On August 30th, NewAge filed for Chapter 11 bankruptcy.
The petition concerns Noni by NewAge and Ariix, two subsidiary MLM enterprises.
According to the bankruptcy petition, NewAge has $310 million in assets and $149 million in debt.
The following is a breakdown of NewAge’s debt:
$1 million – NewAge
NewAge Holdings – 18 million dollars
NewAge’s Noni – $34 million
Ariix – 235 million dollars
TCI Biotech, NewAge’s product producer, looks to be their greatest unsecured creditor. TCI BioTech LLC is NewAge’s largest creditor, owing $2.5 million.
In addition, $1.6 million is outstanding to Zennoa LLC, and $270,623 is owed to MaVie. Prior to the acquisition of NewAge, both firms were acquired by Ariix.
In April, Lawrence Perkins was named Chief Restructuring Officer of NewAge and its affiliated enterprises.
Perkins’ August 31st statement gives insight into NewAge’s bankruptcy.
Recently, the Debtors experienced a number of obstacles, which resulted in the filing of the Chapter 11 Cases.
The global COVID-19 pandemic and supply chain issues, uncertainty related to business operations in China, issues fully integrating numerous brands, management changes, and expense related to an investigation and defense of a potential violation of the Foreign Corrupt Practices Act (“FCPA”) are among the challenges.
When a US-based MLM firm bribes a foreign authority, the FCPA comes into play. This is done in return for permission to con the locals.
Bribes are paid to local politicians and authorities in order to safeguard the MLM firm from domestic regulators and law enforcement.
Over the years, I’ve become aware of three FCPA MLM-related cases:
Avon was fined $135 million in 2014; Nu Skin was fined $765,688 in 2016 (they also paid out $47 million in a related class-action lawsuit); and Herbalife was fined $122 million in 2020, with two former executives charged in July 2022.
These FCPA corruption prosecutions were all about MLM businesses bribing Chinese officials.
According to Perkins’ claim;
There were over 400,000 Brand Partners selling items in more than 50 countries on the Petition Date, notably in North America, Japan, China, and Europe.
The NewAge Enterprise employs roughly 830 people worldwide. In the United States, there are around 170 workers.
In China, the Sales Affiliate manufactures its own items for sale in the same nation.
The DOJ and/or the SEC examine FCPA charges. The current investigation into NewAge’s potential FCPA infractions is being kept under wraps, but you can probably anticipate where this is headed.
Bribery of Chinese officials by MLM enterprises is common across the organization. Over time, China becomes the company’s principal source of revenue, keeping it afloat.
When Chinese regulators cut off the tap, or US authorities open an FCPA probe, things go bad rapidly unless the corporation generates considerable money overseas.
Avon suffered before going bankrupt in early 2020. Nu Skin and Herbalife are still doing business in China.
Ariix’s increasing debt of $236 million stands out like a sore thumb in relation to NewAge’s commercial activities in China.
In China, NewAge is represented by
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 are all subsidiaries of Ariix Hong Kong Holdings Limited.
Unsurprisingly, Ariix is central to NewAge’s FCPA probe.
According to Perkins’ claim;
The worldwide COVID-19 epidemic and supply chain concerns, uncertainties connected to company operations in China, issues in properly integrating new brands, management changes, and expenditures associated to an investigation and defense of a probable FCPA violation related to Ariix are among the challenges.
A challenging regulatory climate in China, which accounts for around 20% of sales, has also had a detrimental influence on (NewAge’s) operations.
For example, in 2019, numerous Chinese government departments launched a study of healthy product and direct selling enterprises in China.
The government directed direct selling organizations, such as the Debtors, not to organize major distributor meetings during this assessment.
The evaluation and authorization of direct selling permits in China has also been halted.
The NewAge Enterprise has also seen significant turnover, including the departure of the initial CEO and subsequent legal and regulatory inquiries into actions committed during his tenure.
Brent Willis (right) unexpectedly resigned from NewAge on January 10th, 2022 earlier this year.
Ever was no official reason given for his departure at the time, nor has there been subsequently.
I’m not sure if Willis’ behavior is relevant, but Perkins also mentions a revolving door of NewAge CFOs during “the previous three years.”
Returning to the FCPA, things get much more complicated. Ariix was most likely involved in FCPA crimes involving China prior to their acquisition by NewAge in 2020.
Following the acquisition of Ariix, (NewAge) launched an independent assessment of their foreign business operations, including the engagement of external lawyers, accountants, and other advisers.
The inquiry uncovered probable FCPA breaches, prompting a voluntary self-disclosure to the US Department of Justice and the US Securities and Exchange Commission in August 2021.
As of the Petition Date, reporting was still ongoing, and no penalties or fines had been assessed (NewAge).
However, in conducting its own inquiry and collaborating with federal agencies, (NewAge) has paid enormous costs.
Another noteworthy nugget from Perkins’ admission is that NewAge solicited eighteen possible purchasers through a hired third-party.
Further conversations and cooperation with these parties were halted owing to reasons such as an inability to agree on non-disclosure agreement conditions, priming lien concerns, liquidity-driven time restrictions, and an inability to put out an executable plan.
Nonetheless, a number of these parties have shown an interest in participating in a possible sale of the Chapter 11 Cases.
NewAge’s Chapter 11 reorganization strategy looks to be a total sell off in one manner or another.
To maintain the value of the assets, the Debtors seek to liquidate nearly all of their assets at an early stage in this case.
The Debtors intend to present a chapter 11 plan to distribute the sale proceeds to the proper parties shortly after virtually all of the assets have been liquidated.
The firm NewAge is publicly traded. In January 2019, NBEV shares reached a high of $7.11. They are now selling at 12 cents.
Additional motions are included with NewAge’s first Chapter 11 petition, requesting:
permission to pay $532,000 to “about 320 workers”; permission to pay $320,000 in taxes owing previous to the bankruptcy filing; protection from utility suppliers shutting off access to the firm; preservation of NewAge’s bank accounts; permission to sell property
On September 1st, the majority of NewAge’s motions were granted.
Update, October 6, 2022 – John R. Wadsworth, the nephew of original Morinda founder John J. Wadsworth, has purchased NewAge.