IRVINE, CA -- Star Trac, which earlier this month said it would not file for bankruptcy, announced today that it has entered into an Assignment for the Benefit of Creditors (ABC) in accordance with California law, effective immediately.
The Irvine, CA-based manufacturer said in a statement that all assets of Unisen Inc., the parent company of Star Trac, will immediately be transferred to a new corporate entity, Core Industries Inc. By entering into an ABC, Star Trac says it will develop a strategic plan to monetize the assets for the benefit of creditors and to improve Star Trac’s balance sheet to create a healthy company going forward.
An ABC is a common law business liquidation mechanism that is an alternative to a formal Chapter 11 or Chapter 7 bankruptcy proceeding. The ABC proceeding is governed by state law rather than federal bankruptcy law.
Michael Bruno, owner of Land America Health and Fitness Co., Xiamen, China, purchased Star Trac on July 6. Since then, Star Trac had been in negotiations with vendors to restructure outstanding payables, but the company said this process made entering into an ABC unavoidable.
“Despite the infusion of capital from the investment by Michael Bruno, our company could not reduce its payables adequately through direct settlement negotiations with our vendors,” Mike Leveque, president and COO of Star Trac, said in a statement. “We take this process as an integral step towards repositioning the organization for long-term success. Our entire leadership team is committed to increasing our ability to provide the product innovation, quality, reliability and customer service that have been the Star Trac brand legacy since 1988. We are determined to emerge as a stable company that will be better positioned to take care of our customers.”
Management will remain the same, according to a statement from Star Trac. All purchase orders that have been placed with Star Trac will transfer to the new company and will be honored at the terms of the original order, the company said in the press release.
“There will be no lag time on new orders, and we are quoting and fulfilling product at standard lead times,” a Star Trac spokesperson told Club Industry.
All warranties for product in the field will be honored by the new company, Star Trac’s statement said.
Gregg Hammann, CEO of Power Plate International, Irvine, CA, is a friend of Bruno’s. Although Hammann says he has no knowledge of Star Trac’s ABC proceedings, he did speculate that Star Trac is trying to clean up its balance sheet.
Hammann adds he is confident that Bruno and Star Trac will work through its current financial state.
“Whenever you make an acquisition, you try to learn as much as you can, but you never know everything until you actually can get inside the company,” Hammann says. “I’m sure Michael did all the due diligence that he possibly could. They’ve got a great brand. They’ve got a great company and a great leader in Michael. I’m sure this is just a step in the process for them to help create the kind of company that he believes it can be.”
Nautilus Inc. bought two companies which had gone through ABC proceedings during Hammann’s tenure as CEO, he says.
“They were for sale going into it, then they filed ABC, then we were able to pick them up,” Hammann says. “In this industry, [an ABC] is not all that unusual. Most of the time, companies that go through that type of thing come out a lot stronger in the end. To my knowledge, ABC is kind of a softer version of the choices.”
Bryan O’Rourke, CEO and principal with consulting company Integerus, had dinner with Bruno at the Club Industry show in October. O’Rourke says he knows some of the senior executives who have recently come on board with the company.
“This guy knows what he’s doing,” O’Rourke says. “He’s got substantial capital.”
O’Rourke does not anticipate Bruno selling the company once the ABC filing closes.
“Michael owns Land America,” O’Rourke says. “He bought Star Trac for a good reason. He’s a smart businessman. I think he’s in it for the long run. I’d be surprised if they are engaging in an exit.”
The effect on Star Trac customers will be positive, O’Rourke says, adding that the company’s supply lines can now be replenished.
In addition to bankruptcy rumors surrounding Star Trac over the past several months, another rumor had the company relocating to Bruno’s native Ohio, but the company said last month that it was staying in Southern California.