Chimes update
Summary:
Barry Olson did NOT win the bid for Chimes’ assets as expected.
The winning bidder was Florida-based MPS Group.
Staffing suppliers will be paid for outstanding receivables (less Chimes fees) from before and after Chimes filed for bankruptcy.
Still in question, amount already paid by Chimes clients and seized by Golden Tree.
The following from the ASA:
Chimes’s Secured Creditor Waives Claim to Staffing Firm Receivables
Bankruptcy Court Names Winning Assets Bidder
Bankruptcy proceedings involving Ensemble Chimes Global, the large vendor management service that abruptly declared bankruptcy this month, took a major step toward resolution yesterday when a Los Angeles bankruptcy court named a winning bidder for Chimes’s assets and the lone secured creditor, Golden Tree Asset Management, waived any right it might have to certain unpaid receivables for services rendered by staffing firms—paving the way for staffing firms to receive payment for unpaid accounts receivable for services rendered before and after Chimes filed for bankruptcy.
The winning bidder for Chimes’s assets was MPS Group, a staffing and VMS provider headquartered in Jacksonville, FL. It had been expected that Barry Olson, the original founder and president of Chimes, would purchase the assets, but his attempted purchase fell through and MPS submitted the winning bid of approximately $8 million.
According to ASA’s outside bankruptcy counsel, who attended the hearing, Olson will continue to run the Chimes system until the asset sale closes in late January or early February.
In the meantime, and most important to staffing firms, the court’s asset sale order likely will direct Olson to collect and remit to staffing firms unpaid receivables, less Chimes’s fees under the staffing firms’ respective Chimes contracts, for services rendered before and after Chimes filed for bankruptcy. Olson will not collect any amounts previously paid by clients to Chimes and seized by Golden Tree.
ASA and several member staffing firms drafted and proposed language to be included in the court’s order and to effectuate Olson’s receipt and remittance of the receivables. This language was presented before the court at yesterday’s hearing and was unopposed. The court is expected to finalize and approve the order early next week.
Staffing firms that are owed money under Chimes agreements should consult with their counsel regarding their rights and obligations, and should consider promptly invoicing Chimes for all unpaid amounts.
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On Chimes coming back from the dead
My two cents on Chimes coming back from the dead
Before I go on, kudos to Barry Olson and Vedior for getting the vendors the payments they are owed.
But my two cents on this is that if Chimes does indeed come back from the dead, I still think its days are numbered. I don’t think it’s Chimes. It’s the model. My prediction is that clients, contractors and staffing suppliers that went through the nightmare of the last couple of weeks will probably resolve whatever loose ends or contractual obligations they have with Chimes, and then go on to another solution.
I’m thinking Chimes will have to restructure and do some serious rebranding to even have a fighting chance of survival. It’s a tall order.
I’m not calling for the demise of Chimes. These are just my observations.
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From the ASA
Bankruptcy Trustee Endorses Plan To Revive VMS Firm
Ensemble Chimes Global, the large vendor management service that abruptly declared bankruptcy this month (see the Jan. 14 issue of Staffing Week), is reportedly back in operation under a special agreement between the bankruptcy trustee and a prospective buyer. The prospective buyer has been authorized to run the business while a deal is completed to buy Chimes’s assets.
In an effort to “calm events surrounding a difficult situation,” the trustee and prospective buyer issued a joint letter Jan. 17 addressed to suppliers, customers, and “other interested parties of the former ECG organization.” The letter outlined a plan to sell Chimes’s assets and establish a process for paying staffing firms that supplied services to Chimes’s clients.
The prospective buyer is Barry Olson, the original founder and president of Chimes. According to the letter, Olson has entered into an agreement with Vedior NA to buy Chimes’s assets. The transaction is expected to be completed in 10 business days.
The trustee, Howard Ehrenberg, has asked the bankruptcy court to approve a process for paying suppliers during the 10-day interim period.
In a telephone conversation with ASA last week, Ehrenberg said the purpose of the process is to ensure that suppliers and employees get paid and to facilitate the continuation of the existing Chimes arrangements with clients. He said the payment proposal would be included in a motion to sell Chimes’s assets that was filed with the bankruptcy court Friday. Ehrenberg expects the court to approve the motion, which will be heard Jan. 23.
Under the proposed process, employee time and expenses are to be entered and approved in the Chimes system. A consolidated invoice will be generated and payments made to suppliers, less the management fee, for approved hours and expenses worked and incurred after Jan. 9. Hours and expenses worked, incurred, and approved prior to Jan. 9 will be paid “as long as the hours and expenses are billed as part of the normal billing cycle after Jan. 9, 2008.” Ehrenberg explained that the latter provision is intended to include services provided before Jan. 9, even if the client has already been invoiced for those services, as long as the client hasn’t already paid the invoice. He said that amounts already paid to Chimes would have been seized by Chimes’s lender, the hedge fund Golden Tree, and therefore a staffing firm that did not receive its payment from Chimes would have to seek recovery of those amounts by filing a creditor’s claim.
Ehrenberg reiterated the statement made in the joint letter that the secured lender (Golden Tree), which holds a lien against Chimes’s assets, has assured him that it will not make any claim on future payments to suppliers except for management fees.
The letter pointedly advises clients not to enter into outside arrangements until further instructions from the bankruptcy court and states that clients should avoid paying suppliers directly. “Staying within the process spelled out in the letter provides customers with the assurance that they have honored the guidance provided by the trustee and protects them against future claims from secured creditors,” the letter concludes.
Staffing firms that are owed money under Chimes agreements should consult with their counsel regarding their rights and obligations. The joint letter is available on the ASA Web site, americanstaffing.net.
ASA will continue to monitor developments in this extraordinary process with the advice of expert bankruptcy counsel and the ASA legal committee. ASA will provide information and guidance to members as events unfold.
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Chimes back from the dead?
Not sure if any of this makes sense, but here’s an update on the Chimes situation, from the ASA:
Bankruptcy Trustee Endorses Plan To Revive VMS Firm
Intent is to pay most staffing firm claims
Ensemble Chimes Global, the large vendor management service that abruptly declared bankruptcy this month, is reportedly back in operation under a special agreement between the bankruptcy trustee and a prospective buyer. The prospective buyer has been authorized to run the business while a deal is completed to buy Chimes’s assets.
In an effort to “calm events surrounding a difficult situation,” the trustee and prospective buyer issued a joint letter Jan. 17 addressed to suppliers, customers, and “other interested parties of the former ECG organization.” The letter outlined a plan to sell Chimes’s assets and establish a process for paying staffing firms that supplied services to Chimes’s clients.
The prospective buyer is Barry Olson, the original founder and president of Chimes. According to the letter, Olson has entered into an agreement with Vedior NA to buy Chimes’s assets. The transaction is expected to be completed in 10 business days. The trustee, Howard Ehrenberg, has asked the bankruptcy court to approve a process for paying suppliers during the 10-day interim period.
In a telephone conversation with ASA today, Ehrenberg said the purpose of the process is to ensure that suppliers and employees get paid and to facilitate the continuation of the existing Chimes arrangements with clients. He said the payment proposal would be included in a motion to sell Chimes’s assets to be filed with the bankruptcy court today. Ehrenberg expects the court to approve the motion, which will be heard on Jan. 23.
Under the proposed payment process, employee time and expenses are to be entered and approved in the Chimes system. A consolidated invoice will be generated and payments made to suppliers, less the management fee, for approved hours and expenses worked and incurred after Jan. 9. Hours and expenses worked, incurred, and approved prior to Jan. 9 will be paid “as long as the hours and expenses are billed as part of the normal billing cycle after Jan. 9, 2008.” Ehrenberg explained that the latter provision is intended to include services provided before Jan. 9, even if the client has already been invoiced for those services, as long as the client hasn’t already paid the invoice. He said that amounts already paid to Chimes would have been seized by Chimes’s lender, the hedge fund Golden Tree, and a staffing firm that did not receive its payment from Chimes would therefore have to seek recovery of those amounts by filing a creditor’s claim.
Ehrenberg reiterated the statement made in the joint letter that the secured lender (Golden Tree), which holds a lien against Chimes’s assets, has assured him that it will not make any claim on future payments to suppliers except for management fees.
The letter pointedly advises clients not to enter into outside arrangements until further instructions from the bankruptcy court and states that clients should avoid paying suppliers directly. “Staying within the process spelled out in the letter provides customers with the assurance that they have honored the guidance provided by the trustee and protects them against future claims from secured creditors,” the letter concludes.
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Staffing Industry Analysts Report
Some key items from today’s Staffing Industry Analysts Briefing on the Chimes Bankruptcy.
- The ECG shut down is a huge setback in the growth of VMS as it happens during a time when staffing suppliers are barely warming up to the VMS model.
- The total amount of money involved in the ECG bankruptcy is unknown, but there are unconfirmed reports that the figure is around $200 million.
- The briefing cites a 2006 report where ECG reportedly had 42 clients with 42,000 temporary employees running through the system.
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How the Chimes Drama will change the VMS landscape
I got a call earlier from Staffing Industry Analysts asking about how I think the Chimes Drama is going to change the VMS landscape. Is it going to cause client companies to be leery of VMS?
My answer was that while there will be those who will be quick to predict the demise of VMS, the contingent workforce needs of their customers will remain the same. Fact is that VMS’s do address their clients’ need for streamlined and efficient processes. What is going to happen in Chimes’ aftermath, however, will be:
On the client side, companies will re-examine their current contracts, pinpoint vulnerabilities, address them, and come up with contingent strategies. It is a true wake up call. Did anyone really predict this? Hewlett Packard surely didn’t see this coming, and it’s tough to say that HP didn’t do its due diligence when it signed on with Chimes.
On the agency side, I predict that staffing firms are going to take a closer look at the agreements they sign. Lured by the opportunity to work with big name-brand clients such as Hewlett Packard, there are staffing firms who chose to sign unfavorable and risky terms of agreement. Some have even gone as far as changing their business models to adapt. Some outsourced recruiting efforts for their VMS clients to accommodate the low margins on these accounts and as a result, the effects of Chimes Drama will be felt not just by the third party vendors but the vendors underneath them as well. I’ve received e-mails from a couple of firms in India and the Philippines who are currently in this situation.
Again, these are my personal opinions and not my employer’s.
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The Chimes Conundrum in a nutshell
It’s all about the payments.
The Chimes conundrum shows that the TOTAL OUTSOURCING of an organization’s contingent workforce activities - including and most especially payments - can prove disastrous should something happen to the vendor.
There are many reasons why a company should use a VMS or an MSP: streamlined processes, risk mitigation, supplier management. An MSP can be a cost-effective interface to simplify processes for a client when dealing with multiple vendors. Keyword being INTERFACE.
Siphoning payments through a single entity is not only unnecessary, it makes as much sense as depositing money in an uninsured bank.
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From my inbox
I would like to share a few e-mails that I have received in the last couple of days. Since they were sent to me via e-mail and not left as comments in my blog posts, I will NOT make attributions here.
Update: just got my permission, the following e-mail was sent by Bret Bass from Agile1.
I thought he was spot on, and thought I’d share with the rest of you.
I agree with much of what you’re saying here, and there are a couple of points I’d like to throw out for consideration. First, having come from a different industry (I’ve served in senior management levels at Tyco, GE, et al.) there’s certainly a case to be made for minimizing disruption and potential damage to any industry’s “interdependent ecosystem.” Acquiring the assets of a distressed company is a poor substitute for organic growth. When companies begin down the path of acquisitions to replace sales efforts, little good comes from it. This is also the lesson Axium should have learned itself. The purchase of Chimes was an $80 million mistake, designed to bolster a company that had not enjoyed the benefits of much organic growth. We used to call this “re-arranging deck chairs on the Titanic.”
My main point, however, is that companies slavering over the morsels left in the wake of Axium must remember that they are seeking to replace a product that often received high marks and much customer praise. Simply offering a replacement doesn’t mean that the new product will be as good, as cost effective, or as feature rich. In my experience, many companies will turn predatory quickly when such an opportunity arises. Desperate customers may find themselves saddled with a cumbersome, expensive, and poorly performing VMS because it was there. In such an instance, problems far worse than buyer’s remorse await an impetuous business owner.
Legal teams for companies who relied on the Chimes product are also advising their clients against using the applications for fear that accessing it would cause funds paid through the system to be claimed by the bankruptcy courts. Many of these companies are being urged to use manual processes in the meantime. What I’m taking this to mean is that there will be no quick and easy VMS replacement for Chimes. Without access to the data, everything will need to be entered into the new VMS by hand…a long and resource-laden process. VMS providers would be well advised to approach this undertaking not as a “transition” but as a new implementation. I’m not sure they will. It may be that we’ve not yet seen the darkness that they say precedes the dawn.
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Just thought I’d share one more thing about the NAACB call this morning…
The status of most of Chimes’ agreements with their clients and their vendors are still largely unknown. In the meantime those same clients are seeking continuity and as a result, are trying to initiate direct agreements with Chimes’ suppliers.
According to the attorney at the call, Mark Bloom, that is actually not a good move.
As crazy as it sounds, while the status of these contracts are still up in the air, attempting to deal with the vendors directly might actually be exposing the clients (and the vendors) to more risk as that could constitute material breach of contract.
Meaning. It’s better to engage with new vendors that were not associated with your relationship with Chimes. Caveat, I’m not a lawyer, I’m just telling you what I heard and as I understand it.
It’s unfortunate that during the call, there were some staffing firms already salivating at the thought of taking on swooping in and taking employees from affected vendors. Yeah I know it’s all business.
But c’mon, folks. I know it’s tempting, but this kind of behavior doesn’t do the industry any good. We can’t always be the quick-fix industry known for its opportunistic sharks. It doesn’t do anyone any good in the long run. Please listen to what the client really needs and perhaps learn how they even got in this mess in the first place.
Play nice.
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The VMS Workgroup
Working here to get the group established.
I am well aware of the HIC’s work on developing the industry standards and guidelines for VMS and MSPs. This is great, however is not to replace or duplicate what the HIC has already done, but to create more of a dialog to create an evolving set of guidelines and standards.
The keyword here is EVOLVING. Case in point: what was true this time last week, isn’t anymore. Things that made sense last week don’t anymore.
There’s a ton of work involved in organizing this, so please bear with me. You can still leave a comment and email me if you’d like to get an invitation to take part in the VMS Workgroup.
In the meantime, what do YOU have in mind? What are your expectations of such a group?
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About This Blog
Lisa Amorao is currently the Marketing Programs Manager for ATR International, a Silicon Valley-based contingent staffing firm.
Lisa has held roles in recruiting and sales before moving on to her current role in Marketing.
The opinions expressed here are her personal opinions and does not reflect those of her employer or any of its clients.
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