets like all documents related to the two attempted private sales of the company.
Attorneys for Iron Horse and Cliff Weidberg also responded this week to the suppliers’ investigation request. Iron Horse and Weidberg both objected to the request and asked that it be denied. Also, according to Iron Horse’s lawyer, some of the company books and records are missing and may be held by former Iron Horse employees.