Countertop Maker Clio Files for Chapter 7 Bankruptcy

January 17, 2020 | By Becky Yerak | wsj

Saying the company is in danger of losing access to both cash collateral and its laboratory and has been on the market for months, trustee Alfred Giuliano asked the court on Tuesday to approve bid procedures that will put uBiome's assets on the block by Dec. 12 and see the sale closed by Dec. 19.

Countertop maker Clio Holdings LLC, created from the roll up of a number of smaller players, is closing its doors after failing to integrate its businesses and suffering from both the Trump administration's tariffs imposed during the U.S.-China trade war and by separate, more recent duties on imported Chinese quartz.

Private equity-backed Clio, founded in 2016 with an aim of consolidating countertop players in a fragmented industry, filed to liquidate its business under chapter 7 Wednesday, along with six related businesses, in U.S. Bankruptcy Court in Wilmington, Del.

The company's costs to import Chinese quartz has risen several times, first in fall 2018 as President Trump imposed 10% tariffs on imports to put pressure on Chinese negotiators working toward a trade deal. That rate rose to 25% in May. Such tariffs, which largely remain in effect despite Wednesday's trade truce, have been politically unpopular with U.S. business leaders who say American customers pay the price

"Much of the material is sourced from China, and there was a sudden and impactful change in the cost of materials because of tariffs," according to a person familiar with Clio's business, noting that Clio management was unable to pass along the price increases.

On top of that, the company was hit by an entirely new charge after the U.S. Commerce Department announced in May that it had determined that Chinese exporters of quartz had sold products at less than fair value, putting domestic manufacturers at a disadvantage. That determination led to another layer of duties on imports.

U.S. quartz-slab fabricators-often small- to midsize businesses that account for an estimated 50,000 American jobs-have been caught in the middle of trade cases, said Jonathan Stoel, a partner in law firm Hogan Lovells's trade practice.

The supply disruption and resulting price uncertainty have been factors in fabricators losing business and closing shop, said Mr. Stoel, who isn't involved in the Clio bankruptcy.

Clio's petition said its liabilities range from $10 million to $50 million. Major Clio shareholders include private-equity firm O2 Investment Partners LLC and debt and equity financier Tecum Capital Partners.

O2 held two board seats as recently as June, according to an archived version of clioholdings.com, which has since been taken offline. In a statement to The Wall Street Journal on behalf of Clio's former board, including O2 representatives, and former chief executive officer, spokesman Don Tanner said that over the past year, the company faced several unspecified operational and financial challenges. Investors injected additional capital and brought in new management.

But the business continued to decline. The secured lender decided to wind down operations, and a chief restructuring officer was hired to liquidate the company on behalf of the lender, he said.

Mr. Tanner said board members resigned in December.

A chapter 7 bankruptcy trustee, Alfred Giuliano of Giuliano Miller & Co., has been named in the court proceedings to wind down the business.

While on the case less than a day, Mr. Giuliano said on Thursday that he believed Clio's failure stemmed mostly from problems integrating businesses that it had rolled up. He said the company's operations are largely shut down and said that it is his understanding that the recent payroll wasn't funded.

The bankruptcy came days after about 150 workers lost their jobs when the company's U.S. Marble unit in Remus, Mich., closed suddenly, according to Michigan's labor department. The state said it had received complaints that U.S. Marble payroll checks bounced and that certain benefits weren't being paid. On Thursday, two laid-off workers, one in Remus and another in Missouri, sued the company They said Clio failed to give them required notice and said they are owed wages and benefits. They estimate that about 1,100 Clio employees have lost their jobs this month.

Former workers "deserved better," former Clio Holdings CEO Karl Adrian said in the statement provided by Mr. Tanner. "It is our greatest hope that these individuals" quickly find new positions

In 2017, Citizens Financial Group Inc. led a new $37 million credit facility for Clio, money that was to be used to buy Premier Surfaces. One of the entities filing for bankruptcy was Premier Surfaces Acquisition LLC.

A Citizens spokesman said that the bank doesn't comment on clients. Tecum Managing Partner Stephen Gurgovits said that his firm, also a junior Clio lender, wasn't involved in managing the company. Clio's bankruptcy petition says it is based in Riverside, Mo.

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