Mal Dunn Owed Six-Figure Sums to List and Data Suppliers

Aug 30, 2007 3:31 AM  By

(Direct Newsline) List firms have reason to feel nervous following last Friday’s Chapter 11 bankruptcy filing by Mal Dunn Associates Inc.

Several list providers, including American List Counsel and IMS List Management, are owed five- or six-figure sums. So are data providers like Acxiom and Equifax.

How much of the nearly $9.3 million owed to creditors will actually be dispensed is up in the air.

In past bankruptcy litigation, the courts have often ruled that list receivables should be held in trust, as opposed to being mixed in with other obligations.

If this court agrees, it will recognize that payables and receivables belong to the list owners, and that Mal Dunn is entitled only to its commissions.

But it depends on the jurisdiction. In some cases, list owners had to argue that the money owed them was theirs, and not the bankrupt list company’s. The issue was litigated at length during the Greenfield Direct bankruptcy in the 1990s.

Dunn’s liabilities include $7,895,999 in accounts payable to trade clients; $386,307 in accounts payable to production clients; and $168,965 in commissions payable.

In addition, the company listed $4,366,893 in assets, including $2,945,811 in accounts receivable.

But those receivables could also be an issue if list owners try to collect them directly from mailers, or if the court sees them as money due the list owners, and not Mal Dunn.

This situation cropped up in 2005 when Listworks filed for Chapter 7 bankruptcy. Lawyers for the Muscular Dystrophy Association had to file papers arguing that the nonprofit group should get the money due it for rentals of its list.

Chances are that none of this will be settled anytime soon. The U. S. Bankruptcy Court for the Southern District of New York has set Oct. 2 as the date of a case management conference.

While the agenda of this meeting is unclear, the court papers mandate that either a committee appointed to review the case or the holders of the 10 largest unsecured claims and the five largest secured claims, be notified of the meeting.

Mal Dunn’s CEO Stephen Dunn believes there are no secured creditors.

In an affidavit supporting his Chapter 11 petition, Dunn spelled out a combination of market conditions and family strife which led the his company’s current straits.

“The advent of the internet and changes in postal rate and mailing size structure have reduced the marketplace for companies that use mailing lists to market their goods and services,” Dunn claimed. “Additionally, like so many other industries, the list broker and management business were subject to rapid consolidation.”

He added: “While one result of consolidation was less players in the marketplace, the remaining competition was larger and better capitalized than smaller competitors.”

This, in turn, led to “intense competition on both the pricing side and broker compensation. Hence, Mal Dunn lost customers based on price reductions and stealing of list brokers and their customers with offers of better compensation packages.”

Dunn noted that these issues had a “less substantial effect” on the firm’s database business.

“Recognizing the changing market, Mal Dunn sought to grow its database division, while bringing the list broker and list management business to a conclusion.”

However, the firm was “not able to fully execute this business plan and now seeks” bankruptcy protection. “Mal Dunn believes that the filing is in the best interests of the creditors…and is the best way to maximize value for the estate,” Dunn wrote.

Cracks in the company, largely attributable to internecine squabbles, had been germinating for years. In 1992, according to Dunn’s affidavit, “my mother gifted to me and each of my four siblings, 20% of the company.”

As part of a shareholders’ agreement, Stephen Dunn was appointed CEO and president, and his siblings “were also appointed as officers and directors. “

Despite their appointment as officers, “all but one of my siblings had taken less active roles in the company,” Dunn contended. “However, their lesser roles did not diminish their thirst for the corporate dole.”

He added: “Over the last year, Mal Dunn faced significant cash shortages and working capital issues. Mal Dunn’s accounts payables aging grew. Over this period of time I, either personally or through my affiliated company, lent Mal Dunn $600,000 on an unsecured basis.”

Dunn wrote that he has forgiven that loan to the company.

He added: “The board specifically requested that the shareholders lend or infuse additional capital to Mal Dunn. However, the shareholders, my siblings, were unwilling to do so.”

Dunn said that he considered putting capital in the firm “for it to be able to continue its operations and restructure its debts on an informal out-of-court basis.” But he sought to avoid “continued intra-family disputes.”

According to the affidavit, Dunn made a “stalking horse” offer for Mal Dunn Associates, one designed to set a baseline value for the firm.

This bid included $200,000 in cash, “assumption of payables of $840,000 [to Equifax and Acxiom],” forgiveness of his personal loan and “continued employment of approximately 30 employees.”

The purchase would also include the right to the company name, all Web sites, the Listrak computer system, intellectual property, customer data and the prepaid booth space at the Direct Marketing Association’s fall conference.

Dunn added that he hopes his offer will serve as “a floor and not a ceiling for the sale of Mal Dunn’s assets.”

While Dunn listed the protection of the payables to Equifax and Acxiom as potential conditions for a sale, there is no guarantee the bankruptcy court will allow this stipulation to stand as a condition for sale.

Mal Dunn Associates was founded in 1978 by Mal Dunn. He was killed in a plane crash in 1992.

The Brewster, NY-based firm reported $7,909,000 as its “business volume” during the last fiscal year, and employs 32 people.

The list and database firm’s top creditors include:

* Kraft Food/Gevalia ($809,407.10)
* Acxiom ($417,469.69 for Acxiom, and a separate $155,972.33 for Acxiom InfoBase)
* Motherswork ($351,054.43)
* Equifax ($321,649.80)
* Entrepreneur Media ($262,377.29)
* Checks Unlimited ($218,266.08)
* iCom Information and Communication ($203,489.60)
* American List Counsel ($178,533.91)
* ConsumerBase ($169,425.38)
* Hoffman Media ($162,806.60)
* Cambridge Communications ($158,956.87)
* Microsoft MSN ($150,021.03)
* Dun Bradstreet ($150,000)
* Beyond.com ($117.750)
* OSHA ($109.475.35)
* Creative Automation ($93,066.21)
* IMS List Management ($68,606.54)
* American Mailing Lists ($68,093.06)
* Nfocus Consulting ($54,910.45)