Quality Companies to Close Due to “Downturn in Trucking Market”
Indianapolis, IN – Quality Companies LLC, a leading provider of tractor and trailer leasing, and its parent company, 19th Capital Group LLC, will begin a wind down of its business operations in March, leading to an eventual closing.
In a Worker Adjustment Retraining Notification (WARN) letter submitted to the Indiana Department of Workforce Development on February 26, 2020, James Zender, general counsel for 19th Capital Group, says the company will permanently close its Indianapolis, IN-facility.
“While an exact date for the closure has not been established, it is anticipated to begin taking place on or after March 27, 2020, and the majority of employees will terminate employment during the 14 day period beginning April 27, 2020,” Zender wrote.
In all, the closure will result in the termination of employment for 199 people.
Quality also has a facility in Waxahachie, TX, which will also be permanently closed.
19th Capital is a wholly owned subsidiary of Element Fleet Management, a global fleet management company, and provides asset financing and fleet management solutions for operators of Class 8 fleets across the North America.
What Led To Closure?
In an exclusive statement to Transportation Nation Network (TNN), Heather Tulk, president of 19th Capital, attributed the company’s demise to a combination of factors, including the challenging freight environment and a glut of trucks in the market.
“The freight industry deteriorated rapidly in the second half of 2019, with a downturn in the trucking market and accompanying oversupply of Class 8 trucks,” Tulk said. “We conducted a thorough sale process, and although we did receive some offers, unfortunately none of them were viable.”
Tulk says the company is taking steps to conduct an “orderly run-off and eventual full wind down of the business over the coming months.”‘
Quality was founded in 2007 and is a former subsidiary of the now-defunct Indianapolis-based mega carrier, Celadon Group.
In October of 2015, Celadon entered into a joint venture with 19th Capital.
The carrier made a minority investment and completed the initial sale of an approximately $13.6 million portfolio of tractors and the associated leases to 19th Capital.
Celadon’s chief executive officer (CEO) at the time, Paul Will, said the sale was to “support the growth of our Quality Companies subsidiaries.”
Will retired as CEO in July 2017, at which time Paul Svindland took over the position.
By December of 2018, Celadon had divested its entire equity interest in Quality and 19th Capital to Element Transportation, an affiliate of Element Fleet Management.
The sales were the final stages in Celadon’s exit from the equipment sales and leasing business, which Svindland said “significantly contributed to increased indebtedness and operational difficulties for the company in fiscal years 2016 and 2017.”
However, Tulk denied that Celadon’s closure played a role in 19th Capital’s demise.
“The actions we are taking are not related to Celadon,” she stated.
In a message to customers, Quality assured lease-holders the company will “fully support” its leases through maturity with no changes to rates or other terms.
“We will also fulfill all contractual obligations in other areas of our business like fleet services. However, we will be ceasing sales of new leases,” Tulk told TNN.
However, 19th Capital would not disclose how many current truck leases are included in the run-off.
More About Quality
Quality was founded in 2007 and became a leading provider of tractor and trailer leasing and associated Fleet Services to transportation customers throughout the continental United States.
Its Fleet Services offerings included fleet tracking, driver safety solutions, fleet optimization, and compliance services.
Quality also offered tire and fuel programs as well as warranty and physical damage waiver programs.
Between 2013 and 2016, Quality’s inventory grew rapidly, from approximately 750 tractors and trucks to more than 11,000, according to federal court documents.
However, Quality’s financial performance began to struggle in 2016 due in part to a slowdown in the trucking market.
In addition, Quality owned a significant number of a truck models with mechanical issues, which many drivers did not want to lease.
By 2016, many of Quality’s trucks were idle, unleased and overvalued on Quality’s books by tens of millions of dollars.
Instead of properly reporting Quality’s financial difficulties to investors, certain members of Celadon’s and Quality’s senior management team, all acting within the scope of their employment, participated in a scheme that resulted in Celadon falsely reporting inflated profits and inflated assets to the investing public through Celadon’s financial statements.
As a way to dispose of its aging and unused trucks, Quality engaged in a series of fraudulent trades between June 2016 and October 2016.
In order to avoid disclosing the losses, certain executives purposely inflated invoices well above market value.
Celadon used these invoices and inflated truck values to conceal millions of dollars of losses from investors.
In April 2019, Danny Williams, 36, of New Palestine, IN, the former head of Quality, pled guilty to conspiracy to commit securities fraud, make false statements to a public company’s accountants, and falsify books, records, and accounts of a public company.
Also in April 2019, Celadon itself entered a Deferred Prosecution Agreement with the government, under which it is obligated to pay restitution of $42.2 million.
Then in December of last year, Celadon’s former chief operating officer (COO), William Eric Meek, 39, and former chief financial officer (CFO) Bobby Lee Peavler, 40, both of Indianapolis, were each charged in an indictment filed in the Southern District of Indiana.
Both men face charges of one count of conspiracy to commit wire fraud, bank fraud, and securities fraud; five counts of wire fraud; two counts of securities fraud; one count of conspiracy to make false statements to a public company’s accountants and to falsify books, records, and accounts of a public company; and one count of making false statements to a public company’s accountants.
U.S. Department of Justice (DOJ) officials estimate the complex securities and accounting fraud scheme resulted in a loss of more than $60 million in shareholder value.
It is important to note that 19th Capital reiterated to TNN it has not been affiliated with Celadon since October 2018.
This is a developing story.
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