U.S. Trustee Daniel McDermott has asked the U.S. Bankruptcy Court for the Middle District of Florida to appoint a Chapter 11 trustee to oversee the operations of IPS Worldwide. The request is sought due to concern regarding mismanagement of the firm’s handling of freight invoices as the company restructures under a Chapter 11 bankruptcy filing.
Previously, McDermott successfully petitioned the court for an examiner to conduct an investigation into the company’s filing.
“The company’s leadership does not have sufficient knowledge to lead the day to day operations effectively and should not continue receiving compensation,” stated Maria M. Yip, the examiner appointed to review the company’s finances in her preliminary report presented to the court earlier this month according to the Daytona Beach News Journal.
IPS Worldwide, a freight audit and payment services company, processes more than 35 million freight invoices valued at more than $8 billion a year through offices in seven countries covering North America, Europe, Asia, India and Latin America according to its website.
The Chapter 11 filing cited accumulated trade debt and customer frustrations as reasons for the restructuring request. Further, the company listed assets worth less than $50,000 and liabilities of between $100 million and $500 million. In 2018, IPS had gross revenue of approximately $9 million and about 32 employees.
In the January petition listing creditors and the debt owed, many familiar names were listed. Stanley Black and Decker (NYSE: SWK), Alcoa Corporation (NYSE: AA) and YRC Freight (NASDAQ: YRCW) have already made it known what their potential losses may be. Stanley Black and Decker said it would book a $50 million charge to its previously reported 2018 earnings relating to the IPS bankruptcy. Alcoa was listed as an IPS creditor to the tune of $28.7 million and YRC was listed to be owed $4.7 million although it contests that the number could be much larger than that figure, but less than $10 million of operating income.
William Davies founded the company in 1998 and served as President until his departure earlier this month. The Chief Financial Officer, Michael McNett, has left the company as well.
During a meeting with creditors, Davies explained that he doesn’t know why some of the company’s customers’ bank accounts were commingled and others were segregated according to the U.S. trustee’s filing as reported by The Wall Street Journal. In the filing, Davies further said that McNett supervised the only employee with access to customer accounts and that he [Davies] was aware that McNett had a prior felony conviction. McNett served time in prison for crimes including grand larceny, according to the The Wall Street Journal.
“There can be no doubt that what the debtor has disclosed in the papers filed with this court and at the first meeting of creditors, and further illuminated in the examiner’s interim report, constitute, at minimum, incompetence by management,” McDermott said, as reported by the The Wall Street Journal.
The examiner’s final report is due to the court tomorrow, March 26.