California Judge Places Chamco, ZX Auto in Chapter 11

The long saga of China America Cooperative Automotive Inc., also known as Chamco, and its subsidiary ZX Auto North America may be nearing an end, as a California bankruptcy court judge places both companies in Chapter 11 this week.

Creditors petitioned the California court for a bankruptcy ruling on the two companies in early July.

“Chamco has ceased operations, and it is not likely to resume them,” says a source close to a group that broke away from Bill Pollack and his team last March to set up its own version of the company.

Pollack, who claims to be Chamco’s rightful CEO, insists there was no court ruling Oct. 7. Rather, there was “a continuing discussion about a potential settlement that would have us in Chapter 11, potentially in California, potentially in New Jersey,” he tells Ward’s. “We don’t yet have any judicial orders or clear statements from that.”

New Jersey is where Chamco is headquartered, while California was the home of ZX Auto, an entity ,formerly headed by performance guru Steve Saleen, to homologate Chinese cars for sale in North America.

The source says a trustee is expected to be appointed in a week and will have 60 days to determine if Chamco can resume operations. An employee in the office of Judge Theodore C. Albert of the U.S. Bankruptcy Court in Santa Ana, CA, who presided over the hearing, says the trustee’s name is Michael Issa.

Since Chinese auto maker Hebei Zhongxing Automobile Ltd., also known as ZX Auto China, terminated its contract with Chamco last spring and no other contracts have materialized, “the companies’ operations appear to be at an end,” the source says.

Pollack says he and his colleagues oppose bankruptcy actions, “because we do not believe it’s in the best interest” of Chamco’s dealers, employees or vendors.

Asked if he still is confident Chamco has a future, Pollack says, “Cnfidence is a strong word. I’m going to say we’re here. We’re working. Am I certain the Chinese cars will come here? No, I can’t say that in all candor.”

Pollack says if Chamco is forced into bankruptcy, he isn’t sure what the future would hold for the distributor, as the trustee “might have a different idea of what we should do.”

Pollack reiterates he has been trying to win new contracts for Chamco, despite not having drawn a salary since March. He says he recently traveled to Mexico, where “there was a lot of interest from potential investors and also potential factory sites.”

Pollack told Ward’s last month Chamco was “looking at” building a 3-wheel vehicle in Mexico from an Asian-based manufacturer for the local market.

However, Chamco’s legal custodian, Gerald Escala, appointed by the New Jersey Superior Court in April to sort through the multiple lawsuits in the case and determine ownership of Chamco, said in court this week money from new investors to be used for a trip to Mexico, “somehow failed to materialize,” according to the source.

The source also says Escala testified there are more than $8 million in claims against Chamco, which has less than $4 million in cash.

Pollack says Chamco has “more than adequate funds in our checking account to pay all legitimate claims. It’s just all those funds have been frozen.”

The source predicts one of the first orders of business for the trustee will be making sure former Chamco employees receive back pay, as well as vendors. However, dealers, who he says invested their money in an “often risky” venture, likely will be the last to have their voices heard.

“I certainly expect them to make claims for their investments, but investors tend to be at the back of the line when it comes to bankruptcy,” the source says. Early on, dealers were asked to invest in Chamco, but the qualification was later dropped to spur more to sign up.

Pollack says four dealers, each representing a single territory, have requested their money back. As of early July, Chamco claimed about 40 dealers.

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