Irwin Naturals believes it will emerge from bankruptcy in April

Beleaguered supplements company, Irwin Naturals Inc., whose foray into ketamine clinics destroyed a once profitable company, has amended its Chapter 11 bankruptcy declaration. Chapter 11 allows the company’s debtors to propose a plan of reorganization.

According to the court document filed in February, if its plan is enacted, the company believes it will emerge from bankruptcy in April 2025. The plan is as follows:

• Irwin Nevada will continue operating its nutraceutical business that it has successfully operated since its inception in 1994.
• 5310 will remain a subsidiary of Irwin Nevada which holds the majority of the debtors’ intellectual property.
• DAI will remain as the holding company for Irwin Nevada. DAI US HoldCo is a holding company that owns 2% of Irwin Nevada.
• The debtors will be dissolving Irwin Canada with existing Irwin Canada shareholders to obtain their equivalent stock interest in Irwin Canada in DAI.

The creditors are organized by class of claims. The debtors propose paying East West Bank (EWB), which is owed $19.3 million, a regular $1 million per quarter beginning in June 2025. If the debt isn’t paid off by February 2027, a lump sum will need to be paid. General unsecured claims in the range of $5 million-$6 million will be paid 40% of the net disposable income.

How it started

Irwin Nevada also has two other supplement brands: Nature’s Secret and Applied Nutrition. Irwin Nevada’s product line currently includes over 130 formulas, which are distributed in more than 100,000 retail locations, including stores like Costco, Walmart, and CVS.

The debtors’ 2023 gross sales were $102 million. Klee Irwin is the CEO of the company.

As many people experienced mental health crises during the Covid pandemic, Irwin decided to embark on a plan to become the world’s first and largest household brand of psychedelic mental health clinics. To do so, the formed a new subsidiary: Irwin Naturals Emergence, Inc. and East West Bank agreed to lend the company $40 million to fund acquisitions.

What went wrong

The company’s Chapter 11 filing states that its attempt to uplist the stock and a general downturn in retail caused it to suffer. The filing blamed “Extraordinarily high returns from retailers that were not on par with historical figures and projections, a downturn in the retail market generally, and the unexpectedly slow growth of digital sales.”

The company alleges that the bank exerted excessive and unreasonable control over their business affairs and imposed unconscionable constraints on them. It said that the Irwin Companies received three notices of default from EWB for failure to meet certain technical covenants of the credit agreement, even though Irwin claims it had never been late on any debt service payments. Irwin claims it tried to renegotiate with the bank and made changes like cutting employees and closing its Emergence clinics. Irwin alleges EWB was sweeping its bank accounts daily.

The lender disputed Irwin’s side of the story, and said, “Key elements of the Debtors’ business plan failed and the Debtors were allegedly in default for failure to comply with multiple covenants, including but not limited to the failure to meet minimum borrowing base availability requirements and to make required prepayments in full as a product of not meeting minimum borrowing based availability.”

EWB says it validly exercised its contractual remedies in light of such defaults to appoint an independent director to protect the Lenders’ collateral against alleged mismanagement.

More lawsuits

Irwin suggests in the filing that it may sue EWB for taking control of their business and forcing them to pay approximately $2 million in professional fees related to professionals that EWB forced them to retain. They claim that EWB restricted their ability to borrow money and controlled their expenses. Irwin also believes it will get the amount it owes to EWB reduced from $19 million.

Irwin also owes money to other parties in addition to EWB.

• It’s being sued by Media Max Network for $79,000 in unpaid invoices.
• Herman and Jasminn Reese filed a personal injury case against the supplement company.
• Trisha Vaughn filed a class action lawsuit against Irwin Nevada in Los Angeles Superior Court alleging damages due to alleged false/misleading advertising on an Irwin Nevada weight management supplement.
• EMA Anesthesia filed a breach of contract lawsuit against Serenity Health, LLC; Irwin Naturals Emergence, Inc.; and Irwin Naturals, Inc. for alleged unpaid invoices for anesthesia services provided by the company.

What’s next

The bankruptcy court has not approved the plan yet. Irwin has hired Essex Capital to assist it in its plan to get out of Chapter 11. If the company receives exit financing from Essex, it will move quickly with the plan.

Irwin also stated it hired and retained STS Capital Partners M&A Advisers Inc. to sell the company six to eight months after the claims have been paid. Irwin says it has reviewed two offers to buy the company, but the price offered was below market value. They believe the company is worth between $93 million-$112 million.

If the plan goes through, Irwin will remain CEO and his salary will return to his pre-petition salary of $790,000 a year. CFO Mark Green will remain and his salary will continue to be $240,000 a year.