Epilady’s Parent Files for Chapter 11 Protection

Faced with sluggish sales and a battery of lawsuits, the U.S. marketer of the Epilady hair-removal device has filed for bankruptcy protection.

Santa Monica-based EPI Products U.S.A., which is operated by four South African sisters--Sharon, Arlene, Loren and Bernice Krok--and financed by their father, Solomon, filed for protection under Chapter 11 of U.S. bankruptcy laws in New York late last week, said company lawyers. On Wednesday, a New York federal judge permitted the company to continue operating, and executives will seek a court-approved reorganization plan, according to EPI lawyers.

Attorney Barton Nachamie said EPI Products, which also makes and markets a wide variety of personal care products ranging from foot baths to a tooth whitener, has also hired a crisis manager to put the company’s finances back in order.

The bankruptcy filing was triggered mostly in response to efforts by EPI bankers to force the company into default on its loan payments, Nachamie said. The Bank of New York, Daiwa Bank and Bank One of Ohio had filed suit in Los Angeles federal court one month ago, seeking collection of more than $24 million in loans, according to a bank lawyer.

None of the Kroks were available for comment Thursday.

Introduced into the United States in 1987, the hand-held Epilady--which uses a circular moving coil to remove leg hair from the root--became an overnight hit with consumers. EPI also attracted attention with a sexy billboard campaign, which was later dropped in response to numerous complaints.

The company sought to capitalize on Epilady’s success by introducing other personal care products, and sales reportedly reached $200 million last year. But the other products have reportedly failed to match Epilady’s sales success. Even the flagship product has suffered from flat sales recently and a high rate of return from consumers who found the device painful.

EPI also faces a major challenge from the Israeli kibbutz that created the Epilady and sold the American rights to EPI Products U.S.A. The Israelis claim that the licensing agreement is over and want to sell the product directly in the United States, says Nachamie. EPI Products U.S.A. has gone to court to retain the U.S. license.

“If we lose the license to sell, then they could compete with us,” said Nachamie. “That would not be good for us.”

EPI also faces a lawsuit by a former business partner who claims that the company is funneling U.S. profits to its European parent company to avoid taxes. EPI officials have denied the charges. The former partner, Patricia Jones, is seeking 20% interest in the privately held U.S. firm.