Oakland-based donation platform Flipcause owes $76,381.86 to the East Oakland Collective. The nonprofit raised the money to support its mission of feeding unhoused residents.
“That’s months of food for distribution,” Executive Director Candice Elder said. “That’s hundreds of meals for unhoused people. That’s staff wages.”
East Oakland Collective is one of the more than 3,200 nonprofit organizations owed a combined $29 million. Flipcause collected the funds from donors, but never distributed it.
At the urging of the California Attorney General’s Office, a Delaware bankruptcy court appointed bankruptcy lawyer Jeffrey Testa on Jan. 22. Testa now oversees the company and its assets, and has moved quickly to sell Flipcause.
The auction of Flipcause is scheduled for Mar. 3. If no buyer emerges, the trustee could move to liquidate Flipcause’s assets instead. It’s unlikely nonprofits will recoup all the donations owed.
“It’s like a champagne tower. The top glass has to be full before it goes to the next tier. Then the next one has to be paid before the next one.”
Jack Shrum, Delaware bankruptcy attorney
Flipcause’s financial picture
In its bankruptcy filing, Flipcause listed $30.5 million in liabilities, including the more than $29 million it was supposed to transfer to nonprofit organizations that used its platform.
That exceeds the $20.2 million it estimated it claimed in assets. Executives valued the Flipcause website and platform at $15 million.
In total, the company claimed $10 million in debt, and held just $70,000 in the bank.
“If they do generate the $15 million they think it’s worth – and generally they get less – each creditor would probably get 50 cents on the dollar,” said Jack Shrum, a Delaware bankruptcy attorney. “That’s the best case scenario. Usually, creditors get pennies on the dollar.”
When the company filed for bankruptcy, Flipcause’s nonprofit customers became “unsecured creditors.”
Secured creditors are typically lenders with collateral and get paid before unsecured creditors.
‘Like a champagne tower’
“It’s like a champagne tower,” Shrum explained. “The top glass has to be full before it goes to the next tier. Then the next one has to be paid before the next one.”
In the case of Flipcause, proceeds would go toward administrative and attorney fees, including fees for the trustee and the creditors committee’s attorneys, and the investment banker helping lead the sale.
The next tier would be secured creditors, like Grand Avenue Investments, a company that invested $600,000 in Flipcause. Flipcause owes $1.25 million to investors and lenders.
Nonprofits, like East Oakland Collective, Restorative Justice for Youth (RJOY), and California Humanities, would be paid last. In all, Flipcause never transferred donations to more than 3,200 nonprofits nationwide.
What can Nonprofits do
- Keep up with court proceedings. Epiq 11 has all actions filed by the court on its website, with an option to receive alerts
- File a claim. “Charities wishing to file proofs of claim should do so directly through the Epiq link, which has instructions on how to file a claim,” Testa said. There is no current deadline to file claims.
- Attend Mar. 4 hearing. The court has a major hearing scheduled for Mar. 4. Agenda items include the sale, the trustee retaining SC&H, the investment banker, and Stripe’s claim.
- Attend the (“341”) meeting on Mar. 6. A representative of the debtor will be placed under oath (not the Trustee) and asked questions about the assets and liabilities of the company. That meeting is scheduled for three days after the auction.
- File an objection. Nonprofits can file objections to the sale until Mar. 10.
- Got questions? Questions can be directed to the claims agent at flipcauseinfo@epiqglobal.com.
Source: Flipcause, Inc. bankruptcy files; trustee Jeffrey Testa
In a Feb. 5 letter to nonprofit customers, Testa told nonprofits there would be a “full investigation” into pre-bankruptcy financial transfers, which includes $3.8 million Flipcause executives paid themselves and family members. Testa has also withdrawn previous motions filed by Flipcause Executive Chairman Emerson Ravyn which sought court approval to pay employee wages and healthcare benefits. For Testa, selling Flipcause is the priority.
Court forms ‘Creditor’s Committee’ of nonprofits
On Jan. 28, the court approved the formation of a creditor’s committee. These committees usually includes the largest unsecured creditors and represents the interests of unsecured creditors.
The creditor’s committee includes four of Flipcause’s 20 largest unsecured creditors: Sweet Relief Musicians Fund, 805undocufund, Second Harvest of the Greater Valley, and The Michelle O’Neill Foundation, Inc. Flipcause owes:
- $1.2 million to Sweet Relief, which supports struggling musicians.
- $352,500 to the 805 UndocuFund, which provides emergency assistance to immigrants on the Central Coast.
- $172,457 to Second Harvest, which provides food in San Joaquin, Stanislaus County, and beyond.
- $131,510 to the O’Neill Foundation, which supports children with cancer and their families.
Flipcause owes $75,000 to the fifth committee member, the Latino Medical Student Association-Northeast (LMSA-NE). The organization is also the lead plaintiff in a federal lawsuit involving 28 other plaintiffs in 18 states. Flipcause’s bankruptcy temporarily froze the proposed class action suit and a dozen other cases.
LMSA-NE and the O’Neill Foundation are based in New York; the other committee members are based in California.
The committee, which has hired attorneys, can also investigate and give input on the sale of Flipcause.
Timeline, process for Flipcause sale
Trustee Testa is seeking court approval to retain SC&H Group, Inc. as the investment banker to sell Flipcause. According to a Feb. 3 declaration by Testa, the firm already contacted more than 800 potential buyers, including 155 which signed non-disclosure agreements (NDAs) to review confidential company information.
The deadline for a stalking horse bidder – a potential buyer that would set the minimum sale price – passed on Feb. 11. Testa did not disclose a stalking horse bid. The sale does not require a stalking horse bidder, Testa told Oakland Voices.
“We are currently in the process of speaking to several interested parties with regard to their being deemed to be a qualified bidder to participate in the scheduled auction.”
Jeffrey Testa, bankruptcy trustee for Flipcause, Inc.
“We are currently in the process of speaking to several interested parties with regard to their being deemed to be a qualified bidder to participate in the scheduled auction,” Testa said.
As part of the sale process, the trustee can “assume and assign” certain contracts to a buyer. This means, Flipcause’s buyer would take over agreements with nonprofits.
Nonprofits will receive notices by Feb. 26 indicating whether their contracts are being transferred or rejected, according to court filings.
Companies that buy bankruptcy entities are usually looking to buy relatively cheap, Shrum said. The auction is mostly “emailing and texting back and forth,” Shrum said. And the best offer may not necessarily be the highest amount, but a company that is a better fit for the company’s assets.
The outstanding question: Who owns the donations?
Nonprofits want their donations returned and some said they don’t want to be viewed as unsecured creditors. Nonprofit leaders argue that the money donated through Flipcause belongs to their organizations.
Flipcause executives have stated the money belongs to the platform, however. Weeks before the donation platform’s payment processor Stripe cut off services, Flipcause CEO Sean Wheeler said funds belonged to the platform. Ravyn also said this at a Dec. 22 bankruptcy hearing.
“If the only way for nonprofits to recoup funds is the sale, I hope it is sold for the highest amount and the majority of the money goes to all the deserving nonprofits across the world that were subscribers of Flipcause.”
Candice Elder, executive director, East Oakland Collective
Nonprofits want the court to remove assets from the bankruptcy estate and return it to nonprofits, a “constructive trust.”
Bankruptcy experts said the “constructive trust” argument is a long shot in court.
Both Judge Thomas Horan and the California Deputy Attorney General Kim Kasreliovich expressed concerns about Ravyn’s assertion.
One nonprofit has filed an objection to the sale of Flipcause. Queen Anne Helpline told the court that itterminated its contract with Flipcause before bankruptcy, and seeks to have its contract excluded when Flipcause is sold. Fil Am Arts also wrote a similar letter to the judge on Feb. 12.
Nonprofit leaders told Oakland Voices that they hope that any funds from the sale of Flipcause goes back to the organizations that used the platform to raise funds.
“If the only way for nonprofits to recoup funds is the sale, I hope it is sold for the highest amount and the majority of the money goes to all the deserving nonprofits across the world that were subscribers of Flipcause,” Elder said.
Flipcause Sale Timeline
- Feb 11: Stalking Horse Bid due
- Feb 25: Deadline for all other bids.
- Feb 26: Deadline for Trustee to notify charities about potential contract assignment.
- March 3: Auction takes place if there are competing bids.
- March 10: Deadline to object to the sale
- March 17: Sale Hearing where Judge approves the winner.
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