Pelican Financial Services aborts takeoff

Only five months after a bankruptcy court approved its plan for reorganization to continue operating, Pelican Financial Services Inc. – formerly Blue Bear Funding LLC – wants to call it quits.

Pelican shareholders, who consist of the hundreds of unsecured creditors of Blue Bear, received a letter dated Dec. 28 detailing the ongoing problems for the bankrupt company.

“It is with deep regret that we are advising you of our board of directors’ recommendation to liquidate and dissolve Pelican Financial Services Inc., formerly known as Blue Bear,”  stated the letter signed by John Miller, chairman of Pelican’s board. “All investment activities have ceased as of December 15, 2006, and all employees have been terminated but those necessary for the collection of the factored accounts receivable.”

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The feeling of disappointment isn’t reserved for the board. Blue Bear’s 400 unsecured creditors overwhelmingly supported management’s plan to pull the company out of bankruptcy.

“It’s hard to understand why they’re throwing in the towel after only a few months,´ said shareholder Rick Cramer.

Cramer, a food solicitor for the Weld County Food Bank, was one of the larger investors with about $290,000 riding on Blue Bear’s factoring business. Cramer, in his early 60s, and his wife were looking for an investment that would allow them to retire. They heard about Blue Bear from a member of their church, Don Donahoo, who was also one of the company’s founding members.

Bankruptcy background

Blue Bear started business in late 2003 as 1st American Factoring LLC. Factoring companies generally purchase accounts receivable from cash-strapped companies for around 80 percent to 90 percent of total value, then attempt to make money by collecting the entire amount owed. As Blue Bear, the company acted as an account broker for nine independent factoring companies, known as IFCs, purported to have the right to approve all accounts.

Where exactly Blue Bear ran into trouble is up for debate. Many early investors reported that their money was accruing interest at around 12 percent; most left those earnings invested with the company. Around May 2005, Blue Bear’s investors stopped receiving a return.

The company filed for bankruptcy in August 2005, owing creditors – many of whom were non-accredited investors with low individual net worth – more than $20 million.

The bankruptcy proceedings continued for over a year. On Aug. 4, U.S. Bankruptcy Judge Bruce Campbell approved Blue Bear’s reorganization plan, even as the U.S. Trustee fought to have the company liquidated.

The company’s unsecured creditors were given the opportunity to vote on the reorganization plan. Of the 298 unsecured creditors who turned in valid ballots, only four voted against the plan. The creditors voting to accept it represented $15.5 million in claims, while those rejecting the plan represented $344,000. In order for the plan to be considered approved, more than 50 percent of the voting creditors holding more than two-thirds of the claim amounts were required to vote in favor.

Under the plan, Pelican Financial Services became a Subchapter C corporation, as opposed to the limited liability company Blue Bear had been. The new company issued stock to its more than 400 creditors, with one share of stock for every $1,000 owed.

Those shareholders had a chance to vote on the issue of liquidation at a special meeting on Jan. 10. Jo Anne Hagen, a Windsor attorney representing Pelican, said that the meeting did occur but that the vote was not yet final. She declined to comment any further, but said that there would be a statement made within the next few weeks.

Avoiding a ‘tough go’

The recommendation by the board of directors to cease operations didn’t come completely out of left field, according to Risa Wolf Smith, the attorney representing the unsecured creditors/shareholders.

“There was a clear recognition that the business might fail,” she said. “It was pretty evident that it would be a tough go.”

As part of the reorganization plan, the company had set operating goals, but the letter to shareholders indicated that Pelican “has not met and will not meet any of the plan benchmarks due Dec. 31.”

The letter also cited issues with attracting new investments, operating expenses and upcoming financial and legal debts as reasons for the recommendation to liquidate the company.

Ongoing operations were costing the company money in salaries, rent and supplies, Smith said, and the company was racking up more expenses than it was earning.

“The obvious choice was to shut it down,” Smith said.

The reorganization plan indicated that in a best-case scenario, shareholders could recover 13 cents on the dollar by 2010 from business operations. If the company had liquidated instead of reorganizing, unsecured creditors could have received around 7 cents on the dollar and the liquidation process would have started immediately.

The company still has assets, according to Smith, so shareholders could still see some payment. Although the company will no longer be taking on new factoring accounts, it will still pursue certain revenue streams, and its lawyers will continue to make collections for outstanding accounts, she added.

The letter stated that collections on about $980,000 in bad debts were anticipated to net some revenues. However, collections were “minimally successful” for reasons ranging from the value of collateral not being what was anticipated to debtors fleeing the state.

Smith also said that the attorneys would also continue to pursue ongoing litigation against people “considered culpable and liable” for Blue Bear’s failure.

Investor Cramer said that he did not vote for or against the liquidation. Losing a lifetime of savings is a lot like dealing with death, he explained. He went through the five stages of grief – denial, anger, bargaining, depression and, finally, acceptance – and has come to  accept that the money is gone. He has resolved to get on with his life.

“It’s over, it’s done. That’s part of my resolution,” Cramer said.