A federal judge has ruled that a Chapter 11 bankruptcy case involving Fanjoy can proceed.

Fanjoy, which delivers e-commerce-driven branded-merchandise solutions to online influencers/creators, has filed for Chapter 11 bankruptcy protection and collectively owes some promo products industry companies – including a couple Top 40 suppliers – more than $1 million.

Still, CircleUp Credit Advisors, a secured creditor of Fanjoy, challenged the bankruptcy filing, saying in part that the court should dismiss it because it was filed in a “bad faith” attempt to prevent a sale of Fanjoy that Founder Chris Vaccarino didn’t want to go through.

CircleUp also maintained that the bankruptcy case was improperly filed in Georgia, where Vaccarino is said to have a residence, instead of California, where it asserted Fanjoy’s business was principally headquartered.

The ‘Nerve Center’

A trial on the motion played out over three days in the U.S. Bankruptcy Court Northern District of Georgia Atlanta Division. In the end, U.S. Bankruptcy Court Judge Paul W. Bonapfel rejected Circle Up’s motion to have the case dismissed.

“After hearing evidence and argument at the trial and based on the record in this case, the court made findings of fact and conclusions of law on the record in open court,” Bonapfel said in a signed order. And as such, “it is hereby ordered that the motion is denied.”

In a filing, Fanjoy attorney Leslie M. Pineyro argued that the Georgia court was the correct venue to hear the bankruptcy case.

She noted that Fanjoy employees have worked remotely since the COVID-19 pandemic, that the company’s creator clients are located around the world, and that it doesn’t have a traditional office space “headquarters” in California, only a seldom-used rented WeWork space. While Fanjoy’s website says it’s “headquartered in Los Angeles,” Pineyro asserted that the actual “nerve center” of Fanjoy is founder/owner Vaccarino’s home in Georgia, from which he runs the company.

“All decisions made by Fanjoy are made by Chris Vaccarino,” Pineyro wrote. “Chris has made all decisions for Fanjoy out of his home office in Brookhaven, GA, since June of 2022. Chris has exclusive decision-making authority for Fanjoy as its sole officer and director. Brookhaven, GA, is the actual center of direction, control and coordination for Fanjoy.” All that makes the Georgia Court the right one to file bankruptcy in, Pineyro said.

Due to Fanjoy’s financial troubles and as a result of a lawsuit brought by CircleUp, a California state court had previously appointed a receiver to take possession and control of Fanjoy’s assets.

The receiver – a neutral professional entrusted, in this case, to manage the struggling company's operations and finances – was coordinating a sale expected to close within the next several months that would benefit creditors, CircleUp had previously asserted. However, these “efforts have been abruptly disrupted” by the filing of Chapter 11, according to CircleUp.

Who Does Fanjoy Owe?

In an Aug. 8 bankruptcy filing, Fanjoy named its creditors with the 20 largest unsecured claims. They include Top 40 supplier S&S Activewear (asi/84358), which is owed $89,268. That figure is relatively modest compared to the $147,380 due to California-based supplier Lane Seven Apparel (asi/66246).

The sum owed to apparel wholesaler Independent Trading Co. is bigger: $277,996. Printful, which specializes in on-demand merch printing and fulfilment, is due nearly $650,000. Fanjoy is in the hole to the tune of $288,546 to Gemini Apparel, described as a clothing manufacturer with a New York address.

Other promo industry firms are counted as creditors, too, though not among the 20 largest. They include Top 40 supplier alphabroder (asi/34063).

Depending how things unfold, promo companies and other creditors could get their money from Fanjoy. Typically, Chapter 11 works as a reorganization bankruptcy in which businesses are allowed to maintain day-to-day operations while creating a plan to repay creditors. In Chapter 11, a plan of reorganization is proposed and creditors whose rights are affected may vote on the plan. The plan may be confirmed by the court if it gets the required votes and satisfies certain legal requirements.