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In 2006, Newark, Delaware-based, Leisure Fitness Inc. was flying high. Over the course of four years, it had doubled its number of retail stores and built its annual revenue to a reported $56 million.
So it came as a bombshell when the company’s 127 employees learned on Sept. 19 that Leisure Fitness had shut down all operations, including its 19 retail stores stretching along the mid-Atlantic region in Delaware, Maryland, New Jersey, Pennsylvania and Virginia.
Such news is never welcome, especially at a time when concerns over employment and the economy are rampant. A voice recording left at the Annapolis, Md., store illustrated the surprise: “Thank you very much for calling Leisure Fitness today. Unfortunately, today is not a good day for Leisure Fitness. We are now bankrupt …”
But the recording partially misrepresents what has happened at Leisure Fitness.
Leisure Fitness President Katina Geralis spoke with SNEWS® to clarify the status of the company she started in her garage in 1995.
On Sept. 19, Geralis said she sent an email to her leadership and management team to inform them of the company’s situation, telling us that she did not have time to send a notice to all employees “as things were happening too fast.”
The announcement came as a result of an Involuntary Petition for Chapter 7 Bankruptcy filed by three parties — two former employees, John Sutcliffe and James E. DePaul, and InFlight Fitness, a strength and endurance equipment manufacturer — which totaled $26,900. Court papers show that InFlight Fitness’ claim is for “goods sold” in the amount of $5,500. Sutcliffe’s claim is “proceeds from annuity and unpaid vacations,” adding up to $3,000, while DePaul’s claim is $18,400 for “proceeds from annuity, back commissions and unpaid vacation.”
Geralis told SNEWS that the petition came as a result of some bad blood. “We have proof that they (those filing the petition) had malicious intent to put us into bankruptcy and out of business,” she said.
As a result of the petition, Wilmington Trust, a bank based in Wilmington, Delaware, froze its line of credit to Leisure Fitness. “I did nothing but fight to lift the freeze on the line of credit,” Geralis said. “You can’t keep the business open unless you can make payroll.”
Geralis added that she was working, along with her counsel, on a deal with the bank to keep the stores open. “In fact, a deal was thrown together, but there was not enough time to work out all of the details satisfactory to the bank before the day payroll was due.”
The petition enacts a 20-day stay period after which time a hearing is held to determine the fate of the amount owed and — indirectly — whether Wilmington Trust will end its credit freeze. Geralis said she remains uncertain about its outcome. “Some claims are legitimate and some are unfounded,” she said.
“In the meantime, I’m trying like everybody else to get what is rightfully due to us,” she added. “They (Leisure Fitness employees) don’t know it, but I’m on their side.”
Geralis told SNEWS, “With the help of my attorneys, I am presently following up on issues pertinent to the employees, such as status of benefits, 401K, etc., but some of the benefits providers have been confused by the status of things as well. So to say the least, things are confusing for all.”
The closing of Leisure Trends is no doubt a surprise, considering the recent accolades given to the company. In 2005, The News Journal, a Delaware newspaper, awarded Leisure Fitness two “Best in the Business” awards: “Best Place to Work” and “Best Company to Watch.”
“The fact of the matter is that we had a very solid company for the past 12 years,” said Geralis.
A hearing is schedule for Oct. 1 at the bankruptcy court in Wilmington, Delaware, to determine whether the bank gets to exercise full control over its collateral — primarily the accounts, accounts receivable and inventory — or whether there is any reason to delay the bank’s actions.