Creditors of China America Cooperative Automotive Inc. (Chamco Auto) and ZX Auto North America have filed bankruptcy in California against the two companies.
“From our standpoint, it’s a good development,” says Martin Karo, secretary and general counsel for a group that broke away from Chamco in March.
Karo says the move from New Jersey state court to federal court in Santa Ana, CA,
offers hope that Chamco’s employees and creditors will receive payment.
ZX Auto North America is a subsidiary of China’s Hebei Zhongxing Automobile Co. Ltd., also know as ZX Auto China. It was formed to lead homologation efforts for the two light trucks ZX Auto China hoped to sell in North America.
Chamco was set up to handle North American distribution of ZX Auto’s trucks, as well as models from other Chinese auto makers.
That plan got sidetracked when a large group of Chamco employees staged a coup in early March and broke away from the original entity, claiming mismanagement of funds.
In late April, a New Jersey Superior Court judge appointed a retired judge as a custodian to sort through the various lawsuits filed by both sides and make a ruling on ownership of Chamco within 60 days. But nothing was resolved, Karo says.
While Bill Pollack, claiming to be CEO of Chamco, told Ward’s last month that a majority of those associated with the breakaway group had resigned, Karo says many simply stopped working because they weren’t getting paid. “It is unfair to consider them resigned,” he says.
A source tells Ward’s that ZX Auto China executives were uncomfortable working with Pollack and his group. However, they were “clearly impressed” with Steve Saleen, the high-performance guru in charge of the homologation process as president of ZX Auto North America and who later sided with the rogue group.
If the federal judge rules to dissolve Chamco, the source claims, ZX Auto China could rekindle its relationship with Saleen and his engineering firm, SMS Ltd.
ZX Auto China sent a letter in May severing its relationship with Chamco.
An SMS spokesman previously told Ward’s Saleen wanted to move on, having officially resigned from ZX Auto NA. The spokesman had no comment on a contention made by Pollack that Chamco owned the intellectual property rights to Saleen’s homologation work.
With the lawsuits now in federal court, Karo sees proceedings moving swiftly saying a key question for the court will be if Chamco is a viable company.
Pollack calls the bankruptcy filings “the latest act of desperation by the Ferla group,” referring to Mario Ferla, a formerGroup executive who also claimed to be the CEO of Chamco.
“We have more than adequate funds to pay vendors we rightfully owe money to,” Pollack says. “I’m not going to pay sham invoices.”
He says some creditors are ex-employees claiming they are owed money. “These are employees I terminated,” he says. Chamco has about “half a million in rightful creditors (and) over $4 million cash in the bank.”
Pollack says he has spoken with the vast majority of Chamco’s potential dealers, numbering about 40. He declines to identify them but says they remain supportive of the venture.
Meanwhile, Pollack still is planning a trip to China to try and salvage the relationship with ZX Auto, after having traveled last week to Mexico, where he met with “a number of potential partners.”