Kent & Spiegel Direct Inc., a bankrupt DRTV marketing company in Culver City, CA, is liquidating its remaining assets.
The liquidation marks another chapter in the history of a DRTV marketer that once boasted retail sales in excess of $100 million a year and was considered a major infomercial company with such “hit” products as AbFlex, Microcrisp and Sobakawa Pillow.
The company’s bankruptcy petition was converted from a Chapter 11 to a Chapter 7 on June 14, which means the court-appointed trustee is now accepting bids on various Kent & Spiegel assets.
A hearing is scheduled on Aug. 11 for the sale of the company’s Hollywood Glamour Patch infomercial, which demonstrates a beauty care product to reduce wrinkles.
As of press time, two bidders had indicated an interest in buying the rights to the show, said Howard Levine, an attorney with Weinstein Eisen & Levine, Los Angeles, who represents the trustee.
He said the trustee accepted an initial bid from Tristar Products Inc., a DRTV marketing company in Parsippany, NJ, that boasted a recent DRTV success with the Hook ‘N’ Hang closet organizer. Tristar bid $37,500 down and another $37,500 payable when the company agrees to roll out the infomercial. Among other terms, the trustee also receives 5 percent of DRTV sales, 10 percent of third-party sales and 7 percent of continuity sales.
Genesis Media Group Inc., a DRTV marketer in Studio City, CA, that marketed an infomercial for “Men Are From Mars, Women Are From Venus,” expressed an interest in overbidding, Levine said. He declined to disclose the amount of the bid.
To participate in the auction, potential bidders are required to demonstrate financial strength and expertise in the management of an infomercial marketing campaign. An auction for the Glamour Patch infomercial is expected to be held Aug. 11 in the U.S. Bankruptcy Court for the Central District of California, Los Angeles.
One issue that needs to be worked out in court is whether the bidder has to pay a royalty fee to the producer of the infomercial. Levine said the judge would determine if royalty payments are necessary.
Secured Creditors Eye Cash
Part of the proceeds from the auction may be applied to the claims of secured creditors, but the specific allocation is not expected to be determined for some time. If there are conflicting claims on the priority of the allocation, the process could take another year to resolve in court, said Sam Maizel, an attorney who represented Kent & Spiegel during the Chapter 11 proceeding.
One secured creditor that anticipates it will receive at least part of the proceeds is Coast Business Credit Inc., a bank that claims it is owed about $8.4 million. Coast’s attorney said he was “not optimistic” that the bank would receive an allocation to satisfy the full amount of its claim.
“It does not look promising,” said David Levene, a lawyer with Levene, Neale, Bender & Rankin LLP, Los Angeles. “We do claim a priority [on the proceeds of the auction], not only through our secured position, but also through the use of the bank’s cash collateral during course of the proceeding.”
Another secured creditor in the case, Gerber Trade Finance Inc., claimed it was owed about $1.4 million and was paid in full, Maizel said.
Unsecured Creditors May Not Get Paid
There are also thousands of unsecured creditors who may not see any money from the liquidation, according to the trustee’s attorney.
“It is unlikely unsecured creditors will receive a distribution,” Levine said.
At the beginning of the proceeding last year, Kent & Spiegel sent a notice of commencement of the bankruptcy case to more than 60,000 creditors, including consumers, trade creditors, investors and suppliers. Most of those creditors were people who had ordered Kent & Spiegel’s Bun & Thigh Sculptor, an exercise device that was defective, according to a statement from Peter Spiegel, chairman and co-principal of Kent & Spiegel.
“Tens of thousands of [Bun & Thigh Sculptor] units were returned by consumers who wanted their money back,” he said in a written declaration filed in court. “These defects destroyed consumer confidence in the product, causing a collapse in sales. Moreover, the failure of this product caused a decrease in confidence – and sales – in other [Kent & Spiegel] products.”
Maizel said about 10,000 of the original 60,000 creditors filed a claim against Kent & Spiegel.
The largest unsecured creditor was Paymentech Merchant Services Inc., a credit card payment processor in Dallas. Its original claim, which was disputed, totaled $4.1 million, according to court filings.
Paymentech claimed that Kent & Spiegel failed to ship merchandise to approximately 15,000 consumers and also failed to issue refunds to approximately 36,000 consumers who had ordered products, then subsequently returned them. An attorney representing Paymentech declined to comment on the status of the company’s claim.
Another major unsecured creditor that was adversely affected by Kent & Spiegel’s bankruptcy was the infomercial industry’s largest media agency, Williams Worldwide Inc., Santa Monica, CA. The agency’s chief executive officer, Kathleen Williams, blamed the Kent & Spiegel bankruptcy for her company’s “substantial losses” in a letter sent to broadcast station managers and sales reps in May. The agency, which once had boasted annual billings in excess of $80 million, was sold to Century Media on May 4. The proceeds of the sale would applied to Williams’ debt to stations, according to the letter.