U.S. Bankrupcy Court Judge Stacy Jernigan has sided with creditors in Lumenate's Chapter 11 filing, paving the way for the potential dissolution of the company.
"Dismissal of this Chapter 11 case is in the best interest of the debtor, its estate and creditors," Jernigan, a U.S. Bankruptcy Court judge for the Northern District of Texas, wrote in a June 26 order.
Both Lumenate's former distributor Avnet Technology Solutions (owed $25.5 million) and secured creditor MidCap Financial (owed $2.1 million) called for outright dismissal of the case rather than a conversion to Chapter 7 liquidation. Both believe there are essentially no assets to be liquidated.
Avnet Technology Solutions has agreed to subordinate its secured debt to MidCap so that creditors can pursue other options under state law. The distributor had previously cut off its vendor financing and refused to engage in business activities with Lumenate, according to court filings.
Jernigan's decision followed a hearing Monday on MidCap's motion to dismiss the case. Expected witnesses during the hearing, according to court filings, were: Lumenate President Reagan Dixon; Kenton Getz, Lumenate's vice president of finance and controller; Bruce Jennings, MidCap's managing director of due diligence; and Jolea Kidd, Avnet Technology Solutions' vice president of credit and collection.
Dixon didn't immediately respond to requests for comment, while Tech Data – which bought Avnet Technology Solutions in February for $2.6 billion – declined to comment.
Lumenate - No. 148 on the 2017 CRN Solution Provider 500 - indicated in a June 9 court filing that it was working out a long-term budget that paves the way for either a successful reorganization or sale.
Now that the case has been dismissed, secured lenders such as MidCap and Avnet Technology Solutions would be able to go into Lumenate and obtain the collateral needed to satisfy the company's debt, according to Adam Stein-Sapir of bankruptcy claim buyers Pioneer Funding Group, which is not directly involved in the case.
MidCap and Avnet Technology Solutions should have the cooperation of local law enforcement in taking possession of Lumenate's collateral, Stein-Sapir said, and aren't required to undertake anything more than a straightforward procedural filing to initiate this process.
From there, any leftover money is returned to Lumenate, at which point Stein-Sapir said unsecured creditors can race back to the courthouse, obtain judgments against Lumenate, and look to enforce those judgments in order to get repaid on their debt.