Cinema Design Group Debunks Bankruptcy Rumors

Cinema Design Group International (CDGI) is not under bankruptcy protection, according to CEO and president Jeffrey Galea.

The Boca Raton, Fla-based maker of custom home theater interiors and furniture popular with CE Pro 100 dealers wants to clear up rumors surrounding its financial viability.

"We have been profitable during the past seven months," Galea says. "That's a strong statement and a true statement."

An e-mail circulating among custom electronics professionals, apparently initiated by a "John Brown," indicates that CDGI "filed for chapter 727 bankruptcy." However, CDGI is in no way under bankruptcy protection and the e-mail is misleading, according to Galea.

The e-mail, obtained by CE Pro, contains links to CDGI's Chapter 727 court filing documents. It adds that CDGI owes money to many audio/video dealers.

Chapter 727 Filing

CDGI was assigned Chapter 727, Florida Statutes, on May 5, 2009. The court filing indicates that CDGI is in debt and struggling to pay its creditors. Under Chapter 727, CDGI "shall liquidate the assets of the estate with reasonable dispatch and convert estate into money" for paying off debts.

It's actually "what responsible business owners do when they want to restructure debt and don't want to file bankruptcy," Galea says.

Chapter 727, Florida Statutes, is a type of assignment for the benefit of creditors (ABC), according to Galea. ABC is considered an alternative to bankruptcy.

The filing "basically allows us to clean house on some bad accounts," says CDGI VP of business development Carey Schafer. "It's not a bankruptcy. Everybody is trying to say that and it's not. We'll be done with it in about a month. Consider it reorganization."

The major difference between this and a bankruptcy, Schafer adds, is that this is a choice and bankruptcy is generally not — or at least it's more of a last resort option.

Galea adds that CDGI has to provide its financial viability in order to qualify for ABC. "If you don't have a profitable company the courts won't let you go down that path. We immediately passed that test."

Former Employees' Decisions Led to Debt

Schafer says poor decision-making by former employees is one of the main reasons CDGI is in this situation. "Some of these people were caught falsifying things and [there was] internal theft," Schafer says. "We didn't press charges and I kind of wish we had. Sometimes firing people isn't adequate and I'm kind of realizing that now."

Both Galea and Schafer opted not to expand further on the alleged activities of former employees.

Galea says much of CDGI's debt is the result of the former employees' activities. Under ABC, "we are doing it in a way that the people that have credited us money will be paid and we can move forward without being saddled with debt we don't agree with."

Galea expects CDGI to emerge from ABC as a shiny, new CDGI." As part of the ABC proceedings, his team created a new company called CDGI Holdings, which he expects to buy most of the pieces of CDGI and create a "doing business as" (d.b.a.) of Cinema Design Group International.