Skully on Friday finally acknowledged what has already been known in the motorcycling community: the company was going out of business. The news comes after a last-minute effort by the remaining management to secure a new round of funding.
With $15 million down the drain, work still to do before the Skully AR-1 would be ready to ship, and a growing group of disgruntled early adopters, Skully’s resurrection was not to be.
Instead in a letter to backers and customers, Skully announced that it would be filing for Chapter 7 bankruptcy, the bankruptcy procedure for companies that are going out of business. This news, of course, directly impacts the thousands of motorcyclists who were expecting to receive a Skully AR-1 helmet.
Under a Chapter 7 bankruptcy filing, all of the company’s assets (inventory, equipment, intellectual property, etc) will be liquidated by a court-appointed trustee. The trustee will then use the sale of these assets to pay back debts owed to the company’s creditors.
Once those debts have been paid off – there is a very important pecking order that dictates which creditors get paid first – the remaining funds, if any, will be used to refund customers.
That caveat in the middle is an important one because for Skully the term “creditor” will likely apply to anyone who “purchased” a helmet from the record-breaking Indiegogo campaign.
I am using quotes here because what is about to happen in this story involves a bit of legal and finance mumbo jumbo, and these terms don’t technically apply, in the eyes of the law.
This is because technically users of the Indiegogo website aren’t buying anything, and aren’t protected by traditional consumer laws (you could probably make an argument in court counter to this, but I wouldn’t see it as a winner). Instead, they are investing their money, and thus considered investors.
This is because on Indieogo you are giving a company money, and in return your consideration is worth some sort of perk – in this case, Skully gets your hard-earned dollars, and in exchange promises one day to send you a helmet.
This makes someone who participated in Skully’s Indiegogo campaign not a customer or buyer, but instead an unsecured creditor. Unfortunately, when it comes to a Chapter 7 bankruptcy proceedings, unsecured creditors are the low man on the totem pole, and often last to get paid.
Secured debt (debt from loans that were secured by using a company’s asset as collateral) will be the first debt to be repaid (after the court-appointed trustee gets paid, of course), which could include any banks, suppliers, credit card issuers, or investors who made loans or convertible notes to Skully.
Once these secured creditors are paid back in full (assuming there is enough money/assets available actually to pay them back in full) then the trustee will begin reimbursing unsecured creditors.
It should be noted that often unsecured creditors have to register their claim with the trustee – it sounds like this will be the case with Skully’s bankruptcy procedure.
For would-be Skully owners, who didn’t go through the Indiegogo crowdsourcing campaign, the chance for a refund is even more slim. The trustee will likely only issue cash refunds to AR-1 buyers once the secured and unsecured creditors have been made whole again.
I wouldn’t give good odds for the Indiegogo backers getting their money back, even in part, which means that actual Skully “buyers” have only the faintest of hopes in getting reimbursed.
All of this is subject to what the court-appointed trustee deems fit, of course, which will largely be dictated by what kind of assets Skully still has, and how many claims there are from creditors.
If you paid Skully money, for any reason, we highly recommend you get in touch with the trustee, and file any paperwork they require. For your reference, below is the letter sent by Skully to its backers and customers:
SKULLY Ceases Operations
It is with great regret we must announce that SKULLY will formally cease operations, effective immediately. Over the past several weeks our management team has worked feverishly to raise additional capital but unforeseen challenges and circumstances, beyond our control, made this effort impossible. What this means now is that SKULLY will no longer be able to ship AR-1 Units or process refunds directly.
Substantially all of the assets of SKULLY are now subject to liens held by a secured creditor. The management team does not know if there will be any value above the amount of the secured debt. In addition, at this time, we are not aware whether there will be any distribution amounts available to unsecured creditors. SKULLY now plans to file a Chapter 7 Bankruptcy case within the next several weeks. You will receive notice from the Bankruptcy Court and instructions on how to file a claim.
Our team is devastated and deeply saddened that our valued partners, vendors, employees and customers have been negatively affected by what has transpired. We realize there are many unanswered questions and that this is a very upsetting situation. We are truly sorry.