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Staffing firms may owe in ECG case

May 01 2009

Staffing firms and other suppliers to former vendor management system Ensemble Chimes Global may have to return monies paid by the VMS up to 90 days before it filed for bankruptcy protection, the bankruptcy trustee in the case announced. Letters, called "inquiries/demand letters for preference," will soon go to ECG suppliers notifying them of the situation.

ECG, at one time the largest VMS, filed for bankruptcy protection in January 2008 after its parent company, Axium International Inc., a provider of payroll services to the entertainment industry, did the same.

Defenses against claims could exist, allowing suppliers to keep the payments. The letters will inquire about the history of the relationships between the suppliers and ECG to allow a determination of whether money is owed to the estate, according to bankruptcy trustee Howard Ehrenberg.

The number of staffing firms to receive such letters is approximately 500, and the amount of payments totals $100 million.

Ehrenberg also announced the filing of a lawsuit in April against John Visconti, former chairman and CEO of Axium, and Ronald Garber, former vice chairman and chief operating officer, for tens of millions of dollars in damages. The suit cites years of mismanagement and misappropriation of corporate assets.

Funds were used to lease luxury cars and private jets for personal use and for hundreds of thousands of dollars in loans or cash advances that were never repaid, according to the suit.

Axium is also believed to have underpaid payroll taxes in excess of $100 million, according to the suit. Visconti and Garber hired a tax director that had no prior experience, had never been a certified public accountant, and whose degree was in music.

Visconti and Garber made a payment of $31 million in September 2007 in the wake of an IRS notice, but the payment left the company unable to repay principal and interest due its primary lender. As a result, the lender swept Axium's bank account of $22.5 million in January 2008, leaving it unable to meet financial obligations. The company then filed for bankruptcy.

Axium still owes more than $80 million in unpaid taxes, according to the bankruptcy trustee. And creditors are owed more than $500 million.

An earlier lawsuit against Visconti and Garber by the lender, GoldenTree Asset Management, has been dismissed with claims assigned to the bankruptcy trustee.


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