A Cincinnati tech startup in bankruptcy proceedings has had its case converted to a Chapter 7, further setting the stage for a firesale of its remaining assets, which range from intellectual property to cash reportedly stolen from its former CEO.
Rumby, which voluntarily filed for Chapter 11 subchapter V bankruptcy in December, will now go through Chapter 7, per an order Feb. 24 from U.S. bankruptcy Judge Beth Buchanan.
The U.S. Trustee in support of the conversion cited the company’s “gross mismanagement” leading up to the filing. It also argued Rumby had no “discernable path” forward and called the startup “insolvent and soon-to-be-defunct.” Rumby’s bankruptcy filing came weeks after its co-founder and former CEO, Ben Cantey, was hit with a lawsuit alleging fraud and misuse of funds.
Cantey resigned in October, and all 22 employees were successively laid off. Nicholas DeLuca, an out-of-state investor, was designated as its director and sole board member in November.
The decision to convert to Chapter 7 was made mainly because DeLuca “lacks any prior knowledge” of the company’s operations. DeLuca has said in court documents he’s been unable to uncover any "financial records, profit and loss statements or any records of tax returns.” In fact, “no corporate records seem to exist,” DeLuca said, “other than the articles of incorporation and the bylaws.”
Regardless of the Chapter status, Jim Coutinho, an attorney with Columbus-based Allen Stovall Neuman & Ashton, said the result will likely be the same.
Coutinho was initially appointed subchapter V bankruptcy trustee and now serves as the Chapter 7 trustee. In a Chapter 7, the trustee takes over the company assets versus the debtor remaining in control.
Rumby was already pathing toward what’s known as a “363 sale," he told me.
“Inside a Chapter 11…it would be about selling off whatever assets we can, and not having any sort of new set of operations and not restarting the company,” Coutinho said. “That outcome would be the same in Chapter 7, where we just figure out what is the company’s assets are worth and who we can sell them to.”
Coutinho declined further comment.
In the court filings, it does appear there’s some value in Rumby’s intellectual property, or IP, and its customer contacts. Rumby, launched in 2020, offered Uber Eats-like delivery service for laundry and dry-cleaning businesses via its e-commerce platform.
There’s also cash and real estate at play.
In November, Cincinnati-based investment firm Refinery Ventures filed a lawsuit alleging Cantey pocketed millions in company funds. Refinery made a $3 million investment in Rumby last year based on "falsified growth numbers" Cantey provided.
Per DeLuca, more than $7 million had been deposited in the company’s corporate accounts. A “large portion of those funds were dispersed” to Cantey, he said.
Per the Refinery suit, Cantey used a portion of the Rumby cash to purchase a $1.7 million home in Hyde Park in May.
The home is the subject of a forfeiture action filed by the U.S. Attorney’s office for the Southern District of Ohio. That could make it harder to recover in the bankruptcy case.
Among Rumby’s largest creditors is the Cincinnati Bengals; the company owes the team $1.7 million for breach of contract.
The company also owes an “unknown” amount in taxes to the Internal Revenue Service; the state of Delaware, where Rumby, listed under the company name Carbon IQ, is incorporated; and the state of Ohio.
A meeting of creditors in the case is scheduled for April 13.
