November 28, 2023
Sale of Deco Lighting Assets Contested by Ex-Partners
Allegations of possible self-dealing mark Deco's bankruptcy liquidation proceedings
In the intricate and ongoing bankruptcy saga of Deco Lighting, a series of events following their 2020 Chapter 11 bankruptcy filing have now led to new legal disputes and allegations of possible self-dealing by former business partners of the embattled lighting company. Deco Lighting, once an edgy and growing business in the lighting industry, has been embroiled in the beginning stages of a liquidation process now under Chapter 7 bankruptcy, sparking objections and claims from two former business partners.
Deco Lighting's bankruptcy restructuring took a decisive turn in June 2023 when the bankruptcy judge mandated the conversion of Deco Lighting's case from Chapter 11 to Chapter 7. This shift signaled the start of asset liquidation under the administration of a U.S. Trustee, specifically appointed for this case. The company had ceased operations, laying off employees and closing its doors, thereby halting any potential financial negotiations that could have kept Deco Lighting afloat.
As the liquidation process unfolds, it's becoming evident that numerous creditors, including lighting giants like Signify, numerous suppliers and dozens of lighting agents in the U.S. and Canada are likely to receive no compensation from the owed millions. The estimated asset value falls short of the towering debt Deco Lighting accumulated over the years.
Objections from former partners: Ben Pouladian and PQL
The latest legal dispute focuses on a proposal filed by Timothy Yoo, U.S. Trustee, for Deco Lighting to sell the majortiy of its assets to ABS Capitol, LLC, a firm managed by Babak (Bob) Sinai and Siamak (Sam) Sinai. The two Sinai brothers, along with another brother, Saman Sinai, and their cousin, Ben Pouladian, founded Deco Lighting in 2005.
PQL Inc., a Southern California lighting company, partnered with and funded Deco Lighting throughout much of the bankruptcy restructuring until the latter ceased operations and was pushed into Chapter 7 bankruptcy in June 2023. The proposed sale has sparked significant objections, notably from Pouladian, a co-founder who departed the company amid disputes with the Sinais in 2019, and also from PQL Inc., Deco's previous business partner that helped fund its restructuring in recent years. Notably, in 2021, Deco Lighting declared a new partnership with PQL, proclaiming that "Companies Ally to Offer the Most Complete and Innovative Lighting Solutions Platform." And just over two years later they have become adversaries.
Allegations of Possible Self-Dealing and Mismanagement
The objections filed this month by Pouladian and PQL Inc. revolve around several points of contention. Pouladian, in his filing questions whether the proposed sale to ABS Capitol serves the best interest of unsecured creditors. He highlights a potential conflict of interest, given the Sinais’ involvement in both the debtor and buyer entities. Additionally, Pouladian alleges that the asset value and financial details provided in the trustee's motion are insufficient and lack transparency.
PQL Inc., in its objection echoes similar concerns. They emphasize their significant investment in Deco Lighting, amounting to approximately $5 million, and their 10% ownership in DQL Inc., which in turn owns Deco Lighting. PQL Inc. stresses that the asset sale terms are overly broad and could potentially shield individuals like the Sinai brothers from litigation for actions detrimental to stakeholders.
Central to these objections are allegations of possible self-dealing and lack of transparency by the Sinai brothers. Both Pouladian and PQL Inc. assert that the Sinais may have acted in their personal interest, particularly in shutting down Deco Lighting's operations in June 2023, a move that seemingly paved the way for ABS Capitol to acquire the assets.
Bob Sinai has expressed a clear intention to revive Deco, stating shortly after the court-ordered liquidation their ambition that “Deco Lighting will rise again and reclaim its position as a leader in the architectural lighting industry.”
Sinai's ABS Capitol would potentially acquire the assets of Sinai's Deco Lighting with no cash exchanged
ABS Capitol, a company operated by Bob Sinai and Sam Sinai, is set to acquire the assets of the bankrupt Deco Lighting, as outlined in a proposed sales agreement filed by the U.S. Trustee. The agreement stipulates that Deco Lighting will sell almost all of its assets to ABS Capitol, including tangible and intangible assets like machinery, inventory, intellectual property, and receivables. This sale will transfer these assets free of liens, claims, and encumbrances, ensuring that ABS Capitol, operated by the Sinai brothers, receives clear and marketable title.
Terms of the deal include a purchase price of $4,398,268, structured as a credit bid, where ABS Capitol waives its secured claim in the bankruptcy estate. This means that instead of ABS Capitol paying cash for the assets, they are using their existing claim against Deco Lighting (amounting to $4,398,268) as the purchase price. The way we interpret this is that ABS Capitol would essentially forgive or waive its secured claim in the bankruptcy estate in exchange for the assets of Deco Lighting. There is no actual cash exchange in this process; the sale would be settled by offsetting the amount of the claim against the value of the assets acquired.
Over $200,000 in Attorneys’ fees come into question
In his objection filing, Pouladian alleges several points regarding legal fee declarations. He claims that attorney Ray Aver, attorney for Deco Lighting, asserts he is owed about $110,000, despite Aver not having filed a fee application, even though he allegedly received a pre-petition retainer of $35,000. According to Pouladian, it remains unclear if Aver obtained any additional funds from Deco Enterprises or whether ABS Capitol has compensated him to date.
In a similar vein, Pouladian alleges that attorney Amy Mousavi claims she is owed roughly $94,527. As per his assertion, Mousavi, like Aver, has not filed a fee application. Pouladian also notes the lack of evidence regarding any payments Mousavi may have received from either Deco Enterprises or ABS Capitol.
Important hearing(s) ahead
A hearing scheduled for December 6, 2023, aims to address Pouladian’s objections and arguments. This hearing and another possible future hearing relating to PQL’s objections could be pivotal in determining the course of Deco Lighting's bankruptcy case and whether the proposed asset sale to ABS Capitol goes through as originally proposed.
As of press time, court records indicate that Deco Lighting has yet to file an opposition to the motions of Pouladian and PQL. Due to previous experiences of receiving profane, unprofessional, insulting, threatening and harassing communication from Deco Lighting's Sam Sinai, we did not contact Deco Lighting for comment.