Solavei to work through bankruptcy on tight budget
Solavei’s First Motions bankruptcy hearing appears to have taken place today, with the court concluding
As detailed in the Motion, the Debtor requires the use of Cash Collateral to continue its ongoing operations in the ordinary course of business, and in order to avoid disruption of such operations.
The Court finds and concludes that the Debtor and the estate will suffer immediate and irreparable harm if the relief approved hereby is not granted.
Based on the foregoing findings, it is hereby ORDERED as follows:
Motion Granted. The Debtor’s Motion is granted on an interim basis pursuant to the terms and conditions of this order (this “Interim Order”).
All objections to the Motion (if any) with respect to entry of this Interim Order are hereby overruled.
The terms and conditions of the order relate mostly to a budget, which Solavei is required to adhere to.
Subject to the terms and conditions of this Interim Order, the Debtor is authorized to use Cash Collateral in an amount not to exceed the total amount set forth in the Budget (the “Maximum Amount”) for use through the close of business Seattle time (the “Expiration Time”) on the date set for the Final Hearing.
In addition to the overall cap on how much money Solavei can spend between now and the final First Day Motions hearing, an effective monthly cap (directly tied into their generated revenue) also applies:
(Solavei’s) payment of any Fixed Expense (defined below) with Cash Collateral
(i) shall not exceed the corresponding expense line item set forth in the Budget for such Fixed Expense by more than ten percent (10%) in any one week and
(ii) the total amount of Cash Collateral used to pay all Fixed Expenses in any one week shall not exceed the total amount set forth in the Budget for all Fixed Expenses for that week by more than five percent (5%);
The Debtor may defer and pay a Fixed Expense budgeted for one week during any of the succeeding weeks so long as the cumulative expenditures from the Petition Date through the week when such deferred payment is made do not exceed the cumulative budgeted amount:
(i) for such Fixed Expense line item by more than 10% and
(ii) for all Fixed Expense line items by more than 5%.
The Debtor’s total actual expenditures on all Variable Expenses during any week shall not exceed the Budgeted amount of all Variable Expenses for such week by a greater percentage than the actual Net Revenues for the preceding four weeks, cumulatively, exceed the Budgeted amount of Net Revenues for the
preceding four weeks, cumulatively.
For purposes of this paragraph, “Variable Expenses” means the following specific line items in the Budget: T-Mobile, Commissions, 3Ci, Merchant Solutions, NCO, Other, and Taxes and “Fixed Expenses” means all line items in the Budget that are not Variable Expenses.
As far as Solavei’s affiliates go, their commissions are counted as “variable expenses” above. Solavei is restricted to not paying them (in addition to their other creditors) more than the company has brought in over the four weeks prior to the payment.
Opus bank are playing a large role in overseeing the budget and have been appointed Solavei’s defacto bankruptcy accountants:
Without Opus Bank’s prior written consent and subject only to subsections (a) through (c) of this section, the Debtor is not authorized to make any expenditures except in accordance with the Budget and this Interim Order and for fees of professionals retained pursuant to terms set forth in further orders of the Court.
With prior notice to and/or approval of Opus Bank, (Solavei) may reallocate payments from cash collateral among Budget line items (other than adequate protection payments to Opus Bank).
The Budget may be amended from time to time with the written consent and/or at the request of Opus Bank, provided that such amended Budget shall be in a form and substance acceptable to Opus Bank, in its reasonable discretion.
In the event of any material breach or default by the Debtor under the terms of this Interim Order, Opus Bank shall be entitled to a hearing on shortened
Opus Bank appear in Solavei’s Chapter 11 bankruptcy filing as a creditor with a secured claim. Solavei currently owes them $4.8 million dollars.
It’s worth noting that keeping within the interim order budget appears to be do or die for Solavei, with the company notifying the court that
it is unable to obtain financing and, except Cash Collateral, has no other source from which to fund the budgeted expenses necessary to preserve and protect the
assets of the estate.
Prior to filing for bankruptcy, Solavei had secured $10 million from Opus Bank, subject to release if the company could raise further capital. Solavei failed to raise this additional capital however, and the money was returned to Opus.
Much of Solavei’s being able to restructure itself and pay off their current $63 million in debt hinges on it’s affiliates being able to successfully continue to market the company’s services. Given the recent ~37% commissions cut Solavei affiliates took earlier this year though, there’s an air of uncertainty over how things are going to pan out.
Ultimately if sales drop and Solavei finds its operational expenses exceeding the past four weeks revenue taken in (thus being unable to pay their affiliates), things could get really messy.
BusinessForHome were first to break the Solavei bankruptcy story and, nestled between the “everything will be fine” spam and vulture-like recruiting efforts of affiliates in rival MLM companies, some interesting initial reactions can be found:
Solavei have change the comp plan 3 times! Anytime a company changes there comp plan so many time in less the 12 Month means trouble.
Thousand of people use to make $1,000.00 and now making $200.00 or Less. This company will keep spiraling down to it’s death and keep lying to it’s customers!
under the old comp plain I would be making over $1000 a month now.
But, I have to look beyond that to long term residual income. I need a company that can survive the long haul.
I’m willing to sacrifice short term gain for long term prosperity. What happened yesterday is EXACTLY why I love this company and our leadership.
Seriously, they generate that much money and still need to reorganize. I don’t think I will trust their future plans if they cant manage the money that is coming in, if they cant manage the present how can they manage the future of this company.
Not surprised. This is a bankruptcy. They can recover. They won’t look out for you.
no matter how they try to sugar coat it, Solavei has been dying a slow death. I have been with Solavei since day 1. I am a founding member and I was at the official launch in Seattle.
The fact is, there will always only be the big 4 wireless companies. Everyone else will only be trying to be re-sellers of the major services of either AT&T, Verizon, Sprint, T-Mobile.
It doesn’t take much insight to see they are on life-support. It’s just a matter of time now..
I could see the writing on the wall many months ago when they made tons of changes that negatively impacted customers including the pay plan changes and the as well as the service plan changes.
My son was a thousandaire with Solavei and it was taken away.
After all the comp plan changes and downgrading thousandaires, it made Solavei unattractive, this was bound to happen.
Please explain how Chapter 11 is a good thing, if you can not pay your bills you go to chapter 11, so how is it a company with so much growth is having trouble paying bills.
Looking forward, a final hearing date for the First Day Motions has been set for July 11th. Till then, Solavei are bound by the terms of the interim order.
Footnote: The above information was sourced from an order that appears on the bankruptcy docket as having been received and “forwarded to chambers for Judge’s signature”.
It appears to have been drafted by Solavei’s attorneys, Bush, Strout and Kornfeld, presumably after the hearing took place.
I don’t foresee any issues with the Judge signing the order, but nonetheless I’ll make a separate note if a signed copy of the order appears on the docket.
I guess the judge and prosecution don’t understand the lack of sales to external customers equals illegal pyramid. They never should have given them a second chance without verifying external retail sales are more than minimal.
Tex, there were no affiliate fees. so basically everyone was a retail customer, who could get refunds for his monthly service fees for bringing in more customers, and by bringing way more could make it a profit.
It does not fit a standard MLM definitions of FTC, but sure each of them who brought at list one customer can be defined as “in the system” affiliate.
oh, There was a sign up fee of $49 for each new account, so maybe that can be treated as buying a affiliate kit.
Solavei doesn’t charge a sign up fee, membership fee, or any other fee so Nik’s comment (above) is inaccurate.
It doesn’t cost anything extra to be able to share the service with others. All someone has to pay is their mobile phone bill ($29, $39, $49, or $69, depending on the mobile plan chosen).
Many people dislike MLMs because of their upfront fees & auto-ship requirements. Therefore, many people don’t consider Solavei a MLM because it doesn’t charge any fees & their service is competitively priced (unlike 99.9% of other direct sale companies).
I have always thought of it as MLM with the bacteria removed (in other words, all the things that people typically detest about MLMs, don’t exist in Solavei).
Nik, as far as I can tell, the Solavei compensation plan could be described as a “hybrid mlm/affiliate model.”
When they launched, you could “buy a six-pack” (most of the founders owned multiple positions) for $149 each. They would then “stack” them with one at the top and the others below the top position (double pay on same customer).
Some of the more clever distributors put the first position at the top, the next two on the 2nd level and the remaining three positions went below them on the 3rd level. This way, a Solavei rep could get paid 3 times on the same customer.
This was one of the programs with the initial calculations. Solavei distributors “gamed the system” and were getting multiple times on the same customers.
NOTE: The company DID NOT pay commissions on these positions, so they were able to keep 100% of the “pay-to-play” fees. So, Solavei used a “coded bonus plan” but WITHOUT paying the commissions and overrides to their distributors. 🙂
In the beginning, their $49 truly unlimited mobile plan was hard to beat. It now appears they were “buying” the business. Their rate was too low and on top of that, they were paying out too much.
After several changes to the compensation plan (reducing commissions by 37%) the growth cycle reversed as indicated by their sales over the past 3 months.
I bought the service but did not work the business. I was going to cancel the service this month anyway because Solavei does not allow access to “short codes” I will go with one of the big three for about the same price and be able to use short codes too.
The Solavei MLM Model is obviously Broken.
Shawna, you are partially correct. I’d like to ask you a couple of questions:
If someone wants to be a distributor where the Solavei mobile service is not available in their area, can they become a distributor for FREE? How many distributors with Solavei are STILL paying $149 per year to keep “multiple positions”? What do they get for this pay-to-play FEE?
The company doesn’t charge the $49 fee TODAY but their major growth phase was partially fueled the same pay-to-play model you say people dislike (“Many people dislike MLMs because of their upfront fees”) See my previous post where I explain the Multiple Position Option.
You can’t have it BOTH ways as there are ONLY 100 pennies in the dollar. If an MLM company is going to pay overrides to multiple levels of distributors on the same customer, the product has to be priced accordingly. The trend in business is Direct from Manufacturer to Customer or the Amazon Model where they cut-out the middle-man and associated costs (brick and mortar) in order to lower the price.
With your typical MLM plan, the price of the product HAS TO BE increased in order to pay the multiple levels of overrides. Or, they charge a pay-to-play fee (some refer to as coded bonus, customer acquisition bonus or CAB similar to Excel, Momentus, Lightyear, ACN, Fortune Hi Tech (shut down by FTC http://www.ftc.gov/news-events/press-releases/2014/05/ftc-settlement-bans-pyramid-scheme-operators-multi-level ) where the upline is paid a percentage of this fee.
In summary, an MLM company can either charge more for their products or price them in line with the market and pay distributors with the pay-to-play fee.
There are exceptions to this rule. If the company manufactures their own products, they can sometimes pay commissions and upline bonuses and still price their products inline with the market.
The other exceptions are skin care and nutritional products (some, not all) where the high-end pricing of 3 to 5 times mark up works for the MLM model, and not against it.
One could make a good argument that MLM is a Broken Model.
By the way, I am not an expert in this area. I have just been around for a long time and have learned (the hard way) from experience, which some say is still the BEST teacher.
If only some of the Solavei disciples had researched their glorious founder just a teeny, tiny bit could have foreseen it is rinse and repeat for wuerch… you can bet one thing, he will come up smelling like roses on this as he always does…
Shawna, something is not right, or they wouldn’t be in bankruptcy.
Oh, they do. But they are well disguised with fancy terms like “social commerce”, and they are in small enough proportions that they don’t feel quite as annoying as “traditional MLMs”.
But the flip side of the coin is it’s nowhere as profitable for the participants i.e. you can’t make it a career to sell Solavei, unless you “exploit” the FastStart bonuses and such, which lead to the cash bleed, which lead to the bankruptcy.
hehe, how do i change the auto-generated avatar picture, hate this one, reminds me of a symbology i hate since i was born.
Go to gravatar.com and register your email address, then add your own pix. I did. 🙂
Looks like a Nazi symbol.
Many people dislike MLM because so few people make a profit. The “bacteria” is the poor success rate.
Do you really think someone would give a crap about startup cost or an autoship if they were making money?
Shawna, the law dislikes MLM because there is little to no profit coming from sales to non-participants, which makes them illegal pyramids.
It seems like Solavei is pretty desperate to survive right now. No matter how you spin it, bankruptcy is never a “good thing”. They squandered not thousands, but millions of dollars of OPM (Other People’s money).
On top of that, they have taken away the commissions from those that built the company with 4 pay cuts in about a years time. You simply cannot build a moving target as an entrepreneur.
The numbers haven’t changed from T-Mobile or the industry, only what they are willing to pay.
This company could have been great but they missed the mark when it comes to treating their representatives with any kind of compassion in regards to their family incomes. You cannot sustain profitability when the people that built the company constantly are getting damaged.
Sad story of Corporate greed, or foolish handling of money in my humble opinion.