Can of Worms

Imagine for a moment how great it would be if you could just declare that you have a new middle name, and therefore all of the debts you ran up under your original name are no longer your responsibility. You could go from being Joe Wilbur Smith to being Joe Wilbur Hannibal Smith, and declare that, as such, the obligations of Joe Wilbur Smith no longer apply to you. Normally, this requires declaration of bankruptcy, the intervention of several sympathetic government agencies, and a bank that needs to find a few more bad investments to get in under TARP, or the equivalent; it may also require the services of a lawyer and the goodwill of at least one judge. Now imagine how awesome it would be if the same trick would work for a business…

Well, if you’re living in Washington County, Pennsylvania, you don’t have to imagine, because that’s exactly what a company called Excel Homes is doing. According to a story in The Patriot-News by way of the Penn Live website, two years ago the company held a sweepstakes with the grand prize of $100,000 worth of prefabricated building parts, mainly as a typical publicity/public relations/business development stunt, but also to try to convince construction companies to start using the aforementioned prefabs. The winners of this grand prize decided to use the resources to build themselves a house, and actually started the project, only to be told that Excel Homes is under new management and is now called Excel Homes Group. Accordingly, it will not be honoring any of the obligations of the prior Excel Homes…

If this action was the result of a bankruptcy and reorganization, for example, things would be different. In that case, the owners might be protected from the debts incurred by the previous ownership; at the very least, the contest “winners” would have the chance to contend with the company’s other creditors for whatever share of the old company’s assets they felt they were entitled to. But in this case, at least as reported in the news story, there is no such action. The new owners simply acquired Excel, and then decided that they were going to keep all of the company’s assets and disavow its obligations…

I’m not sure how the Pennsylvania state laws governing lotteries and sweepstakes (and you can bet your bottom dollar that there are such laws) would handle this sort of tactic, and honestly I don’t really care. In some states sweepstakes “prizes” are closely regulated and fall into the same accounting categories as wages owed – in which case, the “winners” in our story could sue, and would have every reason to believe that they will get whatever funds or assets they were promised. But even if there are no such laws in Pennsylvania, and the company can get away with screwing over whoever it wants, this is still one of the most asinine management decisions I’ve seen in years – and it’s likely to end up costing the company a lot more than $100,000…

First off, the construction industry isn’t that large a community; eventually every company that Excel does business with is going to learn about this decision. Whether this prompts anyone else to try to screw over Excel remains to be seen – it would certainly make for an interesting moment in a court case, if nothing else – but even companies who are not themselves interested in pulling shenanigans are going to look a bit askance at this. If there is any other source for their product, they’ve probably just lost a bunch of their more cautious and/or ethical customers, and there’s a real chance that the public relations fallout will also have a negative impact on the company’s future sales…

I’m not sure if Excel or its new corporate ownership will be able to spin this, undo the damage to their image and reputation, avoid criminal investigations, or even win the court case that will almost certainly be following. All I know is they’ve just opened up a huge can of worms – and they’d best start looking for a bigger can…