The Nomads, the oldest remaining travel club in the U.S. with its own aircraft, has filed Chapter 7 bankruptcy with $3,900,798 in assets and $3,917,944 in liabilities.
The club had been cut off by its fuel supplier because of unpaid invoices. It also could not meet payroll or pay its obligations, according to a board of directors’ letter to members Tuesday.
Last-minute attempts to sell the 46-year-old club failed.
“We concluded there was no other viable business plan or approach that could achieve the sustainability of Nomads, Inc.,” the letter said.
The viability of a company is one of the primary indicators of whether a company should file for Chapter 7 bankruptcy or Chapter 11 bankruptcy. A company which has no chance of surviving outside of bankruptcy should liquidate in Chapter 7 bankruptcy. While a company that can become viable if only they reduce their debt load should restructure in Chapter 11 bankruptcy. It’s important to note that while some companies with viable business models do liquidate in Chapter 7 bankruptcy for other reasons, it is usually the lack of viability which leads to liquidation.
One thing that may cause problems for this company is the charge that they cashed membership checks after they knew that they were insolvent.
In a last-minute move that made members furious, the club cashed members’ $300 annual dues last week, just before the bankruptcy filing. Those who paid the dues are not listed as creditors in the filing.
“How can they cash membership checks if there isn’t anything to be a member of? That’s thievery,” said member Cindy Koslowski, 62, of Brighton. She and her husband joined Nomads last fall but never took a trip. She was out $1,300 in membership dues from 2010 and 2011.
If that cash was paid to other creditors or somehow taken out of the bankruptcy estate, the corporate debtors in this bankruptcy case could face a charge of engaging in fraudulent transfers. Also, the creditors who recently paid dues could demand that their money be returned if they can prove that the company cashed the checks with no intention of providing the service for which members were paying.
(source: http://www.freep.com/article/20110302/BUSINESS06/103020343/Nomads-travel-club-files-liquidate-under-Chapter-7-bankruptcy )