Penmac halts sale of Come Play

A plastic-toy manufacturing company with a location in Marshfield, Come Play Products, has been pushed into involuntary bankruptcy by its largest unsecured creditor, Penmac Personnel Services of Springfield.

Doug Evans, Penmac's attorney, said MSF Inc., doing business as Come Play Products, is solely owned by Michael S. Freelander of Massachusetts. MSF Inc. owns a companion company which was the original toymaking plant in Worcester, Mass.

Evans said MSF owes Penmac $57,851.76 for providing employees to the company and preparing all necessary employment records.

Other creditors who have joined in the suit are Clark Industries Inc., a local office supply company which claims MSF owes it $7,412.50, and Singer Transportation Company of Marshfield with a $504.18 claim. Marshfield Lumber and Supply has moved to join the suit, alleging $1,335.11 is owed to it, Evans added.

According to MSF's attorney, David Schroeder, the company has no assets with which to pay the unsecured creditors. He said that the business had voluntarily relinquished its assets to its largest secured creditor, Spring Equity LLC of Massachusetts, to prevent foreclosure.

MSF owed $2.35 million in secured debt to Spring Equity, which is owned by Freelander's parents, I. Robert and Aviva Freelander, Evans said.

A sale of MSF assets was planned for Feb. 22 and 23 in Worcester, Mass. and March 7 in Marshfield. However, once the bankruptcy proceeding was filed here Jan. 31, a 90-day automatic stay went into place preventing the sale.

Spring Equity filed a motion to lift the stay through its attorneys, Lee J. Viorel of Springfield and Mark T. Benedict of Kansas City. However, the motion was denied without prejudice by Bankruptcy Judge Arthur Federman after a Feb. 21 hearing, Schroeder said. Without prejudice means that a new motion to lift the stay could be filed later.

The sum owed to Penmac represents less than a month's payment for its services, but the plant had shut down and rumors of its impending sale contributed to Penmac's decision to seek the involuntary bankruptcy, Evans said.

Freelander owns the building in Marshfield which he leases to Come Play. The building that houses the operations in Massachusetts is owned by Freelander's brother and is leased to MSF. Most of the business's assets are in Massachusetts, Evans said.

The purpose of filing an involuntary petition in bankruptcy is to provide a way for unsecured creditors "to get an accounting of the affairs of the company and make sure there are no improper transfers of property," Evans said. Once the bankruptcy is filed, timelines are set down from which to gauge whether payments to creditors are proper or not, he added. Payments to creditors made within 90 days could be set aside if found improper. Payments made within a year to insiders such as family members could be set aside if found improper.

As a going concern, the Come Play in Marshfield is worth about $3.3 million, according to a bankruptcy appraiser who testified at the Feb. 21 hearing, Evans said. At liquidation prices, the business would be worth $1.1 million, which is probably why the judge prevented the sale, he said. A trustee could get a better price than liquidation prices or could operate the business, he added.

Come Play admitted in its answer to the petition that it owed money to Penmac and Clark Products, but denied it owed money to Singer. "By private contractual agreement ... debtor's major secured creditor has taken control of all debtor's property for the purpose of enforcing its lien against such property," the answer stated.

The motion to lift the stay indicated that the debt arose from a revolving line of credit note with Commerce Bank and Trust company for $4 million secured by all the business's assets.

Michael Freelander personally guaranteed $2 million of the note, secured by a second deed of trust from Freelander and his wife, Blanca A. Freelander, plus a life insurance policy assigned as security.

In May 2000, Spring Equities acquired an assignment of the note for the outstanding balance. In 1993, it sold its interest in Come Play to Freelander, secured by a $3 million note from son to father, according to the motion to lift the stay. That note is secondary to the note assigned to Spring Equity.

A hearing on the petition is set for March 21, Evans said, but may not be held if the company consents to the petition. If it doesn't consent, then Evans said he would need more time to discover information about the company before he could proceed to a trial on the petition.

Come Play was founded in 1948 in Worcester by Freelander's father, and gained recognition in Massachusetts for hiring many disabled people to work in the plant, according to Christina Pappas, managing editor of the Worcester Business Journal.

In 1997, Worcester's city council approved a five-year tax break for the company to keep it from moving to Mexico. The company was to invest $3.8 million to renovate its buildings and equipment to increase its manufacturing capability and create 41 jobs.

Kermit Barr, local plant manager, said the company started in Marshfield about 1991. "Our peak employment since I have been here (for the last six years) was 120." The largest number of employees on the company payroll was 21; the rest were hired either through Penmac or Manpower, Barr said.

"The toy business historically by the end of November, the first of December, you go down fairly low at that time no matter what happens. (You'll) have a fairly substantial cutback. What happened was we went into that slowdown period, which is a normal period, and we are not coming up from it."

The employees knew Feb. 23 that the plant was going to shut down, Barr said.