Crushpad Successor May Start Ops In Oct. But Clients Must Pay Thousands To Get Wine

The new owners of Crushpad say that operations could begin at its new Sonoma headquarters on Eighth Street East, perhaps in early October, according to a memo to clients.

According to the memo and California licensing information, the operation will  do business as Wine Foundry which will be owned by Vignette Winery LLC.

The memo also said that, retail clients (those who do not hold their own alcoholic beverage licenses) will have to pay substantial amounts for wine that that clients thought was already paid in full.

FEES: ALL INCLUSIVE OR MULTIPLE CHOICE

In a memo to clients, CastleGate said (annotations added by Wine Industry Insight are contained in [brackets]:

“When we acquired the assets of the former company [Crushpad], one asset that had been exhausted was cash. Today our options are (i) liquidate the acquired assets or (ii) work with the clients to finish the wine in barrel.

“We are choosing the latter and look forward to building a new Company. To accomplish this, we will need additional funds from you to finish these barrels.”

CastleGate is promoting a $3,000 per barrel, all-inclusive fee that includes “standard glass, cork, capsule and label” and the resolution of grower liens.

Those who opt to take their wine in barrel to another bonded winery might pay possibly half that and others potentially more than $5,000.

Premium subscribers to Wine Executive News can click here for the complete schedule of charges and other detailed information.

CLIENT OUTRAGE MAY BE MISPLACED

The additional fees have provoked predictable anger from former Crushpad clients who have lit up Twitter, other Internet spots and the Wine Industry Insight email box with comments that are mostly obscene, libelous or both. The anger at the new management, however, may be misplaced.

The main issue is that Crushpad accepted money from its clients and then spent it all without doing what it promised them: finishing the wine.

Further, the wine that retail clients considered their own, never really was. According to the Castlegate memo sent to retail clients:

“We understand the the former Company [Crushpad] described wine in barrel as ‘your wine.” Retail customers can not technically own wine as you must be a licensed wine producer to do this. Title usually transfers when the government is paid its excise taxes and the wine is put into bottles.

“Exacerbating this issue,” the Castlegate memo continued, “is the fact that the former company also used all of its wine in barrel inventory as collateral for multiple loans, did not pay growers and or taxes to the government.

“When the former company did not pay its debts, it lost the assets it used as collateral.”

THREE PATHS FOR INSOLVENT COMPANIES

When an insolvent California company like Crushpad implodes, it has three alternatives: Federal Bankruptcy, a receivership in Superior Court or an ABC: Assignment For The Benefit of Creditors.

Federal bankruptcy is expensive, takes a long time but has a degree of transparency that creditors and the public can observe. It’s a process that’s trusted because it’s understood and more familiar.

A receivership is an interim process where a party, usually the senior secured creditor, asks the court to appoint someone to operate a business and/or look after a property, to protect the value. It’s not well understood, but there’s a court proceeding involved and court records to be examined and those inspire trust as well. It usually takes months to complete and is not nearly as expensive as federal bankruptcy.

An ABC , on the other hand, is just as legal but mainly conducted in private and lacks any public documentation or scrutiny. That inspires suspicion, especially among those who have lost money in the deal. The suspicion and potential for abuse are aggravated by the lack of independent observers.

It is, however, usually the fastest and least expensive way of resolving a situation in which a company that has gone belly up.

NUMBERS ADDED UP TO AN ABC

In the Crushpad example, Peter Ekman and other officers approached Castlegate looking for investment. Apparently the numbers — especially the debt — as Castlegate saw them, did not add up.

“The former company [Crushpad] sought out CastleGate last June as a potential investor,” said the memo to Crushpad clients. “At that time, the professionals at CastleGate were not comfortable with making an equity investment and began speaking with the former company’s lender in an effort to find resolution around the secured debt.”

In this case, CastleGate bought out the senior secured creditor — Silicon Valley Bank — then foreclosed on the assets including wine held for clients, but which still belonged to Crushpad.

In many ABC cases, the holder of the senior secured liens simply liquidate assets in order to recover costs. In this case, CastleGate formed a subsidiary to hold the wine. Instead of immediately liquidating the wine as it had the legal right to do, it chose to offer clients the opportunity to get wine, but only after paying again for the services that Crushpad had promised but failed to perform.

ABC PERHAPS THE BEST OF THE WORST OPTIONS

“Any other process but an ABC would have been too slow and put all the wine at risk,” said an experienced Bay area wine industry attorney. “The process wasn’t pretty, but these things never are. The wine, however, has fared better than with bankruptcy. And CastleGate has at least left a door open for former Crushpad clients to get their wine.”

CRUSHPAD DIRECTORS AND OFFICERS LAWSUIT JUSTIFIED?

“For that reason, I do think anger at the new owners is misplaced albeit understandable,” the attorney added. “In my opinion and given the promises and outright misleading statements that seem to have been offered to the public, to clients and possibly to investors, I would not be surprised to see a D&O [Directors and Officers] lawsuit against those formerly in charge at Crushpad.”