Creditors force coffee company into bankruptcy
SCARBOROUGH — With more than $1 million in debts, Freaky Bean Coffee Co. has closed its stores after being forced into bankruptcy by creditors.
The Westbrook-based business became an almost overnight success with its first coffee shop in June 2006 at Willowdale Place on Route 1. Its co-founders, Jonathan Stratton and Andrew Kessler, quickly added stores in South Portland and Westbrook. By the end of 2007, they had purchased Maine Roasters Coffee in Falmouth and Yarmouth, making it the largest independent coffee company in the state. That year, Scarborough Economic Development Corp. honored Freaky Bean as one of its businesses of the year.
Last year, they opened a second Scarborough store at the Gateway Shoppes near Cabela’s. In November 2008, Maine Coffee Roasters’ original owners bought back the stores and about that time, Kessler resigned, leaving Stratton as president and CEO. In January 2009, Stratton closed the first shop and moved it down the street to Bessey Square.
But behind the company’s pledge to community involvement and support, its list of creditors was growing.
Three of them, Rosemont Market of Portland, The Sunrise Guide of Westbrook and Harry J. Acer Co. of Ramsey, N.J., filed an involuntary bankruptcy petition against the coffee company on Feb. 25, driving it into Chapter 7 bankruptcy on March 17.
Chapter 7, sometimes referred to as straight bankruptcy, usually leads to liquidation of a company. A company in Chapter 7 proceedings is able to continue to operate under the direction of a court trustee until the matter is settled. If the company can resolve its problems and settle with creditors in the interim, it may not have to be liquidated.
Since the February filing, Central Maine Power Co. of Augusta, Paul G. White Tile Co. of Portland, T & T Development of South Portland and L & J Co. of South Portland have joined the creditors’ petition.
Court documents indicate nearly 100 secured and unsecured creditors are owed about $1.1 million.
The coffee company also has shareholders, although there is most likely no value to their holdings, Attorney Randy Creswell, who represents several of the creditors, said.
He also represents Willowdale’s owner and leaseholder for the original store, Mark Maroon, who joined the petition last week.
“There are 2 1/2 years left on Freaky Bean’s lease,” Maroon said. “They owe me $86,000.”
Even though the coffee company broke its lease when it moved, Maroon said the bankruptcy court has prohibited him from leasing the space to someone else.
This is standard procedure in a Chapter 7 bankruptcy, Creswell said. When the petition was filed on Feb. 25, the court imposed an automatic stay, which prevents creditors from taking any action to collect for a time period. If the court does not give its consent, Maroon could file a motion to have his property released so it can be rented to another party, Creswell said.
The stay allows a trustee to try to recover payments made to some of the company’s creditors in the last 90 days before the filing. The trustee will also look at the company’s payments to determine if they could be what the court calls “avoidable.” By liquidating a company’s assets, amassing the money the company does have and preventing payments to some creditors, the trustee “balances the playing field,” Creswell said. Then any money that remains can be redistributed to all creditors equally on a prorated basis, though they may recover only pennies on the dollar.
Freaky Bean owns no property and has assets of about $80,000, according to documents filed at U.S. Bankruptcy Court in Portland, which will make it hard for creditors to recover their money, Creswell said. The government is first on the list and records show the Internal Revenue Service is claiming $51,000 and the state of Maine claims $2,000 in withholding and nearly $10,000 in unpaid sales tax.
A company called Bean Co. was formed the end of last year and has laid claim in court documents to $250,000 as a secured creditor.
“What I think happened is some of the people running Freaky Bean set up Bean Co.,” Creswell said. “… Bean Co. made a sizable loan to Freaky Bean in December 2008 – somewhere in the neighborhood of $250,000 – which is listed on the Freaky Bean schedules. The Bean Co. we think is made up of several of the same folks as make up Freaky Bean.”
Creswell said he expects the trustee assigned to the bankruptcy will look into Bean Co. for anything unusual “with an eye toward trying to recover money for the benefit of the creditors.”
“I’m very confident at least one or two of the insiders of Freaky Bean are also insiders of Bean Co.,” Creswell said.
Other secured creditors listed include several leasing companies with claims totalling nearly $200,000, and TAS Construction Co. of Portland, with claims for nearly $60,000 for work on the interior of the Gateway Shoppes store.
Unsecured creditors include a claim of $210,000 by Gary Woodworth, who became a partner in late 2007, and many claims by credit card and financial companies.
If a Chapter 7 case is straightforward, Creswell said it can often be wrapped up in four months. With Freaky Bean, he said it could take longer. To be considered, creditors must file their claims by June 22.
Peggy Roberts can be reached at 781-3661 ext. 125 or email@example.com.