MOTION TO CONVERT CASE TO CHAPTER 7 OR APPOINT CHAPTER 11 TRUSTEE
BACKGROUND
2. On December 16, 2013 (the “Petition Date”), Republic of Texas Brands, Inc. (“Debtor” or “RTXB”) filed its voluntary petition for relief under Chapter 11, Title 11 of the United States Code (the “Bankruptcy Code”).
3. Movants are all creditors of the Debtor. Additionally, Michael Welch (“Welch”) is a shareholder and the former CFO of the Debtor.
4. Prior to the Petition Date, Debtor and Empire Capital, LLC (“Empire”) entered into a Services Agreement, whereby Empire was to provide Debtor with general business development assistance, marketing assistance, sales assistance, incorporation services, business plan development assistance, and private placement assistance. In return, Debtor was to pay Empire $200,000.
5. Matthew Nicoletti (“Nicoletti”) and Scott Forsythe (“Forsythe”) are officers of Empire. They personally loaned money to the Debtor during the time Empire was performing services for the Debtor. Additionally, Caught in the Web, LLC, another company Forsythe is an officer of, also loaned money to the Debtor during the time Empire was performing services for the Debtor.
6. Debtor breached the Services Agreement, and Empire filed suit in the United States District Court for the Western District of North Carolina, case 3:13-cv-00628, on or about November 15, 2013.
7. Movants are aware of multiple actions taken by Debtor’s current management prior to the Petition Date, which constitute cause to convert this case to a chapter 7 proceeding, or appoint a chapter 11 trustee. These include but are not limited to:
- Management misrepresented to investors its history as a shell company in order to improperly issue shares under Rule 144 of the Securities and Exchange Act of 1934;
- Management took actions to attempt to thwart the issuance and delivery of shares to investors, knowing consideration for those shares had been received and that the issuance and delivery of those shares was approved by the board of directors;
- Management issued press releases misrepresenting that Debtor had entered into a lucrative co-packing agreement, knowing that said agreement had not been executed and despite being counseled as to the inappropriate timing of the press release;
- Management misrepresented to investors that it had a binding contract to purchase a restaurant chain, knowing that Debtor had nothing other than an expired, non-binding, letter of intent at the time the misrepresentations were made.
8. Management has continued to take actions after the Petition Date, which constitute cause to convert this case to a chapter 7 proceeding, or appoint a chapter 11 Trustee. These include but are not limited to:
i. Management misrepresented, either in Debtor’s sworn schedules, or in Debtor’s 341 meeting testimony, or both, that liens have been granted against Debtor’s intellectual property;
ii. Management represented in Debtor’s 341 meeting that it was under a confidentiality agreement related to a potential merger candidate, but prior to the 341 meeting management sent correspondence to various noteholders and shareholders identifying aspects of the merger that were supposedly confidential and possibly exposing the Debtor to liability for breaching the confidentiality agreement management testified to;
iii. Management authorized the filing of an application to employ as counsel an individual that is a creditor of the Debtor, shareholder of the Debtor, officer of the Debtor, and fact witness in the litigation he would represent the Debtor on, willfully ignoring applicable Bankruptcy Code provisions, and despite being advised by the U.S. Trustee that the individual could not represent the Debtor, thus wasting estate assets;
iv. Management authorized the filing of an adversary proceeding against Welch that will be shown to be totally without merit, and even if it were not, the recovery the adversary proceeding seeks is the return of shares in the Debtor that would appear to be worthless based on the Debtor’s prospects for rehabilitation under chapter 11, a waste of estate assets;
- Management misrepresented either in Debtor’s sworn schedules, or in post-petition press releases, or both, the makeup of Debtor’s equity security holders;
- Management has made false, disparaging, and defamatory statements about Empire and Welch in press releases and on public websites, possibly exposing the Debtor to litigation for defamation and business disparagement;
- Management has attempted to interfere with Empire’s contractual relationships with other customers, totally unrelated to this bankruptcy case, causing Empire to expend significant assets to repair the relationships, and possibly exposing the Debtor to litigation for tortious interference with contract.
2. The actions of Debtor’s current management exhibit dishonesty, incompetence, gross mismanagement of the Debtor’s affairs, and constitute cause to convert this case or appoint a trustee. Further, the Debtor has assets of less than $1,000, no business operations, and no indication that there is a reasonable likelihood of rehabilitation under chapter 11.
RELIEF REQUESTED
3. Movants request that the Court convert this case to a chapter 7 proceeding, or appoint a chapter 11 trustee, whichever is in the best interests of the creditors and the estate.
4. Because Debtor does not have ongoing operations and income and has assets of less than $1,000, a chapter 11 plan does not appear feasible. If the option of securing a third party to merge into the Debtor or acquire the Debtor’s assets as part of this case exists, that option can, and should, be completed by a chapter 7 trustee or chapter 11 trustee. Debtor’s current management has shown, both pre-petition and post-petition, that they cannot or will not act in the best interests of the creditors and the estate.
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