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USA Rugby Chapter 11: A Quick Summary

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USA Rugby Chapter 11: A Quick Summary

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USA Rugby's Chapter 11 bankruptcy documents are filed and submitted and they spell out a sobering situation for the embattled national governing body.

With Billion Law representing USA Rugby and with Brendan Linehan Shannon presiding as judge, USA Rugby is looking to try to maintain a minimal level of service while it pursues a new operational plan. That level of service includes making sure the liability insurance coverage remains paid and in effect when the COVID-19 shutdown ends and we can all play rugby again.

The shutdown, if course, is what has made it all harder on the organization.

USA Rugby was on the verge of insolvency in late 2019 when World Rugby agreed to provide $1 million to help the organization continue operations. At the same time, USA Rugby began cost-cutting measures including layoffs, the freezing of credit lines, and reductions in corporate travel. These measures were to have allowed regular rugby operations to continue until May 2020 (USA Rugby Reorganization Gets Deadline Extension). The plan then was to seek additional funding at the World Rugby Expo.

But the COVID-19 outbreak halted rugby, halting new CIPP dues income, sponsorship income, and income from events.

Coronavirus Shutdown Forces USA Rugby Reorg To Speed Up

As quoted from the documents filed with the court:

"... on March 13, 2020, the Debtor had to suspend sanctioned competition and rugby activities for a 30-day period, and on March 20, 2020, the Debtor had to suspend rugby indefinitely. As a result of this suspension of rugby, the dues revenue that the Debtor expected dried up, and the tournaments it had planned were cancelled. As a result, currently, the Debtor has no foreseeable opportunities for any incoming capital pending the re-starting of rugby events and it expects to run out of cash in the next 30 days."

In desperate straits, USA Rugby was able to get World Rugby to commit additional funds which would allow the organization to keep going and plan for a reorganization—critical to a Chapter 11 ruling.

But it's dire. USA Rugby's assets currently total just over $1.1 million, and if you include the $40 million lawsuit filed by United World Sports over the USA 7s, liabilities are more than $45 million. The only secured creditor (meaning that if everything falls apart, they can take it from the company in value of assets), is JPMorgan Chase Bank, which is over $467,820. That bill has to be paid first.

The lion's share of the rest of the money owed is $3.6 million to World Rugby, which is unsecured. The organization has a long list of other creditors, which include members of the USA men's 7s team, Rugby Canada, the law firm representing them in the UWS lawsuit, a Marriott hotel in Denver, Hudl, Rugby Athletic, the National Small College Rugby Organization, Rensselaer Polytechnic Institute, and several other rugby people, non-profits, and small businesses.

While some USA players are listed as creditors, indications are those funds owed are not huge. Still they should be paid.

One key aspect of all of this is that going forward, USA Rugby has to ensure that the court-appointed oversight is confident that the plan and budget are beign followed, and that the plan is workable.

Goff Rugby Report spoke with Rafael Zahralddin, a well-known Delaware bankruptcy lawyer who routinely summarizes significant Court filings in Delaware.

Zahralddin has already distributed a summary of the USA Rugby filing. You can find it on Twitter at @Delawarech11.

He added that filing Chapter 11 provide the organization with a breathing space, but the Debtor has responsibilities going forward. Also, the funding from World Rugby has to be approved by the creditors.

(This last thing is the the process of getting done. THe key motion, the Debtor In Possession—DIP— motion has been filed.)

Then a committee of creditors is formed to help oversee what goes on. But, as stated above, Zahralddin added that filing for Chapter 11 does not make it all better. USA Rugby's officers and the Board still has work to do.

USA Rugby submitted a proposed budget for the next nine weeks which includes some significant insurance premiums payouts. Now there's more work to do to unveil a new long-term way of doing business that everyone can get behind.

Thank you to Rafael Zahralddin for allowing us to use his summary of the filing. His Twitter feed is also embedded at https://www.elliottgreenleaf.com/delaware-office/. Any errors in this explanation are the writer's.