Celadon Group files for Chapter 11 protection

March 2020 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

March 2020 Issue

Due to a federal investigation into alleged financial fraud which incurred significant costs, as well as the ever-present challenges facing the trucking industry, truckload shipping company Celadon Group, along with its 25 affiliates, has filed for Chapter 11 bankruptcy.

While Celadon intends to use Chapter 11 proceedings to wind down its global business operations, this shutdown does not include the Taylor Express business headquartered in North Carolina, which will continue to operate in the ordinary course while the company explores a going concern sale of its operations.

According to a Chapter 11 bankruptcy petition filed in the US District Court in Delaware, Celadon has assets of approximately $427m, and total debts of $391m, owed to between 5000 and 10,000 creditors. Celadon claims it has approximately 3800 employees, including approximately 2500 truckers, and a fleet of approximately 3300 tractors and 10,000 trailers.

“We have diligently explored all possible options to restructure Celadon and keep business operations ongoing,” said Paul Svindland, chief executive of Celadon. “However, a number of legacy and market headwinds made this impossible to achieve.” Among the headwinds and uncertainties impacting Celadon was the multiyear federal investigation into the actions of former management, including the restatement of financial statements.

The federal investigation saw two former Celadon executives indicted by the US Securities and Exchange Commission (SEC) for their alleged role in a fraud scheme worth tens of millions of dollars. The civil complaint accuses the two of taking part in a “complex securities and accounting fraud scheme that resulted in a loss of more than $60m in shareholder value”, according to the US Department of Justice (DOJ).

The fraud scheme is believed to be the same one that involved former Celadon chief executive Danny Ray Williams, who was indicted on both civil and criminal charges in 2019 for his role in the scheme.

“When combined with the enormous challenges in the industry, and our significant debt obligations, Celadon was unable to address our significant liquidity constraints through asset sales or other restructuring strategies,” continued Mr Svindland. “Therefore, in conjunction with our lenders, we concluded that Celadon had no choice but to cease all operations and proceed with the orderly and safe wind down of our operations through the Chapter 11 process.”

To help support the wind down of Celadon’s operations, the company’s lenders have agreed to provide incremental debtor-in-possession financing (DIP).

Founded in 1985, Celadon began its operations as a small, dry van carrier with just 50 leased trucks and 100 leased trailers. Over the course of the last 34 years, Celadon vastly expanded its footprint to offer point-to-point shipping, warehousing, supply chain logistics, tractor leasing and other transportation and logistics services across the US, Canada and Mexico.

Mr Svindland concluded: “I would like to thank our vendors, customers and lenders, and most importantly, I would like to thank our dedicated administrative employees and drivers whose efforts should not be seen as a reflection of this Chapter 11 filing. They have sacrificed so much of their time and effort for Celadon, and for that, the company is eternally grateful.”

Fraser Tennant