Marlborough firm files for Chapter 11
A Marlborough telecommunications company has filed for Chapter 11 bankruptcy protection to further revise its compensation plan for company associates.
TelexFREE said in a filing with the U.S. Bankruptcy Court in Nevada that the reorganization will allow the company to restructure its debt, adopt a new compensation plan, unveil new products and return to growing its customer base. The company’s voice over internet protocol (VoIP) product allows for unlimited international calling to some 70 countries for a flat monthly rate of $49.90, according to the court papers.
“As a result of the filing of the Chapter 11 cases, TelexFREE anticipates that it will have the time to build a solid foundation based on a compensation plan that rewards sales associates and promoters for customer acquisition,” Stuart MacMillan, interim CEO, said in a statement.
Until March, TelexFREE compensated its 700,000 associates and promoters for VoIP product sales, advertising placements and recruitment of other promoters. The company discontinued that plan March 9 and replaced it with a new one, according to the filing, but continued to make certain discretionary payments to promoters under the original plan.
But that quickly became a major drain on the company’s liquidity and needs more revision, TelexFREE said.
The company also said that exponential growth in revenue from minimal amounts in 2012 to more than $1 billion in 2013 has put tremendous pressure on its financial, operational and management systems. Customer usage increased on a monthly basis, the company said, reaching some 11 million minutes of VoIP in February 2014.
The company has liabilities of between $100 million and $500 million, but assets of just $50 million to $100 million, according to the court filings. The company said its original compensation plan resulted in substantial liabilities asserted against the company, a number of which it said may not be valid.
TelexFREE said it has more than 100,000 creditors, and the company indicated sufficient money will be available to pay back unsecured creditors.
The company said the reorganization should ensure its sales programs comply with legal requirements. TelexFREE was shut down in Brazil for allegedly running a pyramid scheme, and is being investigated by the Massachusetts Secretary of State on similar claims.
TelexFREE is optimistic that the unveiling of a mobile application and other new products will allow the company to realize its full potential.
WBJ Web Partners
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