CENTRAL ISLIP, NY (BRAIN)—A U.S. bankruptcy judge ordered Iron Horse Bicycle Company to turn over reams of internal documents related to its Chapter 11 bankruptcy during a two-hour hearing at the Long Island Federal Courthouse on Tuesday.
Iron Horse counsel Andrew Thaler argued that his office had readily produced documents for the suppliers to use in their allegations of fraud. “I reached out to Mr. Spelfogel,” with access to over 2,200 pages of documents, said Thaler, referring to counsel for the suppliers. He said those documents included carefully compiled records of invoices, payrolls and inventory.
Spelfogel argued that his office was seeking “documents outside the current course of business,” including records from former Iron Horse President Stew Barnett, who the suppliers have accused of financial misconduct along with Weidberg. Spelfogel also asked for records from other Iron Horse executives, as well as Randall Scott Bicycle Company—the online retailer owned by Weidberg's son— a pre-bankruptcy consultant and a forensic accounting firm hired by Weidberg.
Iron Horse owes three of its primary Asian suppliers over $5 million in back debt and another $12 million to more than 100 other unsecured creditors. It also owes secured lender CIT Group $4.3 million. The three suppliers—Acetrikes, Fairly Manufacturing and Shen Zhen Bo-An—contend that Iron Horse principal Cliff Weidberg and CIT Group engaged in improper transactions and fraud when they attempted to sell the company’s assets to competitor Dorel Industries in February without notification. No deal was met.
Weidberg attended Tuesday’s hearing, but did not speak. A handful of former Iron Horse employees were also in the courtroom.
In his decision, Hon. Alan S. Trust ruled that Weidberg and CIT would have to provide all documents going back two years, as well as access to the inventory in Randall Scott's warehouses, contingent upon that company’s cooperation.
The issue of how Iron Horse’s assets will be handled was also addressed at Tuesday’s hearing.
Michael Amato, attorney for CIT Group, contended that Iron Horse should package both the company’s inventory and brand, and sell it at auction. In that interest, he intimated that the suppliers should drop of allegations of breach of fiduciary agreement or fraud.
Thaler dismissed auction and defended the continued sale of Iron Horse bicycles on the Randall Scott Web site, saying that online clearance was the most profitable way to liquidate remaining inventory.
“The spring is here now. Now is the time to sell these bicycles,” said Amato, arguing for bundled auction. A sale would include all Iron Horse-branded bikes as well as the Iron Horse brand name. Non-Iron Horse-branded bikes owned by World Wide Cycle Supply, its parent company, would come in a separate deal.
Amato added that he believed Weidberg was attempting to arrange an undisclosed sale of the company’s brand and intellectual property. Thaler said the most profitable course would be to license both the brand and the IP under via Iron Horse Bicycle Company Inc., another company owned by Weidberg, which is not a debtor of CIT Group.
Judge Trust adjourned the fraud matter until May 28, when Weidberg will give a seven-hour deposition on behalf of both Iron Horse Bicycle Company LLC and Iron Horse Bicycle Company Inc., in either a Nassau or Suffolk County court.
Also on Tuesday, attorneys for the suppliers filed a motion requesting a U.S. Trustee be assigned to the case under in order to expedite and oversee the bankruptcy. That would require Iron Horse to cease its online sales and pay fees, which both Weidberg and CIT Group are against. A U.S. Trustee could be assigned to the case as soon as Friday, at which point filing, status and evidentiary hearings could be scheduled, allowing the investigations of fraud under bankruptcy rule 2004 to begin.