Redcon1 ducks Chapter 7 bankruptcy fight

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The past few months have been a public relations fiasco for Redcon1, a Florida-based sports nutrition brand.

First, its founder Aaron Singerman was sentenced in January to 54 months in prison and ordered to confiscate millions of dollars after pleading guilty to crimes involving another sports nutrition company, Blackstone Labs.

Singerman was sentenced to prison after he was arrested for boating under the influence and separately crashed his car while allegedly under the influence of a pharmaceutical drug to treat insomnia.

Last week, Redcon1 encountered more drama when three creditors led by Hi-Tech Pharmaceuticals Inc. filed for Chapter 7 involuntary bankruptcy against Redcon1, raising questions about its financial health.

Hi-Tech Pharmaceuticals has been manufacturing nutritional products for Redcon1 since its inception and continues to do so, according to Hi-Tech owner Jared Wheat, who had no additional comment at the time of this story’s publication.

On Tuesday, October 18, the parties filed a motion to dismiss the case in the United States Bankruptcy Court for the Southern District of Florida. In the filing, Redcon1 argued that “the petition was filed because of a misunderstanding between the parties as to payment terms.”

“Nevertheless, shortly after the filing of the petition, the parties reached an agreement to amicably resolve all issues between them,” the filing adds.

Before Redcon1 reached an agreement with Wheat, news of the Chapter 7 filing had already been published by a Florida-based news website, BocaNewsNow.com, and the bodybuilding community was speaking out on the importance of the petition in online videos.

According to the October 13 bankruptcy petition, Redcon1 owed Hi-Tech Pharmaceuticals nearly $6.42 million, Hi-Tech Nutraceuticals Inc. $108,581.75, and Print Partners LLC $308,927.45 for a total of nearly of $6.84 million.

A hearing on the motion to dismiss is scheduled for October 26 before Judge Erik P. Kimball in West Palm Beach, Florida.

Redcon1 chief legal officer Jay Manfre said the bankruptcy filing came as a surprise to the company.

In a joint interview Wednesday with Redcon1 President Eric Hart, Manfre described the company’s financial health as “strong” with significant investments in categories such as energy drinks. Redcon1 announced plans in September to launch a line of energy drinks.

“We wouldn’t be able to do this if we weren’t financially sound,” Manfre told Natural Products Insider. “It takes a lot of investment.”

Still, the bankruptcy petition has raised questions about the financial health of Redcon1, which has described itself as the “fastest-growing sports supplement brand in history.”

An involuntary bankruptcy petition is typically filed “when multiple unsecured creditors of a business believe that the management of the business itself is doing something with the business’s funds that is improper and the business is already insolvent. or will become so due to any of these improper transactions,” said bankruptcy attorney Seth Kleinman.

Kleinman, who is not involved in the Hi-Tech/Redcon1 case, was interviewed Tuesday, the same day the parties filed a motion to dismiss the bankruptcy petition.

Redcon1’s Hart described the situation with Hi-Tech’s Wheat as a “misunderstanding” which was resolved “quickly and amicably”.

“We’ve had phenomenal growth over the past six years, and we’re on track to have a strong 2022, better than 2021,” Hart said, adding that Redcon1’s products are distributed in approximately 30,000 outlets. of sales in the United States, through such varied channels. distribution channels like gyms, Kroger, GNC and Walmart. “The company has grown by leaps and bounds.”

Even if Redcon1 failed to reach an agreement this week with its creditors, it would have been given the opportunity to challenge the bankruptcy filing.

“In a voluntary [bankruptcy] case, the reorganization order is automatic; basically they’re bankrupt,” said Darryl Scott Laddin, partner and chairman of the Bankruptcy, Creditors’ Rights and Financial Restructuring Group at the law firm Arnall Golden Gregory LLP (AGG). “In an involuntary case, the debtor has the right to file an answer and contest the petition and may do so on several grounds.”

To move forward with a Chapter 7 bankruptcy, unsecured creditors must establish that they are owed money and that the claims are not conditional or disputed, said Kleinman, a partner in the restructuring group. and insolvency of Morrison & Foerster’s businesses.

“The key is that these creditor claims must be non-contingent and not subject to a good faith dispute as to liability or amount,” Laddin said.

The point is probably moot, thanks to Redcon1 and three of its creditors reaching a settlement.

The stakes, however, could have been colossal for the sports nutrition company, especially if the case proceeds to Chapter 7 and the judge appoints a trustee in bankruptcy.

A trustee in bankruptcy assumes management of the business, including its books and records, and their job is to wind down the operations of the business, Kleinman explained.

“A trustee in bankruptcy is a fiduciary for the benefit of all creditors and seeks to locate assets that may exist and distribute them to the debtor’s bona fide creditors,” added Laddin, who is not involved in the case. Hi-Tech/Redcon1 and , like Kleinman, was interviewed on Tuesday.

In the interview with Natural Products Insider, Hart also addressed — and disputed — speculation that certain developments at Redcon1 signal that the company was facing financial difficulties even before the bankruptcy petition was filed.

He noted that Redcon1 still operates from its same headquarters at 701 Park of Commerce Blvd. in Boca Raton after being sold last year to Aaron Singerman, the founder of Redcon1. Local government records indicate the property is owned by 701 Rose LLC, whose director is listed in an amended annual report as Darielle Singerman, Aaron’s wife.

Hart also answered questions about Redcon1 parting ways with employees.

In September, Redcon1 announced a partnership with a third-party logistics company called STORD. In a press release at the time, Redcon1 discussed the challenges of scaling the business while shipping products out of its headquarters.

“We moved everything to 3PL logistics because it’s much more efficient,” Hart explained. “Amazon has trained people and everything ships in one to two days.”

With the transition, Redcon1 laid off more than 60 warehouse workers, who Hart said received severance and vacation pay.

“It was really inefficient to ship out of Florida,” he said. “You ship product from … Tennessee, Georgia, California, and then ship it back from Florida, where those aren’t good shipping routes.

Finally, Hart raised speculation that Redcon1 could not afford to pay an Irish professional bodybuilder who promoted its products, Blessing Awodibu, and recently severed a contractual relationship with them for the second time.

During a podcast interview in the spring with Fouad Abiad Media, Awodibu – who has a huge following on social media – said RedCon1 fired him, adding tearfully: “It broke my heart”.

Redcon1 and Awodibu have negotiated a subsequent sponsorship deal, the company has confirmed. But the deal was also terminated and there were online discussions that Redcon1 again dumped the bodybuilder.

“The truth of the matter is [Awodibu] thought he could get more money somewhere else, walked into the office and quit…after we re-signed him,” Hart said in the interview.

According to Redcon1, Awodibu terminated the contract on September 19.

Awodibu did not immediately respond Wednesday to a request for comment sent to an email address listed on his Facebook page.

Redcon1 was founded in 2016 by Aaron Singerman, who last year agreed to plead guilty to two counts in a 14-count indictment: introducing unapproved new drugs into interstate commerce with intent to defraud and mislead, and conspiracy to distribute controlled substances. The indictment implicated Blackstone Labs and people associated with the company, and was unrelated to the activities of Redcon1.

“I own the fastest growing supplement company in the world, Redcon1, with over 150 employees,” Singerman boasted in a June article in Muscular Development while serving time in a prison camp. minimum security federal prisoners in Pensacola, Florida. “I’ve started nine multi-million dollar businesses in the past 10 years, and before that I covered the world of bodybuilding for Dave Palumbo and RxMuscle.”

Redcon1 said the figure cited by Singerman included the company’s employees at its two gyms in Tennessee and Florida. The current workforce, including gym employees, is nearly 100 employees, according to the company.

“I don’t feel sorry for myself and I’m neither sad nor angry,” Singerman also wrote, in part. “I am using my time to improve myself and I intend to walk out of here a better person.”

In the column, Singerman provided an email address for people to contact him. The email address came back as undeliverable after Natural Products Insider tried to reach him twice for this story.

Trivest Partners LP, a Florida-based private equity firm that invested in Redcon1 in 2021, did not respond to an email seeking comment on the recent bankruptcy filing.

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