You have to wonder if this is a fair way to wind down a failing business.
When Architectural Traditions, a Tucson-based manufacturer of custom doors and windows, closed on April 14, it kept customer deposits for unfilled orders that in many cases were more than $100,000 apiece.
The deposits are going to pay the company’s secured lender, Alliance Bank of Arizona, which is owed an undisclosed amount. If, after Alliance is paid and the company’s assets are liquidated, any significant money is left over, it will be distributed to other creditors, such as the dealers who put down the deposits, company attorney Mike McGrath said in a written statement.
When I asked whether the amount of deposits taken by the company is in the millions, President Tom Littschwager said in a written response: “All funds of Architectural Traditions were depleted in the normal course of operating its business prior to closure.”
Interesting how, in his view, “funds of Architectural Traditions” seems to include deposits of customers who have not received their orders. I think you and I would consider those to be funds of the people who made the deposit.
The closure left around 100 local workers unemployed and left small businesses around the country in trouble. Take Tom Roof’s company, TXR Architects and Constructors in Lake Ozark, Mo., which has nine employees. He said he put down a sizable deposit in January, and it now appears to be gone.
“They’ve taken money for no return services, to the benefit of the investors,” Roof told me. In the small world of custom windows and doors, Architectural Traditions’ closure has been big news that has dealers swapping stories about their experiences with the company.
The company’s investors are New Southwest Door Co., which has a 75 percent stake in Architectural Traditions and is controlled by officers of Tucson-based Diamond Ventures, and Tracy Edgemon of Flower Mound, Texas, who owns 25 percent. Edgemon also owns other window-and-door businesses.
Dave Gehrke of Builders Window Supply in San Diego told me he’s lost a six-figure sum, but he was worried about specifying the amount because he doesn’t want others to think his business is on shaky ground financially.
As far as Gehrke can tell, as the dealer he’s the one on the hook for the money he put down. The customer paid it to the contractor, and the contractor paid it to him. He’s obligated to follow through on the contract, but can’t.
And while Architectural Traditions President Littschwager, in a story last week, blamed the closure on slow orders, Dan O’Rourke, an independent dealer in Southern California who is from Tucson, said he doesn’t believe the economy was the problem.
“They were used to making wood products, and I think this steel product threw them for a loop,” he said.
The company has so far declined to file for bankruptcy protection. In a written statement, company attorney Isaac Rothschild explained the decision this way: “At this time, Architectural Traditions has determined that a business liquidation outside of bankruptcy court is the most cost-effective method of selling Architectural Traditions’ assets, which will increase any opportunities for customers, vendors and other creditors to realize a recovery.”
In a statement Wednesday, company attorney McGrath allowed for the possibility of a bankruptcy filing later on.
I asked Susan Boswell, a prominent local bankruptcy attorney, about the costs of filing. She said that while Chapter 7 liquidation is not expensive compared with other forms, it does cost attorneys’ fees, filing fees and fees to the trustee. In cases such as this, she said, creditors may be able to force the company into involuntary bankruptcy.
While the dealers would have a priority position among unsecured creditors in a bankruptcy, that might not mean much, she said.
“It’s going to be very difficult for people to recover (deposits), even if they file bankruptcy,” Boswell said. “They’re a priority, but they’re only a priority if there’s money there to pay them.”
While there may be a case for do-it-yourself liquidation, it’s also notable that avoiding bankruptcy court allows the company to control who gets paid back and who loses out without prying from outside parties.
Those who are out the big deposits will undoubtedly make sure this goes to one court or another, though. If it’s not bankruptcy court, then they’ll sue and take Architectural Traditions to civil court.
One way or another, the financial details will be forced out.