Judge rejects Global Wine Group’s liquidation request

A bankruptcy court judge in Sacramento denied Global Wine Group Inc.’s request to liquidate its assets Tuesday and ordered the appointment of a trustee to manage the company’s reorganization.

Creditors fought the petition by the Lodi company’s interim chief executive officer, Gerald Muto, to convert the case into a Chapter 7 bankruptcy liquidation. They’re hoping the company, which owns the Jewel wine brand, can sell its $12 million net operating loss to another business, which would use the loss to reduce its tax liability.

In a declaration to the court, creditor Albert Brodie said the net operating loss could sell for several hundred thousand dollars to $2 million. The sale can’t be made under Chapter 7. But Muto said he thinks the sale would violate bankruptcy code under either liquidation or reorganization.

“I was shocked,” Muto said of the judge’s decision to continue the company’s operation with Chapter 11 protections.

The company is a shell of its former self. Its tasting room closed last week, and Muto and a winemaker are the only remaining employees. Global Wine Group has never owned a winery building or vineyards. It purchased grapes from growers and contracted custom wine producers to crush the fruit and store the wine.

Oak Ridge Winery LLC in Lodi bottles, stores and sells the wine under a three-year operating agreement approved by the bankruptcy court in September. It’s also working with distributors and handling Global Wine Group’s federal and state excise tax payments.

Global Wine Group has had a wild ride in bankruptcy court. Its case began as an involuntary Chapter 7 proceeding forced open by Brodie and two other creditors in November 2007. The company had piled up $13 million in losses since 2002.

Last year a U.S. bankruptcy court judge in Sacramento allowed the company to convert the case into a Chapter 11 reorganization. The company brought in Muto, a Sacramento accountant with experience administering bankruptcy cases, after the resignation last year of former CEO Jeff Hansen.

“Part of the reorganization plan was getting Oak Ridge involved,” Hansen said. “There’s still viability for the (Jewel) brand out there.”

But the company has continued to lose money— $317,000 from November 2007 to Dec. 31, 2008, when it filed its last financial statement with the court.

On Jan. 31, the company missed payment deadlines of $285,912 to Oak Ridge and $32,457 to the creditors who filed the original Chapter 7 petition, Muto said in a court declaration. The company also has $175,869 in unpaid expenses from late 2007 and early 2008.

Global Wine Group’s attorney, Julia Gibbs, filed the voluntary Chapter 7 bankruptcy petition with the court on Feb. 2. The petition said the company was “barely limping along, with a complete absence of a possibility of rehabilitation,” and “continued operations of (Global Wine Group) are futile, and will serve no purpose.”

In a court declaration supporting the petition, Muto said he had met with Oak Ridge Winery on Jan. 12.

“I expressed concern that no sales plan existed for the future sales of (Global Wine Group’s) wine,” Muto said in a court filing. “I discerned no particular enthusiasm for future sales efforts, and the best I received was a promise that, within several months, I would see a sales plan.”

Oak Ridge Winery general manager Nicholas Karavidas said Muto doesn’t understand the wine business.

“He was a CPA who was put in the CEO position because they needed someone to fill it,” Karavidas said. “Our objective over the last 120 days was reconnaissance. It was to find out who was doing what and stabilize the brand.”

Debt accumulated after the bankruptcy petition is more likely to get paid than pre-petition debt. The creditors’ committee “vehemently opposed” the operating agreement with Oak Ridge Winery “on the grounds that it was one-sided in favor of (Oak Ridge) and would result in financial benefit to (Oak Ridge) that would not be shared with other creditors,” Brodie said in his court declaration.

Global Wine Group reported $1 million in assets and $4 million in liabilities at the end of December. Muto said Global Wine Group’s remaining assets include 6,900 cases of bottled wine, 18,000 gallons of unbottled wine (equal to about 7,500 cases) and a wine club membership with 1,400 people who receive monthly shipments.

“All the overhead of Global Wine Group has been eliminated,” Karavidas said. “We’re a creditor, too, and we want to get paid back. The only way to get paid back is to build the brand like it is our own.”