Court OKs Sale of Some of Traditional’s Photo Supply Contracts

Arland D. Dunn, who headed Traditional Industries Inc. until the Agoura Hills company sought bankruptcy protection six weeks ago, has gotten help from a federal judge in his effort to build another photo supply company.

Bankruptcy Judge Geraldine Mund in Los Angeles last week approved Dunn’s offer to buy up to 2,000 sales contracts.

The contracts were written by Traditional’s sales force, but the company had not begun processing them before it filed under Chapter 11 of the federal bankruptcy laws March 28.

Traditional sold packages of photo equipment and services to consumers, who usually bought the packages with installment credit provided by the company. When Traditional filed for bankruptcy under the weight of $48 million in debts, Dunn resigned as chairman and immediately started another company, Lifeprints Inc., to provide the same packages.

He also offered to buy the sales contracts from Traditional for $50 each. The contracts have a face value averaging $1,000 each, assuming all of the consumers who signed them agree to keep receiving the merchandise and to completely pay for it. (A key part of Traditional’s collapse was that many of its customers defaulted on their loans.)

So, Dunn presumably could be buying up to $2-million worth of business for a $100,000 investment. Traditional’s new managers told Mund that they had no objection to selling the contracts because the company needs the cash and because Traditional has no intention of servicing the contracts itself.

However, the customers who signed those contracts might still have the option of canceling them despite the sale to Dunn.

Mund conditioned her approval of the sale by ordering that a letter be sent to the consumers explaining that they might have that option, depending on their state consumer laws and other factors.

The consumers “should be advised that they may have rights to discontinue” the program, Mund said.

Her decision was partly in response to objections raised by the Federal Trade Commission, which had argued in court papers that the sale of the contracts to Dunn “could be used to defraud or mislead consumers into thinking they are binding contracts.”

Traditional, meanwhile, has not sold any additional services since it sought bankruptcy court protection and is merely trying to collect on sales that were already outstanding.