iOS app Android app More

Alice Hines
GET UPDATES FROM Alice:

Maclaren USA Evades Court Investigation Of Its Puzzling Bankruptcy

Posted: 04/27/2012 10:43 pm Updated: 04/28/2012 2:59 pm

Maclaren USA, the closely held stroller company that quietly declared bankruptcy in December two years after it was forced to recall defective strollers that amputated 20 children's fingers, is witholding information from the independent trustee appointed to investigate its case.

On Tuesday, trustee Roberta Napolitano filed two motions in a Connecticut bankruptcy court that, if approved by a judge, will force the stroller company and its accountants to hand over a long list of documents.

Thus far, Maclaren USA has provided only a single "storage pod" containing "various paper books and records arranged in no discernable order," according to Napolitano's motion. None of the records in the pod were dated later than 2009, though the bankruptcy that Napolitano is tasked with investigating occurred late in 2011.

Maclaren USA's accountants have not responded to Napolitano's requests for information thus far.

The motion "is an ordinary procedure when people aren't being cooperative with trustees," said Elizabeth Austin, Napolitano's counsel. "As she got no response, the only choice is to go to the court and make them provide the information that she's requested or explain why they don't have it."

This isn't the first time that Maclaren USA has evaded questions about its complex and unusual bankruptcy. For nearly two months, the company kept its bankruptcy under wraps until the court papers were uncovered by Greg Allen, author of the Daddy Types blog.

Since then Maclaren USA has yet to respond to requests for comment from Daddy Types, The Huffington Post, the Wall Street Journal or The New York Times.

Bankruptcy lawyers for Maclaren USA, named in Napolitano's motions, did not respond to The Huffington Post's repeated requests for comment for this week. The accounting firm named in her motion, Puglisi, Moore & Co., also declined to comment.

Maclaren USA has also stayed mum about the fate of seven pending personal injury lawsuits against it, brought by families of children who had their fingers amputated or lacerated by company strollers before its recall of nearly 1 million strollers in late 2009. The Consumer Product Safety Commission is also investigating Maclaren USA, according to bankruptcy filings.

The type of bankruptcy that Maclaren USA declared, Chapter 7, calls for its total dissolution without the possibility for a restructuring. It also puts a halt to all pending lawsuits.

"There's a lot of red flags making us scratch our heads and say something's not right," Austin told The Huffington Post in March.

Jason Brookner, a bankruptcy attorney at the law firm of Andrews Kurth with no connection to the case, says that it's "very unusual" for a debtor to refuse to give a trustee information, as the trustee legally owns all the bankrupt company's business documents.

Maclaren USA's former design chief David Netto, who is owed $1.1 million by the company, argues that the company is withholding information because the bankruptcy is a fraud. The filing is a fraudulent attempt by a healthy company to assume bogus debt so as to write off its liability for amputation lawsuits and other expenses, according to Netto. "It's unethical," he said. "You can't be in the baby business and behave like this."

Yet while Maclaren USA is bankrupt, Maclaren strollers and products are still being distributed and sold around the world, including in the United States. Indeed, a single corporate site lists the countries where the company sells its products. The complex international organization has several regional distributors, all whose names are variants on Maclaren.

"Maclaren is one global company" that has "changed its distribution strategy over the past years moving from third party distributors," the company explained in a statement to the blog BabyGizmo in February.

The global company now distances itself from bankrupt Maclaren USA: "Maclaren USA was a third party distributor for Maclaren branded products in the US market" that "lost the rights to distribute Maclaren products, and the right to use the Maclaren name, in the Fall of 2010," that February statement noted.

And there's a new entity distributing Maclaren products in the United States: Maclaren North America. "Since 2010, Maclaren North America, a wholly-owned subsidiary of Maclaren Distribution Limited, has been distributing Maclaren products in the USA, Canada, Mexico, and Puerto Rico," the corporate site, Global.maclarenbaby.com, states.

But in Tuesday's motion, trustee Napolitano presented evidence linking the bankrupt Maclaren USA to a slew of other Maclaren entities, who are also creditors, via shared corporate executives.

Plus, Maclaren North America and Maclaren USA share an official mailing address in Norwalk, Conn., according to the Connecticut secretary of state's online listing of businesses.

If it turns out that Maclaren USA is controlled by companies to which it owes money, this could raise questions about the legitimacy of the debt and the bankruptcy. "It is necessary that the trustee investigate the relationship between the Debtor and its potential affiliates in order to determine whether she may pursue actions under Chapter 5 of the Bankruptcy Code," Napolitano wrote.

Chapter 5 of the bankruptcy code enables a trustee to investigate fraud and potentially sue to recover assets, Brookner said. "Based on the facts asserted in the trustee's motion, it's clear that she thinks there's something fishy going on and is trying to investigate the facts in order to determine whether she has valid causes of action for, among other things, fraudulent conveyances."

But no investigation can begin without information. Four months after Maclaren USA declared bankruptcy, the company still hasn't produced any documents. Yet, as Austin noted, "the debtor is expected to cooperate with the trustee."

FOLLOW BUSINESS