NewAge filed for Chapter 11 bankruptcy on August 30th.
The filing affects subsidiary MLM companies Noni by NewAge and Ariix.
As revealed in NewAge’s bankruptcy filing, the company has $310 million in assets and $149 million in debt.
NewAge’s debt is broken down as follows:
NewAge – ~$1 million
NewAge Holdings – ~$18 million
Noni by NewAge – ~$34 million
Ariix – ~$235 million
NewAge’s largest unsecured creditor appears to be their product manufacturer TCI Biotech. TCI BioTech LLC tops NewAge’s creditor list at $2.5 million.
Of further note is $1.6 million owed to Zennoa LLC and $270,623 owed to MaVie. Both companies were absorbed by Ariix prior to NewAge’s acquisition.
Lawrence Perkins was appointed Chief Restructuring Officer of NewAge and its related companies back in April.
An August 31st filed declaration by Perkins provides insight into NewAge’s bankruptcy.
More recently, the Debtors faced several challenges, which, in cumulation, have necessitated the filing of the Chapter 11 Cases.
The challenges include the global COVID-19 pandemic and supply chain issues, uncertainty related to business operations in China, issues in fully integrating numerous brands, changes in management, and expense related to an investigation and defense of a potential violation of the Foreign Corrupt Practices Act (FCPA).
FCPA in MLM typically comes into play when a US based MLM company bribes a foreign government. This is done in exchange for permission to scam the local population.
Paid bribes grease the wheels of local politicians and authorities, protecting the MLM company from domestic regulators and law enforcement.
I’m aware of three FCPA MLM related cases over the years:
Avon copped a $135 million fine in 2014;
Nu Skin copped a $765,688 fine in 2016 (they also paid out $47 million in a related class-action); and
Herbalife copped a $122 million fine in 2020 and two former executives were indicted in July 2022
All of these FCPA corruption cases centered on MLM companies bribing Chinese officials.
As disclosed in Perkins’ declaration;
On the Petition Date, there were over 400,000 Brand Partners selling products in more than 50 countries, primarily in North America, Japan, China and Europe.
Globally, the NewAge Enterprise has approximately 830 employees. There are approximately 170 employees located in the United States.
In China, the Sales Affiliate performs its own manufacturing of products sold in the same country.
FCPA cases are investigated by the DOJ and/or SEC. Details of the ongoing investigation into NewAge’s alleged FCPA violations are under wraps, but you can probably guess where this is going.
MLM companies that bribe Chinese officials run rampant across the company. Over time China becomes the primary source of revenue keeping the company afloat.
When Chinese officials turn off the tap, or US authorities launch an FCPA investigation – unless the company is generating significant revenue elsewhere, things go downhill fast.
Avon struggled before eventually collapsing in early 2020. Nu Skin and Herbalife continue to do business in China.
With respect to NewAge’s business operations in China, Ariix’s ballooning debt of $236 million stands out like a sore thumb.
NewAge operates in China through
NewAge (China) Biological Technology CO Ltd;
NewAge (Shanghai) Biological Technology CO Ltd;
NewAge Worldwide Hong Kong Limited;
Tahitian Noni Beverages Chia Co Ltd;
Ariix Hong Kong Holdings Limited;
Ariix Hong Kong Services Ltd;
Ariix CIS Limited;
Ariix Hong Kong Ltd; and
Ariix China Ltd
Not surprisingly, Ariix is at the center of NewAge’s FCPA investigation.
From Perkins’ declaration;
Challenges include the global COVID-19 pandemic and supply chain issues, uncertainty related to business operations in China, issues in fully integrating new brands, changes in management, and expenses related to an investigation and defense of a potential violation of FCPA related to Ariix.
(NewAge’s) operations have also been negatively impacted by a difficult regulatory environment in China, which accounts for approximately 20% of business.
For example, in 2019, several departments of the Chinese government initiated a review of healthy product and direct selling companies in China.
During this review, the government instructed direct selling companies, such as the Debtors, not to hold large distributor meetings.
Chinas review and authorization of direct sale licenses has also been suspended.
The NewAge Enterprise has also suffered from substantial turnover, including the separation from the founding CEO and subsequent dispute and regulatory investigations around acts conducted during his tenure.
Brent Willis (right), abruptly resigned from NewAge earlier this year on January 10th, 2022.
No official reason for his departure was provided at the time, or has been since.
I don’t know if Willis’ conduct is related, but Perkins also cites a revolving door of NewAge CFOs over “the last 3 years”.
Getting back to FCPA; things get even more murky upon consideration Ariix was likely engaged in FCPA violations related to China, prior to NewAge acquiring it in 2020.
After it acquired Ariix, (NewAge) conducted an independent investigation of their international business practices, including engaging external counsel, accountants, and other advisors.
The investigation identified potential FCPA violations and, in August 2021, a voluntary self-disclosure was made to the U.S. Department of Justice and U.S. Securities Exchange Commission.
As of the Petition Date, reporting continues, and no penalties or fines have been imposed against (NewAge).
In conducting its own investigation and cooperating with the governmental entities, however, (NewAge) ha(s) incurred significant expenses.
The other interesting tidbit from Perkins’ declaration is NewAge, through a contracted third-party, approached eighteen potential buyers.
Further negotiations and involvements with these parties did not develop further due to issues including but not limited to inability to agree on non-disclosure agreement terms, priming lien concerns, liquidity-driven timing constraints, and inability to put forth an actionable proposal.
Nevertheless, a number of these parties have expressed interest in participating in a potential sale process of the Chapter 11 Cases.
One way or another, NewAge’s Chapter 11 restructuring plan appears to be a total sell off.
The Debtors intend to sell substantially all of their assets at an early stage in this case to preserve the assets value.
Shortly after substantially all the assets are sold, the Debtors plan to propose a chapter 11 plan to distribute the sale proceeds to the appropriate parties.
NewAge is a publicly traded company. NBEV shares peaked at $7.11 in January 2019. Today they’re trading at 12 cents.
Bundled with NewAge’s initial Chapter 11 filing are additional motions requesting:
permission to pay $532,000 to “approximately 320 employees”;
permission to pay $320,000 in taxes owed prior to the bankruptcy filing;
protection against utility providers cutting service to the company;
preservation of NewAge’s bank accounts;
permission to sell off property;
The bulk of NewAge’s filed motions were granted on September 1st.