CHAMPAIGN — After selling most of its assets, Hobbico has filed for Chapter 7 bankruptcy, i.e. liquidation, starting the final chapter of what was once one of the largest hobby distributors in the world.
Its crosstown competitor Horizon Hobby bought much of the company's assets in April for $18.8 million, after Hobbico filed for Chapter 11 bankruptcy in January.
While Chapter 11 gives companies a chance to reorganize their debt, Chapter 7 leads to liquidation of the debt.
Hobbico is asking a bankruptcy court judge for approval to convert the case from Chapter 11 to Chapter 7.
"Given that the Debtors (i) have sold all of their assets of any meaningful value, (ii) have no business operations, and (iii) do not have the resources necessary to propose and confirm a chapter 11 plan, the Debtors submit that conversion of these cases to cases under chapter 7 of the Bankruptcy Code is necessary and appropriate," the filing says. "Stated differently, there is no reasonable prospect that the Debtors can successfully rehabilitate."
When Horizon bought Hobbico, it said the Hobbico name might fade away, and indeed, it already has.
The website hobbico.com redirects to Horizon's website, where a note welcomes Hobbico customers.
"With this acquisition, Horizon Hobby looks to build upon Hobbico's great reputation for providing quality RC products to customers throughout the world," the note reads.
Hobbico was one of the largest employers in the county, with about 330 employees at its Champaign facility at 2904 Research Road when it filed for bankruptcy.
The company, formed in 1985 when Clint Atkins combined Don Anderson's Great Planes Model Distributors and Bruce Holecek's Tower Hobbies, said it filed for Chapter 11 because it had added too much debt as it grew and ran into issues with suppliers.
Last year, employees noticed that the value of the company's employee stock-ownership program declined by more than 80 percent, and the U.S. Department of Labor opened an investigation into deferred ESOP payments.
In 2005, Hobbico's owners sold the company to the ESOP, which in turn distributed shares to employees to supplement their 401(k).
It's unclear what happened to employees' ESOP savings after the sale to Horizon, but the value of Hobbico shares likely were worthless.
Along with filing to convert the bankruptcy to Chapter 7, Hobbico also recently received an order from the judge allowing it to reject about 75 different contracts, including a couple with GreatBanc Trust, which managed the ESOP for Hobbico.
GreatBanc Trust did not respond to calls for comment.
After Horizon bought Hobbico, Horizon said that of the 280 Hobbico employees in the RC units it bought, 200 applied for employment at Horizon, and 165 were extended offers.