Why Celadon Is Filing Chapter 11 Instead Of Chapter 7

FreightWaves

Last Friday, December 6, FreightWaves reported that Celadon intended to file Chapter 11 bankruptcy and now the company has made it official. On the surface, it sounds like Chapter 11 will give hope to at least some of the 4,000 employees at the company. Chapter 11 is the process used to describe a restructuring where the company can continue to operate. If the company had pursued a Chapter 7 bankruptcy, it would result in a full shutdown, but this didn't happen.

The company chose the Chapter 11 process for very specific reasons – it intends to operate two of the company's subsidiaries to help secure funds for the creditors. This does not mean that Celadon's business will survive intact. The bankers will appoint a trustee that work alongside the lenders intends to pursue a structured liquidation of the various assets, including the operating business units.

The over-the-road business is the largest entity inside of the company and the one that is most recognized across the industry. This is being shut down. Unfortunately, after a gallant attempt by management, the company was unable to save the carrier's flagship. The over-the-road part of the company has been shuttered and the assets will be sold off to the highest bidder, including trucks and trailers. Real estate, the most valuable portion of the assets, will also be sold, likely to separate bidders.

Hyndman Transport truck
Hyndman Transport truck

Celadon's Hyndman Transport handled domestic Canadian and U.S. cross-border freight. (Photo credit: Jim Allen/FreightWaves)

As reported by FreightWaves' Canadian reporter, Hyndman Transport, Celadon's Canadian subsidiary, was also shut down yesterday. Hyndman, an 82-year old company, had been headquartered in Ayr, Ontario.

"Lots of drivers are in shock," a driver told FreightWaves on the condition that his name was not published. "So far, we are frozen. No new loads and all current drivers on loads are being told to finish them and bring their equipment back to the yard."

Hyndman Transport's shutdown will make it Canada's largest trucking failure of 2019 – the second linked to the demise of a U.S. parent company. Hyndman reportedly had about 300 trucks and handled Canadian and cross-border routes.

In some good news coming out of this sad story, according to the press release announcing the official bankruptcy, two Celadon subsidiaries – Taylor Express and the Mexican subsidiary, Jaguar Transportation – will continue to operate and will be sold off intact in a Section 363 Process. This method allows management, working alongside the creditors, to control the auction process and get the highest possible price for the companies. Keeping them intact allows Taylor Express and Jaguar to fetch the highest possible prices.

According to Taylor's website, the company describes itself:

Taylor Express was founded and incorporated in 1987 as a truck load carrier. The company has grown steadily since then by providing quality service offering real value to customers and by reinvesting in the company to assure financial stability.

We are a leading carrier in the tire and rubber industry, providing dedicated services on critical raw materials as well as transporting finished goods for the tire industry and many other well known companies like Kohler, Lowes Hardware and Purolator just to name a few.

Today, we have over 150 tractors. Each is equipped with Omnitracs hardware and Tom McLeod Software for route accuracy and control. We also have over 380, 53-foot dry vans and 298 specialized hopper trailers. All of our equipment is serviced at our operation centers in Hope Mills, North Carolina, and Union City, Tennessee. Maintenance facilities include full shop with wash bays, body and paint rooms.

In January, 2015, we became part of Celadon Trucking, Inc. This has increased our footprint in the trucking industry. With their support, we're able to cover even more loads across the midwest, northeast and southeast regions of the United States including Canada.

As reported earlier in FreightWaves, Jaguar Transportation, the Celadon-owned carrier based in Mexico, has indicated that it will remain operational and continue its cross-border shipping.

"Jaguar will operate in the same way it has been working. The situation that Celadon is going through does not compromise this company at all," Jaguar company officials said in an email to FreightWaves reporter Noi Mahoney.

However, Jaguar Transportation's webpage was removed on Dec. 9. It is not clear if the company's web address was changed or shut down. The company's Facebook page was still up.

Jaguar Transportation was listed as a wholly owned subsidiary of Celadon Group Inc. in a 2016 filing with the U.S. Securities and Exchange Commission.

Jaguar Transportation was founded in 1975 near Monterrey, Mexico, and acquired by Celadon in 1992. According to a 2018 marketing brochure, Jaguar Transportation said it had 450 trucks and 600 employees.

This is good news for the employees of Taylor Express and Jaguar Transportation, because it appears they will get to maintain their careers even after their ownership by Celadon is severed.

Unfortunately, Celadon's over-the-road operation is not coming back. Employees at corporate headquarters were called into a meeting early yesterday, Monday, Dec. 9, and were told to clean out their desks and vacate the building.

Business Insider reported that the nearly 1,300 office and administrative employees were told that their health benefits and accrued paid time off will not be paid.

The liquidation process will start once the operations have shut down. Celadon's operational management is working diligently to recover equipment and assets across its network and will take full inventory of the pieces once the freight, drivers and most administrative staff are gone.

A friend of mine asked if Celadon could resurface like Toys ‘R' Us has.

My answer was, "No, truckload carriers don't come back from death. The hardest thing is to recruit drivers and no driver would join the carrier. But don't be surprised to see management resurface soon. They were not responsible for the issues and were dealt a losing hand from the time they started. They have gained an enormous amount of experience and are likely walking away with nothing, much like the other employees."

For employees impacted by the Celadon shutdown, they can go to FreightWaves.Careers. We have setup a free job board to match employees with job opportunities in the transportation and logistics space.

FreightWaves will continue to report on the Celadon bankruptcy and the many issues that flow from it.

Image by Simon Hill from Pixabay

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