June 19, 2023
Deco Lighting Has 45 Days to Avoid Liquidation
Court grants Signify's motion but imminent deal could save Deco from liquidation
Deco Lighting is under pressure to strike a court-approved deal with key creditors before July 31, otherwise its Chapter 11 bankruptcy would be converted to Chapter 7, resulting in a court-supervised liquidation of assets to repay creditors.
In our February article titled Deco Lighting's Chapter 11 Saga Reaches Critical Point, we highlighted that both Signify and the U.S. Trustee had filed motions to dismiss or convert Deco Lighting's bankruptcy case due to the company's significant payment arrears. Other creditors have also reported extended delays in receiving millions of dollars in payments owed by Deco Lighting.
The U.S. Trustee withdrew its motion after Deco Lighting made payments for past due amounts, but a binding agreement was signed by Deco that would trigger immediate action by the U.S. Trustee if the debtor once again falls behind in future payments.
Striking a deal with Signify & others
Signify's motion, however, continues to be a point of contention. The world’s largest lighting company claims that Deco Lighting still owes Signify $222,288 – claims that Deco hasn’t disputed in court. During subsequent hearings held in April, May, and June, Deco Lighting assured the court that it was working on a binding memorandum among Signify and certain other creditors, aiming to reach a satisfactory agreement. However, after a number of delays, the court has now given Deco Lighting a deadline: finalize a deal by July 31 or face conversion to Chapter 7 Bankruptcy, necessitating liquidation overseen by a U.S. Trustee.
Progress has reportedly and seemingly been made with key creditors, but Deco reports that there is still one final obstacle to overcome before a comprehensive agreement is reached. Given the number of negotiation extensions that the court has granted in recent months, the court took action on Thursday, June 15, to ensure that there is a definitive deadline. Thus, the federal judge granted Signify's motion to convert the case to Chapter 7, but with an effective date set for July 31. This court order, yet to be officially filed, allows the parties involved an additional 45 days to strike a deal before the deadline. However, unanimous agreement among Deco, Signify, and other specific creditors on the terms of the deal remains the critical factor.
Deco Lighting's attorney has stated, "ABS Capital is owed a multimillion-dollar amount, and I don't see any way that the estate's assets would cover that." Consequently, unsecured creditors such as lighting vendors and agents, who hold lower priority compared to secured creditors, are unlikely to receive any payments in the event of Chapter 7 bankruptcy conversion.
Threats from Deco Lighting
On the day our February 22 article was published, Deco Lighting informed inside.lighting that it had fully paid the U.S. Trustee and accused Signify of attempting to own Deco Lighting. Signify denied Deco’s claim, stating they were simply seeking payment for the six-figure amount owed to them by Deco Lighting and had no interest in owning the company.
It should also be noted that Sam Sinai of Deco Lighting informed inside.lighting in February “You will be hearing from our attorneys and we will be filing a lawsuit” following our report that accurately recapped recent court filings and hearings. Along with previously received threatening and profane messages from Sinai, we believe this indicates another potential attempt to intimidate our publication from further covering Deco Lighting's obligations to creditors, including numerous companies in the lighting industry. Due to these circumstances, we did not seek comment from Deco Lighting for this article.
The PQL factor
Southern California lighting company, Premium Quality Lighting (PQL), is a shareholder of Deco Lighting's parent company, DQL. In February, PQL clarified that its customers and representatives would not be affected by Deco's bankruptcy. PQL also emphasized that it has not assumed Deco's financial responsibilities, agreed to purchase the company, invest further, or take on the role of defender and protector for Deco.
Deco Lighting has acknowledged that it is delinquent on plan payments and not in compliance with the supply chain agreement with PQL, which is owed approximately $2 million. The current circumstances may cause PQL to face a decision to invest more capital and/or take on more risk with the Deco Lighting situation or to cut its losses.
Given the current circumstances, any deal reached in the upcoming weeks will seemingly require unanimous consent from Signify, Crossroads Funding, ABS Capital, PQL, and Deco. If an agreement is acceptable to some creditors but not all, it may necessitate additional hearings to secure a binding agreement among all parties. If no such agreement is reached by July 31, the court-ordered Chapter 7 liquidation is expected to commence.
