Former Performance Sports bankruptcy plan finally emerges
Few details spelled out in sports equipment company’s filing
Creditors of the former Performance Sports Group should be getting everything they are owed except interest, but shareholders? Not so much, according to plan filed last week in bankruptcy court.
The plan would also set aside almost a million dollars to fight shareholder securities fraud class actions against the Exeter company.
Meanwhile, Peak Achievement Athletics, the company that emerged from the bankruptcy, is keeping a low profile, focusing on its brands, especially Bauer Hockey.
The bankruptcy plan, which was filed over nine months after the Exeter-based sports equipment firm declared bankruptcy with debts exceeding $600 million, discusses how the estate would dole out the proceeds of the $575 million February sale of PSG assets to an investor group led by Sagard Capital, a large shareholder.
But the 80-page plan is short on details, which are normally spelled out in a separate disclosure statement. PSG had delayed filing such a statement in this case because all of the parties – including a rare court-appointed equity committee representing shareholders – have all signed off on the plan, and it didn’t want to slow down the “momentum.”
What the plan does say is that Old BPSUSH Inc., the bankrupt shell that is administering the estate, will first pay off all lawyers and professionals involved in the proceedings and then pay secured creditors with interest accrued after the filing. Unsecured creditors will be paid without such interest and equity holders will receive a pro rata share of what is left. But the plan doesn’t say how much shareholders will receive, even in percentage terms.
But one dollar figure is specified. Exactly $928,077 will be set aside for the class action suit, which was originally filed in federal district court in New York City against PSG and its top two executives, former CEO Kevin Davis and former Amir Rosenthal, former chief financial officer who later briefly served as CEO.
The complaint charges that the company deceived investors by not disclosing it was allegedly inflating revenue with aggressive sales tactics that pushed retailers to buy more than they could sell, and to do so earlier than they needed it.
Sales tactics at issue
An amended complaint dropped the bankrupt company as a defendant. It also focuses on PSG’s former claims of strong “organic” growth, arguing that such growth does not include “results from fraudulent or manipulated sales practices.” And it adds on one more source: an article in NH Business Review quoting a Detroit retailer as saying that PSG was trying to “jam orders down our throat”
But aggressive sales tactics are not against the law, argued the defendants attorneys in their June 22 motion to dismiss the complaint. And there is nothing in the complaint indicating that the actual sales were fraudulent, since they involved legitimate merchandise that was delivered.
As for “organic growth,” that’s a financial term that simply means that the revenue growth was not related to mergers and acquisitions and told investors “nothing about the nature of its sales practices, or whether its growth was sustainable.”
As for the Detroit retailer, the defendants noted that the NH Business Review article also quoted him as saying, “I’m half to blame … I could have said no … coercion, however, is too strong of a word.”
Plaintiffs urged the judge to look at the big picture.
“The Defendants concealed from investors a material aspect of PSG’s business – its use of those high-pressure sales tactics to meet quarterly targets – while representing at the same time that the Company’s growth was “solid,” “record-setting,” “organic,” according to the plaintiffs’ July 22 filing. “Those statements were misleading because they omitted facts on the very subject matter – growth, the nature and cause of that growth.”
Meanwhile, Peak doesn’t have an official website. All clicks lead to its brands: Easton baseball and softball equipment, Maverick and Cascade lacrosse equipment and Bauer hockey equipment.
Messages left with Bauer’s media division were not returned by deadline.