Troubled US distributor CHS[QQ] Electronics has filed for Chapter 11 bankruptcy protection and plans to resurface as an Internet incubator.
The move follows a turbulent six months during which the company lost its UK subsidiaries and was implicated in a number of legal actions.
CHS proposes to give its creditors equity in Europa IT, a Danish company set up by former CHS chief operating officer Mark Keough.
Creditors representing $275m (£173m) in claims have already approved the plan, by which Europa IT would buy CHS's remaining European subsidiaries.
This will free the distributor of its obligation to creditors.
The agreement, which the companies hope will be approved by August, assumes that claims will not exceed $500m. CHS's creditors will receive $65.7m of Europa IT securities, including 25 per cent of the reorganised company.
CHS will receive five per cent of Europa IT's common stock.
Claudio Osorio, CHS chief executive, said the filing "creates an orderly process for our creditors and allows for the sale of CHS's assets for maximum value for creditors".
"The reorganised CHS will emerge as an incubator and holding company for Internet companies engaged in business-to-business electronic exchanges, primarily in the IT industry," he added.
The reorganisation plan assumes that claims against CHS will not exceed $500m.
The bankruptcy filing follows a string of misfortunes for the company, which by 1998 had established some 55 subsidiaries worldwide through acquisitions.
For its third quarter ended 30 September, 1999 CHS posted a $225.3m loss.
By December, the distributor revealed it would have to pay $11.75m and issue 1.7 million shares of common stock to plaintiffs in a class-action lawsuit. The settlement, covering 7 August 1997, to 13 May 1999, compensated investors who contended that CHS and certain executives violated federal securities laws regarding financial reporting and disclosure. (See CRN, 1 December 1999)
Earlier in 1999, CHS had to recalculate earnings for several quarters after discovering discrepancies involving vendor rebates. Since then, the share price of its stock has plummeted.
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