UPDATED: TelexFree’s initial bankruptcy proposal has been rejected due to “incomplete and/or insufficient filing”. See details at end of post below.
Lately, Telexfree has been beset with a great number of problems for which they have continuously and unwisely kept their promoters and customers in the dark; instead, resorting to far-reaching changes without consultations, thus sparking off widespread anger and distaste amongst its promoters.
Also, for sometime now, many promoters worldwide have complained of delayed payouts of their earnings. Typically paid out on Fridays, these promoters were left wondering where their money was many days after.
Unofficially, everyone believed these problems were apparently due to issues with TelexFree's payment processor, iPayout, for which the company unilaterally, again without consulting its promoters, announced few days ago, the introduction of TelexCard International in its bid to 'solve the problem'.
Rather unfortunately, the real reason behind all of TelexFree's problems over recent times finally surfaced a few hours ago - TelexFree is bankrupt.
TelexFREE Declares BankruptYesterday evening, a special meeting of its top corporate echelon was held, during which critical decisions were taken, amongst which was to declare bankruptcy. Details of the bankruptcy filing and the complete minutes of the meeting can be viewed and/or downloaded in this Press Release.
Part of the minutes of the meeting is reproduced below:
On April 13, 2014 at 8:11 pm a special meeting of the Board of Directors (the “Board”) of Telexfree, Inc. (the “Corporation”) was held telephonically.Following the decision, since this morning, 14th of April, 2014, promoters have been unable to post their ads, but instead are shown a notice of the appointment of a new interim CEO for Telexfree; and also, Telexfree's filing for bankruptcy, when they try to post from their Back Office. See a screenshot of the notice below (TIP: click on image to enlarge).
All of the parties present were able to be heard. All the directors of the Corporation, James Merrill and Carlos Wanzeler, were present. Also present were:
The meeting was called to order by Carlos Wanzeler, President and a director, and on the agenda was the approval of the filing of a voluntary petition for relief under the provisions of Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”).
- from Greenberg Traurig LLP Nancy Mitchell, Jody Davis, Maria DiConza, Jonathan Bell, Matt Hinker, Avi Fox, Zack Polidoro, and Michael Cohen;
- from Gordon Silver Greg Garman and Teresa Pilatowicz;
- from Alvarez & Marsal Lawrence Hirsh, Bill Runge, Tim Meighan, and Aileen Daversa;
- from Joe H. Craft, CPA Joe H. Craft; and
- from Impact This Day, Inc. Stuart A. MacMillan.
Upon motion duly made and seconded, the Board unanimously approved the following resolutions:
RESOLVED, that in the judgment of the Board of the Corporation, it is desirable and in the best interests of the Corporation, its creditors and other parties in interest, that the Corporation file or cause to be filed a voluntary petition for relief, along with certain affiliated entities, under the provisions of Chapter 11 of the Bankruptcy Code (“Chapter 11″) in the United States Bankruptcy Court for the District of Nevada.
|Notice declaring Telexfree bankrupt, and filing for bankruptcy in the USA|
TelexFree Files for Bankruptcy in the USAFiled on the 13th of April 2014, TelexFree’s Chapter 11 bankruptcy application is for TelexFree Inc., TelexFree LLC and TelexFree Financial Inc.
Checked on the application is an estimation of between $0-$50,000 owed in liabilities, and also a list of TelexFree’s “creditors holding the 30 largest unsecured claims”. Listed as “trade debts”, these creditors are probably TelexFree’s top investor affiliates.
Below is a reproduction of the creditors list (including the amounts owed):
- Jozelia Sangali – $1,346,731
- Leonardo Fransisco – $903,813
- DL1 Inc – $740,910
- Renato Alves – $737,264
- Benjamin Argueta – $673,543
- Marco Almeida – $553,579
- JMC Inc – $500,308
- Edwin Herman Maina Lima – $496,201
- David Martinez – $493,707
- Paola Zollo Alecci – $456,342
- Robert Bourguinon – $439,901
- Carla Peres – $439,901
- Pedro Taveras – $438,318
- Nathana Santos Reis – $402,462
- Jose Anominondas Jr. – $388,771
- Vagner Roza – $386,447
- Noberto Rey – $374,237
- Jacqueline Zieff – $367,109
- Jose Carlos Maciel – $364,086
- Michael Calazans – $350,420
- Bruno Graziani – $344,505
- Renato Ribeiro – $340,479
- Marcelino Salazar Bacilio – $337,291
- Edison Oswaldo Jurado Aleman – $312,890
- Roman Mishuk – $310,913
- Rosa Marina Cabral Souto – $303,026
- Du Painting Dba – $302,831
- Graca Luisa Andrade – $298,988
- Paulo Fransico da Silva – $295,946
- Leone da Silva Santos – $295,946
Implication for TelexFREE and TelexFREE PromotersOf course many pertinent questions will be playing in the minds of promoters worldwide: What is the future of TelexFREE now? Where does its promoters go from here? Are we going to be paid? If yes, when? If no, why?
Well, we are all asking the same questions, and I have tried my best to answer based on the information at my disposal:
1). What is the future of TelexFREE now? Where does its promoters go from here?
Well, the company says it "...filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court..." in order to "help the company reorganize and restructure its debts while continuing to manage and operate its business on a day-to-day basis."
But who exactly is fooling who?
After lying to affiliates saying the company was 'sound' and promising that weekly payouts on old AdCentral accounts would continue until their 52 week maturity period, recent events showed the stark insincerity of TelexFREE. So, who is believing them this time around? Certainly, not me!
The truth is that TelexFree SIMPLY does not have money to continue to pay affiliates and promoters.
Laid out in an “Emergency motion” filed on the 13th of April, TelexFree indicates clearly that it no longer has money to pay its affiliates, and pegs its hopes of making money on TelexApp, TelexFree99 VOIP service and “other new products”. Read the motion below:
TelexFree is operated as a multi-level marketing company, and currently has over 700,000 associates or promoters (the “Promoters”) worldwide.Nobody is buying TelexFree’s products and services other than affiliates, and even then only so that they could qualify for their AdCentral weekly payouts. If those payments cease because of “compensation plan revisions” you have nobody at all paying TelexFree for their products and services.
Prior to the filing of these Chapter 11 Cases, TelexFree compensated Promoters for the sales of the VoIP product, the placing of advertisements and the recruitment of other Promoters down line.
Because questions were raised about its compensation plan, the Company on March 9, 2014, discontinued its original compensation plan (the “Original Comp Plan”) and replaced the Original Comp Plan with a revised compensation plan (the “Revised Comp Plan” and together with the Original Comp Plan, the “Pre-Petition Comp Plans”).
At the time of the roll-out of the Revised Comp Plan, the Company decided to honor certain discretionary payments to Promoters under the Original Comp Plan. These discretionary payments quickly became a substantial drain on the Company’s liquidity.
The Company discontinued the Pre-Petition Comp Plans and ceased making discretionary payments under the Original Comp Plan prior to the Petition Date.
The Company believes the sales of the 99TelexFree product, the TelexFree “app,” and other new products will ultimately prove successful and profitable.
It’s just that simple.
Besides, the simple reason the payments to existing affiliates who had invested became a “substantial drain” was because, after TelexFree changed the comp rules, comparably few, if anybody, was investing any new money with them. The new comp plan was no longer attractive, so many promoters on the old comp plan were just withdrawing their monies and planning to break away at the expiration of their accounts.
Or as TelexFree puts it:
The trailing liabilities arising from the Original Comp Plan are difficult to quantify and have resulted in substantial asserted liabilities against the Company, a number of which may not be valid.Obviously, things can no longer go on as they have because the money just isn’t there.
As a result, the Company filed these Chapter 11 Cases to obtain the breathing room to address its operational and regulatory issues, revise the Pre-Petition Comp Plans, and quantify and address the claims against it.
So what do we now have?
As I understand the situation, TelexFree has run an investment scheme for years, raked up huge sums of unpayable ROI liabilities and now, through bankruptcy, is seeking a “get out of jail free and we don’t have to pay anyone” grant from the courts.
Not only that, they’re also looking to “legally” get out of the $1.12 billion+ they will owe affiliates by the end of 2014.
And what is Telexfree telling the US courts to justify all of this?
The Company believes that a restructuring of its debt, adoption of a post-petition revised compensation plan, unveiling of new products (including the TelexFree app), and return to growing its Customer base will allow the Company to realize its full potential and generate significant value for its constituents.I am no lawyer and do not pretend to understand US bankruptcy law. However, based on simple commonsense, the fate of TelexFree now hangs very heavily on the verdict of the Bankruptcy petition it filed with the U.S Bankruptcy Court.
I suspect the next few days (or however long it takes the court, or the SEC or other applicable party to decide) will tell us if TelexFree is going under or not. Given the facts so far, I wonder if the Chapter 11 proposal and Bankruptcy relief application will be approved and granted to TelexFree by the court.
So TelexFree may or may not be around soon. If it is going to beat this storm, all the better for all of us; but if it is going to go, so will all its promoters. For now, we are all waiting on the court's verdict. So, let's keep our fingers crossed.
2). Are promoters going to be paid? If yes, when? If no, why
Determining if an affiliate or promoter is going to be paid or not, and when, is no easy task in the current situation. This will hugely depend on the outcome of the current chapter 11 application before the courts.
If you will be paid, it will be when Telexfree stabilizes, and that will be in the unlikely event of the courts granting the chapter 11 application. On the other hand, if you are never to be paid again, it will be because their application is denied and the SEC "shut them down" in the end.
I cannot help feeling that my money, and yours too, added great value to the Telexfree top 'executives' and that it may be stashed somewhere; and that now Carlos Wanzeler, James Merril and Carlos Costa are trying to legally walk out free on us, and even get us to legally “pick crumbs”, if there will be any.
As the new TelexFree CEO Stuart Macmillan puts it:
We anticipate that our global operations will continue to provide our customers with the high-quality products and services they have come to expect.So, dear friends, just like the first question I tried to answer above, determining whether to be paid or not to be paid, does not have a ready answer too. What you have now is knowledge of what is happening.
We are taking this major step because we continue to believe in our business, our products and the enthusiasm of our world-class team. We believe that this restructuring plan, which will include significant enhancements to our governance practices and internal controls, will help us to build a stronger and more sustainable financial and operational foundation for the future.
As a result of the filing of the chapter 11 cases, TelexFREE anticipates that it will have the time to build a solid foundation based on a compensation plan that rewards sales associates and promoters for customer acquisition and the promotion of well-established and new products.
Our collective success depends on our united commitment to offer our customers the finest communications products and services available anywhere in the world. I look forward to moving through the process quickly with the support of our independent sales associates during this transition and the ongoing dedication of our customers.
As the days pass, let us watch to see how things unfold. Let us just keep our fingers crossed as we wait!
UPDATED (15/04/2014): We have confirmation that TelexFree’s initial bankruptcy proposal has been rejected due to “incomplete and/or insufficient filing”. The 13 required declarations absent from the initial filing, include:
- Summary of schedules
- Real property
- Personal property
- Creditors holding secured claims
- Creditors holding unsecured priority claims
- Creditors holding unsecured nonpriority claims
- Executory contracts and unexpired leases
- Declaration concerning debtor’s schedule
- Statement of financial affiars
- Statement of compensation
- Tax identification number
- Declaration under penalty of perjury