On December 9, 2019, Celadon Trucking, a 4,000 employee trucking giant, filed for bankruptcy and shut down all operations. What led to this executive decision is not the recession that has struck following the pandemic, but due to the fact that two of the company’s former officials were charged in an accounting fraud scheme.
Here is an overview of the timeline up until the latest updates on the matter.
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December 9, 2019 – The Bankruptcy Bombshell
Celadon, which is an Indiana trucking company, filed for bankruptcy two days after its former officials were charged in an accounting fraud scheme.
This resulted in more than 3,000 truck drivers becoming jobless, and even worse, stranded across the U.S. following the cancellation of their gas cards. In a blink of an eye, 3,300 trucks and 10,000 trailers stopped rolling.
Some even speculated that this was the biggest trucking bankruptcy in recorded history, and they were not far from the truth.
Celadon’s CEO Paul Svindland had gave the following statement soon after, “We have diligently explored all possible options to restructure Celadon and keep business operations ongoing, however, a number of legacy and market headwinds made this impossible to achieve. Celadon has faced significant costs associated with a multi-year investigation into the actions of former management, including the restatement of financial statements. When combined with the enormous challenges in the industry, and our significant debt obligations, Celadon was unable to address our significant liquidity constraints through asset sales or other restructuring strategies.”
Celadon’s Truck Driver’s Response
To say that truck drivers were caught off guard would be an understatement. Michelle Sloan’s response for a CBS 4 Indiana interview perfectly captures the situation that was at the doorstep of Celadon’s drivers, “The company was a good company,… For one person or a few people that decided to be greedy or whatever, they screwed a whole lot of people.”
“I’m upset. I still have a son at home that expects Christmas. So I hope I get a job soon,” Michelle said. “I think they could’ve handled things differently, but I don’t think they knew all of their accounts would pull out so quickly. As soon as they heard about the bankruptcy thing, they did.”
While being interviewed, Michelle waited in the rain outside Celadon’s quarters to get a ticket for a bus to go home to Pittsburgh.
Who Were the Few that Ruined the Lives of Thousands?
William Meek, Celadon’s former president and COO, and Bobby Lee Peavler, Celadon’s former CFO, were the pair who were indicted, and they are the main reason why Celadon went bankrupt. The accusation was that both Meek and Peavler knew by 2016 that a huge portion of Celadon’s truck fleet has lost their value, which was in a sum way above tens of millions of dollars, because of the recent slowdown in the trucking market, age, and mechanical malfunctions.
Both Meek and Peavler devised a scheme to conceal this loss from Celadon’s shareholders by artificially inflating invoices of traded old for new trucks, as well as not disclosing that they agreed to pay the dealer back after the quarter ended.
This resulted in Celadon having to pay $42.2 million to settle fraud allegations that stemmed from Meek’s and Peavler’s scheme.
Jan 22, 2020 – Celadon Closes a Deal to Sell Taylor Express for $14,5 Million
The last operational trucking company that remained operational after Celadon’s bankruptcy, Taylor Express, was sold for $14,5 million, a fraction of the $43 million Celadon originally paid to acquire the regional carrier in January 2015.
The original intention of Celadon after filing for bankruptcy was to keep Taylor Express operating to raise cash to cover the multi-million dollar debt.
There is a procedure that Celadon has to meet for the transaction to go through, including the filing with the bankruptcy court a detailed document for the transaction to White Willow, the buyer of Taylor Express, aptly named “proposed form of order”. Another document Celadon must produce is a copy of the final purchase agreement.
Celadon’s bankrupt attorney stated for a TT interview the following, “We are hopeful that it will close as soon as possible after the order is entered and the judge approves the transaction.”
January 27, 2020: Celadon Seeks $900,000 in Bonuses for Executives
Celadon sought $900,000 total in bonuses to three of its executives. Celadon adamantly stated that they rely on these executives “to make extraordinary efforts to manage and implement a successful wind down and to maximize distributions to creditors”.
This request was met with resistance from Andrew Vara, the federal U.S. trustee appointed to the case. Vara wrote in the filing that “[Celadon did not produce] an adequate record that the proposed metrics are truly incentivizing, and that the design of the program is consistent with market compensation for similarly situated participants.”
It is important to note that these bonuses are common place in large corporate bankruptcies, and they are paid under a Key Employee Incentive Plan (KEIP).
February 5, 2020: Rumors that Celadon Might Sell Their Texas Facility to P.A.M.
Bankruptcy court documents reveal that P.A.M. Transportation Services Inc. have shown interest into purchasing a terminal property owned by Celadon in Laredo, Texas. The rumored price is $19,8 million, and the deal includes a 37,500 square foot garage, 130,000 square foot garage, and 53 acres of land.
May, 2020: Celadon’s Bankruptcy Is Held-Up by T.A.
The latest development of the Celadon case is the nudge in the $6.2 million dispute that’s holding the bankruptcy of Celadon. T.A, the ones who fild the dispute, agreed on a mediation that is to take place May 1, 2020.
Kevin Gross, retired U.S. Bankruptcy Judge, will serve as the mediator.
How Will Celadon’s Bankruptcy Affect the Trucking Industry?
Celadon’s bankruptcy is said to have an impact ranging from negligible to positive for the trucking industry.
2019 has been hard for trucking companies, and this might be the break they were waiting for, as in a moment, more than 3,000 drivers were available for recruitment following a long period of a driver shortage.
Shippers will have the least impact, as the surplus of trucking companies makes it easy to have someone take over Celadon’s freight schedule.
Celadon’s bankruptcy will have a positive impact on its competitors as well, as they will absorb Celadon’s market share with ease.
As a last note, even though Celadon’s bankruptcy’s timing was horrible, as it took place during the holidays, in the long run, it might affect the trucking industry positively after all.