Wine dealer avoids liquidation liquidation
April 10, 2003
A Basalt company that trades in rare wines has earned Chapter 11 bankruptcy protection while it reorganizes and tries to pay creditors.
Creditors tried to force Rare LLC and its sole owner, Ron Wallace, into Chapter 7 liquidation bankruptcy.
In addition to the effort by creditors to force involuntary liquidation, at least three lawsuits have been filed against Rare LLC by customers who claim wine that they ordered and paid for wasn’t delivered. The claims exceed $800,000.
Wallace successfully applied Monday to convert that involuntary liquidation into a reorganization under Chapter 11 of the bankruptcy code. A judge approved the request April 8.
As part of the reorganization, Wallace conveyed his interest in Rare LLC to a trust. Denver attorney Harvey Sender was made the trustee with sole control of Rare LLC’s assets and direction of the company’s reorganization.
“I’m basically going to run the operations,” said Sender. “The basic goal is to reorganize the company and get people paid.”
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Trustees in bankruptcy cases are usually appointed by the U.S. Trustee or the courts. In this case, Sender was established as the trustee by Wallace. The move, which was approved by attorneys on both sides of the issue, was made to start the reorganization process faster, Sender said.
According to an article in Wine Spectator magazine, Rare LLC often dealt in wines that were sold in the form of futures. The buyers purchased a contract for delivery of wines that have not yet been bottled. The lawsuits filed against Rare LLC primarily involve Bordeaux from 1998, 1999 and 2000.
Sender said Wallace was guilty of “some sloppy business practices,” including a failure to differentiate between net profits and gross profits. Basically, he said, the company had a cash-flow problem.
Some of the lawsuits filed against Rare LLC alleged that the company used money collected from new investors to pay off obligations to prior investors.
The FBI searched Wallace’s residence in Basalt on Feb. 4 and seized financial records. FBI representatives have said in published reports that Wallace is the subject of a criminal investigation.
Pamela Mackey, a Denver attorney who represents Wallace, said no one has disclosed the nature of the criminal investigation to her client.
Sender said Rare LLC has the potential to recover from its financial situation. The key will be to accomplish additional sales. That can only be done if customers regain confidence that Rare LLC can deliver the products they order and creditors know they will be paid.
The first step, Sender said, will be satisfying existing claims, orders and business deals.
Sender said creditors fall into three categories – customers who paid for wine and didn’t receive the products; distributors of wine, many of them based overseas; and business vendors not involved in wine.
Chapter 11 bankruptcy protects a company’s assets from creditors while a reorganization is attempted.
Sender said Rare LLC has about $200,000 of inventory in wines in the United States. It has about another $1 million in fully paid inventory overseas that has yet to be shipped. Other wines are partially paid for, he said.
Wallace is back on the job for Rare LLC. He is principally responsible for the sales effort while four other employees are handling other aspects of the business, according to Sender.
“They’re back up in operations as of (Thursday),” said Sender, who is supervising all of them. He is the only person who can write checks for Rare LLC. He spent Wednesday at their office in Basalt going over a business plan.
Sender said it should be clear within 60 to 90 days if the reorganization effort will be successful.