The owners of Easywash Inc. plan to swiftly replace the failed car wash with a new company that’s indistinguishable from the old one, minus its crushing debts. Meanwhile 89 private investors, who put $2.3 million into the original company, lose everything.
Easywash opened in September 2006 at 1501 Main Street in North Vancouver and has recently been a media darling thanks to fluffy coverage of its environmentally friendly technology and automated dog washer (GlobalTV, CTV and CBC TV ran stories, and the Vancouver Sun posted a video on its website in addition to running a print article).
The company never recovered from massive construction debts and by the summer of 2007 found itself in a dire position. The owners were forced to file for bankruptcy on November 23, after Vancouver City Savings Credit Union (Vancity) called in its loan.
According to president Geoff Baker, who owns the company along with Laura Lee Normandeau, a new business entity called Easywash NV Inc. was established in November. It has the same address, equipment, business operation and management as the original Easywash and didn’t lose a day of business in the transition.
The original investors, meanwhile, are furious, wondering how the owners can continue without missing a beat while their investments are toast.
Baker made an attractive pitch in 2004 to build a car wash at a high-traffic location with sophisticated water-conservation technology, investors say. Baker, who once worked as a film-industry grip, has previously managed one other company, serving as CEO of Sweet Entertainment Group, a producer of hard-core pornography, where Normandeau worked as an account manager.
But Easywash’s rosy business picture didn’t last past construction. The planned $1.5-million build went nearly $800,000 over budget, Baker says. He took out loans to cover the cost overruns, which resulted in significant debts.
Investors were unwilling to put up the $600,000 needed to pay the debts, and in September 2007 Vancity, a major backer, called in its loans and recommended bankruptcy, Baker says.
Baker then set out to raise money for a new company, one that would carry on Easywash’s business without the debt load. Baker says he has raised that money, including more than $500,000 from one of the original investors. He says the bankruptcy has done away with $1.68 million of debt.
This picture doesn’t sit well with Michael Parker, 65, a business consultant who invested into Easywash Inc. early on and who doesn’t expect to see his money again.
“I don’t know. Legally, and every other way, that just doesn’t seem right,” he says. “Morally, it certainly isn’t right.”
Parker was asked to do some consulting for the struggling start-up, he says, and decided to invest based on the strength of its business plan. “One thing that Geoff Baker is very good at is his promotion.”
When asked about the repercussions for his investors, Baker said, “It’s unfortunate. Those shareholders will lose their investment.” He stressed that everyone had a chance to reinvest in the new Easywash adding, “I’m sorry for the situation that’s happened; it’s not where we wanted to be.”Business broker Bob Dryden, 60, invested nearly six figures in Easywash. He says he filed a complaint with the B.C. Securities Commission after the bankruptcy was announced, alleging unjust enrichment of the company founders and poor management. He says he has received a reply from the commission that the matter is being investigated.
“Somebody should make sure that this doesn’t happen again,” Dryden said. “I feel pretty incensed about it all.”
But this sort of manoeuvre is neither illegal nor uncommon, says Larry Robinson, Western bankruptcy and restructuring group leader with McCarthy Tétrault LLP. It’s the bankruptcy trustee’s job to sell an insolvent company’s assets, and it does happen that insiders are able to make a successful bid. Still, Robinson says, “I understand optically why it leaves a bad taste in the mouths of all of the stakeholders who are left with nothing.”
The bankruptcy was completed in December. Baker’s landlord Mario Pavlakovic acquired Vancity’s assets and says he’s working with Baker to maintain the new company under its current ownership.