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Update: Hobbico files for Bankruptcy

Since sharing the news that Hobbico would be shutting down its Reno facility, more information has been revealed to give us a better picture of just how much trouble Hobbico is really in. For a recap of what we’ve last reported, click here.

In 2005, Hobbico created a program that would see shares of the company distributed to employees. This is known as an employee stock-ownership program. The program was designed to help encourage employees to think as ‘owners’ of the business, as they were now financially invested into the company. Even after an employee leaves the company, Hobbico is required to reimbursed the employee for their shares. However, reports, in late December of last year, have claimed that the company has been deferring employee stock-owernship payments since last year and is now under in is under investigation by the U.S. Department of Labor. In a letter sent out from Hobbico to one of its former employees, they stated “Due to Hobbico’s failure to satisfy its repurchase obligations in 2016, the DOL started (an) investigation of the ESOP in early 2017.”

“The DOL informed Hobbico of the investigation via (a) formal letter, but no subsequent activity has occurred since the letter was presented”, they said before sharing that “this process can be very lengthy”. In that same letter sent, CEO at the time, Wayne Hemming wrote “It is expected that 2017 will also be a challenging year for the business.”

Today it is has been made clear how challenging this year has been for the company, who have today filed for bankruptcy. It’s is expected that this may lead to at least 332 staff layoffs, as has been reported. Despite this, the company says it will continue to operate throughout this process.

Hobbico have today released a statement outlining it’s plans to try sell the company. Hobbico, which began in 1971, is now one of the largest United States distributors of radio-control and hobby products. However, as indicated “debt has added too much leverage for the company, and it has been unable to successfully restructure to help meet its financial obligations.”

The statement alludes to “an increasingly competitive industry, market headwinds and a series of one-off events with key suppliers” being major contributing factor in it’s failure. It’s for these reasons outlined, that Hobbico believe their “…financial position is unsustainable.”

Despite their financial challenges, a Hobbico representative said “we decided to pursue a Chapter 11 reorganization and attempt to attract new capital investment.” By filing for a Chapter 11, Hobbico aims to seek protection from its creditors in order to implement a new restructuring plan, which will ideally reduce debt and potentially attract new capital investment. In doing so, Hobbico hopes it can continue its operation in the future.

President of Hobbico, Louis Brownstone says of filing for bankruptcy is a “difficult” step but “it will help preserve the value of our business and it’s the right thing to do for our company and our employees.”


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