A judge cleared the way Wednesday for appointment of a trustee to oversee the rebuilding of Minden's Darja Laboratories as it navigates through Chapter 11 bankruptcy.
Following a three-hour hearing where a lawyer for company owners Jim and Darlene McCord argued the appointment would mean the company's downfall, Reno bankruptcy judge Gregg W. Zive said, "The evidence is there has been fraud," and that a trustee is the best chance for the company to remain intact.
"Maybe (the McCords) are taking care of themselves to the detriment of creditors," he said in his judgment. The couple has continued to receive a salary. "This company may already be burning its last bridge and we don't know it. That's why we need to appoint a trustee.
"I've got enough smoke here to believe there's a fire."
The trustee acts as chief executive officer while a company restructures its debt during continued operations. As part of its bankruptcy filing, Darja, which develops and has manufactured skin care products, reported debt to the tune of approximately $4.3 million.
A trustee will also be appointed to oversee the McCord's personal Chapter 11 bankruptcy case, in which the couple's nearly $2 million Glenbrook home is at stake.
Lawyers for eight of Darja's approximately 225 creditors were present for the hearing, arguing that Darlene McCord's misrepresentation of her educational credentials (she has admitted claiming to be a Ph.D.), and a series of bad paychecks were indicative of company mismanagement.
"If the McCords are sincere about (revamping the business), a Chapter 11 trustee can be helpful," said lawyer Nicholas Strozza.
Since filing for Chapter 11 in December, Darja has been evicted from the 86,000-square-foot Minden plant and moved operations to Zephyr Cove, where the McCords, along with Darlene's sister, are the only employees.
Days after the filing, the McCords created another corporate entity, McCord International, and have continued what Darlene characterizes as research and outsourcing of manufacture and distribution.
"We have every intention of operating this company once we get these people off our back," she said after the hearing.
Alan Smith, the McCords' attorney, said the couple has made great strides in rebuilding the company, despite the financial woes.
"What the debtors have been able to do is resuscitate the business in 1-1/2 months," he said. "What they intend to do is operate Darja and maintain an income."
Employees of the defunct firm, 25 of whom lost their jobs from the time Darja started its meltdown in fall, have charged the owners with falsely representing the company's prospects, and failing to pay into health insurance plans and cafeteria accounts. Several employees were arrested last year when their payroll checks didn't clear and the account was closed. One employee, speaking on condition of anonymity, claimed to owe $27,000 in medical bills because of the snafu.
"Everybody was upset because they lost their jobs," said Karen Gonzalez, a research and design lab technician who worked in the company for a year. "If (Darlene McCord) would have just come clean and said this is what's happening to the company it would have been all right."
The company's financial situation became critical at the end of the year when building owner Al Shankle sought an eviction because Darja owed $443,717 in back rent and improvement debt. The company also owes approximately $2.3 million to Wells Fargo Bank.
