Information for Creditors of Pareteum Corporation, et al.
Jointly Administered Under Case Number 22-10615 in the United States Bankruptcy Court for the Southern District of New York
THE DEBTORS’ BUSINESS HISTORY AND OPERATIONS
Pareteum Corporation was originally formed in 2001 by a merger of Elephant Talk Communications Corp. and Staruni Corporation. It was renamed to Pareteum in 2016. In 2018 and 2019, Pareteum completed various acquisitions, including of Artilium PLC, iPass Inc., and Devicescape Holdings, Inc. As a result, through its various corporate holdings, Pareteum “provides integrated solutions for a variety of communications methods through, among other things, its leading-edge Communications Platform-as-a-Service (“CPaaS”) solutions.”
Pareteum’s bankruptcy papers state that this CPaaS “offers a cloud-based delivery model of real time communications for customers.” Essentially, the Pareteum family of companies allows other communication services provides to deliver products and services to their customers without having to develop and build their own infrastructure. Pareteum is able to deliver outsourced infrastructure either on location or fully remotely in the cloud.
Through its subsidiaries, Pareteum operates networks that enable its customers to engage in messaging, access Wi-Fi connectivity through hotspots throughout the world, and connect with end users and devices at public places across the world to utilize location-targeted experiences. The group of companies generated roughly $70 million in revenue in 2020, representing a year-over-year increase of 12% despite the COVID-19 pandemic.
DEBTORS’ BANKRUPTCY FILING
On May 15, 2022, Pareteum filed for bankruptcy protection. The company cites to two primary reasons for its bankruptcy filing: first, the immense amount of investment it has had to expend continually in order to stay on the cutting edge of technology; and second, significant costs from increased litigation and auditing costs and expenses brought on by prior executives’ improper accounting practices.
Specifically, Pareteum discloses that “certain former executives had directed that revenue be recognized based on non-binding purchase orders and prior to product shipment, which is not in accordance with generally accepted accounting principles (“GAAP”).” The company has also learned that those former executives and senior accounting employees “took steps to conceal these practices.” Since Pareteum is a public company whose stock was listed on the Nasdaq at the time, Pareteum had to hire multiple auditing professionals and new accounting professionals to disclose these accounting irregularities and restate the financials for 2018 and the first half of 2019.
Multiple shareholder lawsuits have been commenced against Pareteum for the alleged securities fraud committed by the company. The auditing, accounting, and litigation expenses proved too much, and the company defaulted on some of its debts. Though it tried to avoid a bankruptcy filing, ultimately, the company determined that it would be in its and its creditors’ best interests to pursue a sale through the bankruptcy court.
WILL UNSECURED CREDITORS BE PAID?
The Debtors’ Interim Chief Financial Officer, Laura W. Thomas, disclosed in the bankruptcy papers that the Debtors believe they owe “approximately $23.8 million” to prepetition trade creditors. Ms. Thomas continues: “Despite the Debtors’ best efforts, due to the constant cash constraints under which the Debtors have operated for more than the past year, the Debtors were forced to stretch vendor payments and other obligations for many months” before filing for bankruptcy.
Unfortunately, the unsecured debt is junior to secured debt, meaning that it does not typically get paid in a bankruptcy case unless the secured debt is paid in full. The Debtors report having substantial secured debts, as well. So, unsecured creditors may feel like they do not have much bargaining power in this bankruptcy case.
However, under the Bankruptcy Code, unsecured creditors have substantial rights, including the right to organize and be heard by the Court. The United States Trustee has already begun soliciting input from unsecured creditors to see if they are interested in forming a committee. A committee, if appointed, would have the right to hire counsel at the expense of the Debtors. The committee would have the duty of advocating for the best interests of all unsecured creditors of the Debtors. The involvement of a committee in a case typically means that unsecured creditors get better treatment than they would otherwise. If you want more information about this case or committees generally, please contact PRLT.
PRLT does not represent Pareteum Corporation or any of its affiliates. The content on this page is provided for informational purposes only. Nothing on this page or this website creates an attorney/client relationship between you and PRLT. Nothing on this page is legal advice. If you have any questions about the jointly administered Pareteum bankruptcy cases or anything discussed on this page, please contact us.