Distributor CHS Electronics has filed for bankruptcy protection so that the company can continue to operate while it tries to get approval for a reorganisation that will include the sale of its European subsidiaries.
The company filed under Chapter 11 of the US Bankruptcy Code in court in the Southern District of Florida, CHS said yesterday in a written statement. CHS distributes computers, peripherals and software in more than 30 countries in Europe, Latin America, Asia and the Middle East.
Besides the bankruptcy announcement, CHS also said that it has announced an agreement with some of its major creditors on the terms of a proposed reorganisation plan. The company intends to have the plan in place by August, according to yesterday's statement. The reorganisation would include letting creditors receive equity or debt securities of Europa IT ApS, a Danish company started by Mark Keough, former CHS chief operating officer. In exchange, CHS would sell its European subsidiaries to Europa IT.
Creditors of CHS would get $US67.5 million in Europa IT securities, 15 per cent of that company's common stock and 25 per cent of the common stock of CHS post-reorganisation, the distributor said. CHS would in turn own 5 per cent of Europa IT's common stock.
CHS has been ailing financially for some time. Last May, US software giant Computer Associates International gave the distributor a $50 million cash infusion.
After auditors found the distributor overstated the amount of vendor rebates paid in the 1998 fiscal year, CHS was forced to sharply reduce its earnings statement for that fiscal year. At that time, CHS said it would cut its workforce by 10 per cent, consolidate operations and possibly close warehouses and other operations. The company also said that it would seek to reduce operating expenses by $40 million and increase cash flow by $50 million in 1999.
In November, the Austrian subsidiary of CHS declared bankruptcy. In the previous month, CHS signed a letter of intent to sell a majority stake in its operations in Latin America to a group of CHS senior managers in the region.