Wrecked Car Rental Firm Closes Shop By SHELLY GARCIA Senior Reporter Pursued by creditors, and beset by lawsuits, Car Rental Direct Inc. has shuttered its operations and filed for bankruptcy protection. The move, which could be invalidated if the company does not meet a June 25 deadline to file additional documents, came just days before Car Rental Direct’s parent, MAII Holdings Inc., fired its CEO, Christie Tyler, and weeks after an announcement that the company had defaulted on a lending agreement with Ford Motor Credit Co. Car Rental Direct is on the hook to Ford Motor Credit for more than $11 million, and it is being sued by a Phoenix businessman who claims he lost his company and his house as a result of the company’s actions. “They basically stole my business,” said Jack V. Gunion, former owner of Discount Car and Truck Rentals in Maricopa County, Ariz., who is suing Car Rental Direct for breach of good faith, among other things, arising from the company’s decision to pull out of an agreement to acquire Gunion’s car rental business. The actions are just the latest in a swirl of controversy that has engulfed Car Rental Direct, which for a time was owned by GenesisIntermedia, the failed Internet company that is itself the subject of several lawsuits charging that it bilked investors by manipulating its stock price. That case is still pending. MAII bought Car Rental Direct from GenesisIntermedia in August 2001 for $11.6 million after selling its medical supplies and services business to ICN Pharmaceuticals just months earlier. Under the terms of the deal, GenesisIntermedia then took most of the proceeds of the sale and bought a 41 percent ownership in MAII, published reports said at the time. The swap put GenesisIntermedia chairman Ramy El Batrawi at the head of the company as chairman and Christie Tyler in the CEO seat. According to published financial reports at the time, Van Nuys-based Car Rental Direct had a fleet of 2,300 vehicles and 28 rental locations when it was sold to MAII, but it was bleeding red ink. Car Rental Direct had lost $1.4 million for the nine months ended Sept. 30, 2000 and another $3.2 million between Jan. 1, 2001 and Aug. 16 of that same year, according to published reports. But the acquisition also left MAII with about $15 million in cash it hoped to use to attract additional lines of credit, further acquisitions and an expansion into the business-to-business market, according to a letter El Batrawi wrote to shareholders when the deal was completed. Looking for acquisitions MAII did not lose much time in shopping for acquisitions. By March of 2002, Tyler, a former chief executive of Australian business software developer Solution 6 Holdings Ltd., made a bid for his former company, an overture that was reportedly rejected after about 10 minutes of deliberation. “Chris Tyler must have been smoking something if he expected the directors of Solution 6 to agree to the merger proposal he dropped on them yesterday,” The Australian, a daily newspaper wrote on March 14, 2002. The line referred to Tyler’s abrupt exit from his former employer over the failure to mention a prior conviction for marijuana possession, according to the newspaper reports. Tyler, who is believed to reside in Los Angeles, did not return phone calls requesting comment for this story. But apparently undaunted by the rejected overture, Tyler, who had engineered the acquisition of some 20 companies in the three years he spent with Solution 6, by May 2002 had reached an agreement to acquire the assets of Gunion’s company, Gisa Holdings Inc. MAII was to purchase the company, which had a fleet of about 700 cars and $6 million in revenue, for about $1.2 million in assumed obligations and other provisions. The agreement also allowed MAII to immediately take over the operation of Discount Car, which had debt obligations of more than $3 million to Ford Motor Credit and others. So Gunion said he walked away, leaving the day-to-day operations to MAII while he waited for the deal to close. “Over the next three months, they kept delaying the closing,” said Gunion, who had owned the business for two years and had fallen behind in his payments as a result of a particularly weak first year. “In August, they notified me they were not going to close. They had changed the computer system. Half my people were gone. I couldn’t have put my business back together had I wanted to.” On Aug. 29, about four months after the agreement to acquire the company was reached, Car Rental Direct announced that it was pulling out of the deal. “We have not been able to obtain the necessary assignments and consents from certain creditors to complete this transaction, and in addition, during our diligence review we have discovered new liabilities that we are not willing to assume,” Tyler said in a release. In Gunion’s lawsuit, filed in Arizona Superior Court, Gisa charges that, “rental income or profits generated by Car Rental Direct from the more than 600-vehicle fleet was never credited to Gisa. In addition to withholding all rental income and profits, Car Rental Direct has yet to pay much of the Gisa debt incurred during the operation of the business, for which they were responsible as Gisa’s agent,” the lawsuit charges. Gisa, which operated the second largest rental company in Maricopa County, according to Gunion, asks MAII to honor the purchase agreement in its suit, but the Chapter 7 filing may make the whole thing moot. “The huge mystery is they haven’t paid Ford Motor Credit since May, 2002,” Gunion told the Business Journal. “In that business, when you rent cars and don’t pay for the fleet, a lot of money falls in your socks.” Spinoff prepared While Gunion was waiting for the deal to close, MAII began making plans to spin off Car Rental Direct as a separate company, despite the fact that it was MAII’s only business. Tyler, who had engineered the acquisition of some 20 companies during the three years he headed Solution 6, issued projections that Car Rental Direct would generate earnings of $1.5 million to $2 million on revenues of $35 million to $40 million in 2002 and those numbers would rise to $4 million to $6 million in net income on sales of $60 million to $70 million in 2003. In June, 2002, with the Gisa deal still hanging, the company completed a reverse merger with Gump & Co., a shell company with no revenues and no employees. Car Rental Direct became a separately traded subsidiary of MAII, which still held nearly all the shares in the company. Meanwhile, GenesisIntermedia had run headlong into the dot-com debacle. El Batrawi stepped down in Oct. 2002. Various attorneys involved in lawsuits against GenesisIntermedia have reported that they have been unable to locate him. At the end of October, with Car Rental Direct falling farther behind in its payments, Ford Motor Credit reduced the company’s line of credit to $10 million from $18 million. That move was followed by a restructuring of the debt several months ago, but when Car Rental Direct failed to meet the terms of that new agreement as well, Ford requested and won the right to repossess the company’s fleet of cars. Attorneys for Ford Motor Credit said they could not comment for this story, but in a statement released by MAII earlier this month, the company said Ford had begun to seize Car Rental Direct’s fleet. Without cars to rent, Car Rental Direct on June 11 said it was forced to file Chapter 7 liquidation. But what happens next is anyone’s guess. If MAII fails to file the required documentation outlining its assets and liabilities by the deadline, the Chapter 7 petition will be voided. The last time MAII filed any financial statements was about a year ago. For the six months ended June 30, 2002, the company said it lost $1.6 million on revenues of $11.8 million. Some bankruptcy attorneys say they expect that the company will not complete its petition, which would leave unsecured creditors hanging in limbo. (Ford would not be affected because the company’s loans are secured with the vehicles as collateral.) With Tyler gone, Tom Montgomery, a board member of the company, was named as interim CEO, but Montgomery, who worked with Tyler at Solution 6, has not been available to bankruptcy attorneys either. Montgomery also did not return calls for comment.