Seymour, Ind.-based bioplastics maker Cereplast Inc. on Feb. 10 filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. The company said it make the move "to strengthen its balance sheet, clean up its capitalization structure and gain financial flexibility as it continues to realign its operations."
The company intends to continue to operate. However, one creditor has petitioned the U.S. Bankruptcy Court in New Albany, Ind., to convert the case to a Chapter 7 liquidation.
Cereplast reported a net loss of $34 million on sales of $2.1 million for the nine months ended Sept. 30 — the latest financial results that the company reported. The company is publicly traded, and its shares have been below 3 cents for several months.
Last year the company moved its headquarters to Seymour — where the company operates a bioplastics plant — from El Segundo, Calif. At the time, the company said the move would save the firm at least $600,000 per year.
Now, through the Chapter 11 reorganization, the company said it is "taking steps to align its cost structure with the realities of market demand."
In a Feb. 17 news release, Cereplast said it expects to redirect its operations in two directions: toward traditional compounded products and recycling polyolefins, and bioplastics made of diversified feedstock including algae and polylactic acid.
CEO Frederic Scheer said: "We have taken a number of steps to improve our operations over the past few months and we were making great progress; however, the lack of traction of bioplastics demand in the United States, the repetitive delays in implementation of the bioplastic regulation in Europe and especially in Italy combined with the legal problems created by several of our lenders made clear to our board that reorganization was the proper path forward. We believe that this reorganization will enable us to reduce our debt and implement operational changes, while maintaining our commitment to the environment."
The company is "actively negotiating a debtor-in-possession financing from several interested parties," according to the release.
In a motion filed on Feb. 14, Horizon Technology Finance Corp. said that Cereplast is in default on loan agreements. Horizon had planned to auction Cereplast's assets on Feb. 11, and had informed Cereplast of that plan on Jan. 23, according to Horizon's motion.
Cereplast attempted to stop the auction through a restraining order filed on Feb. 10, which was rejected, according to Horizon's motion. Cereplast then filed for Chapter 11 protection.
According to Horizon, its plan to sell the company had generated interested bidders, including at least one that has expressed an interest in continuing to operate the Seymour plant.
In a Feb. 17 email to Plastics News, Scheer said the Chapter 11 filing was made to protect the assets of the company.
"We do believe that we have investors and shareholders interested in continuing to support the company going forward," he said. "Chapter 11 is done to allow a company to reorganize under protection from any aggressive creditors."
The court has scheduled a hearing to evaluate the motion to convert the case to a Chapter 7 liquidation. The hearing is scheduled for Feb. 24.
