Cardiac Science Corp. Files for Chapter 11 Bankruptcy Protection

Cardiac Science Corp. Files Chapter 11

On Oct. 20, Cardiac Science Corp., a major medical device firm known for developing and manufacturing automated external defibrillators, announced that it had filed for Chapter 11 bankruptcy protection. According to the Milwaukee Business Journal, the company sought bankruptcy protection after falling into insolvency with more than $87 million in debt.

Cardiac Science Corp. falls into debt after major changes

In bankruptcy documents, the company cited recent turmoil after its directors were removed and a litany of financial problems that arose due to a decline in sales. According to a report by the Milwaukee Journal Sentinel, Cardiac Science Corp. stated that it holds liabilities between $100 million to $500 million against assets in the range of $10 million to $50 million.

The company also noted that it owes $8.7 million to CFS 915 LLC, one of its primary secured lenders. After the loan went into default status, CFS removed the company’s executive board and appointed new directors. In turn, CFS then filed a lawsuit against Cardiac Science for the balance of the outstanding debt. Further, Cardiac Science had also been in default status for over two years with HDFC Bank Ltd. of Mumbai, India for its $6.3 million loan.

Currently, the company has several unsecured creditors, which most notably include Celestica Electronics of Malaysia for $2.5 million, Patterson Thuente Peterson Intellectual Property of Minneapolis for $440,411 and Saft America Inc. of Valdese, North Carolina for $388,460.

One day before the company filed for Chapter 11 bankruptcy protection, its new executive board petitioned to have Criticare Systems Inc. – Cardiac Science’s sister company – put into receivership in the Waukesha County Circuit Court. The board felt that insolvency was imminent for Criticare Systems, and thus filed the petition as a way to position the company for liquidation, with the proceeds of the asset sales to be paid to its creditors.

Cardiac Science’s reorganization plan calls for sale

Prior to its Chapter 11 filing, the Cardiac Science Corp. laid off 15 high-level employees in an effort to lower its costs. However, in its bankruptcy documents, the company stated that it does not intend to conduct more layoffs because it plans to seek a quick sale as an ongoing business. This sale process will be held in a supervised bankruptcy court auction, with CFS acting as the stalking horse bidder. Although CFS has also reached a purchase agreement with Cardiac Science, the auction will be open to competitive bids.

CFS has agreed to provide debtor-in-possession financing to Cardiac Science to ensure that business operations continue uninterrupted. This funding is intended to guide the company through the bankruptcy period until it is sold, with the intention of it emerging from reorganization as a viable business. In turn, the debtor-in-possession financing will enable the company to continue making payments for employee wages and benefits packages as well as goods and services from vendors.

Are you a creditor in a bankruptcy?  Have you been sued by a bankrupt?  If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.