Checkmate Files for Chapter 11 Protection
Less than a month after agreeing to pay the State Compensation Insurance Fund about $7 million to settle a lawsuit over unpaid workers’ compensation premiums, Checkmate Staffing Inc. and its subsidiaries filed for Chapter 11 bankruptcy protection Monday.
The filing in U.S. Bankruptcy Court in Santa Ana throws into question how much of the settlement State Fund will be able to collect and when. State Fund, which provides workers’ comp insurance, will be forced to stand in line with Checkmate’s other unsecured creditors.
Those creditors include the Internal Revenue Service, which is owed $15 million by the Orange-based temp agency. The IRS payment qualifies as “priority debt,” which would be paid after secured creditors and before unsecured creditors, Checkmate bankruptcy attorney Marc Winthrop said.
In its filing, Checkmate listed $52.5 million in debt and $38.5 million in assets.
Checkmate remains the subject of a criminal investigation of possible workers’ comp fraud. In November, investigators from the state’s Insurance Department and other agencies raided Checkmate’s California offices.
“This [bankruptcy filing] was done so that the company could continue to operate,” Winthrop said. “This was done because of the prospect that either the State Fund or the IRS might take hostile action in an attempt to shut the companies down.”
Also filing for Chapter 11 protection were Checkmate’s six subsidiaries. The companies, which offer temporary workers largely for warehouse and light industrial work, have combined sales of about $180 million.
Within the last several weeks, the company had begun closing branches, shuttering at least 10 and laying off about 30 people, according to a Checkmate staffer. Winthrop said no further layoffs were planned.
Separately, the company’s founder, Luis Perez, handed over the title of chief executive to turnaround expert Laurie Holcomb. To assist in the turnaround, the company also hired Irvine-based Crossroads and installed Crossroads’ Keith Williams as its “chief restructuring officer.” Perez will serve as board chairman, Winthrop said.
The turnaround team signed on as state investigators continued their probe of Checkmate’s workers’ compensation practices. Investigators have not specified what laws Checkmate may have violated but have described their probe as a premium fraud investigation.
This month, Checkmate agreed to settle a lawsuit filed by State Fund that alleged the company owed millions in unpaid premiums. The company did not acknowledge wrongdoing in reaching the settlement.
State Fund said it would pursue its payment. “This is just another legal entanglement,” spokesman Ron Christensen said. “We will have to see what their financial condition is.”
