Zultys Auction Ends with Pivot VoIP Winning at $2.65 Million

Pivot VoIP (News - Alert), an independent company backed by IP telephony solutions provider Telrad Connegy (News - Alert) of Israel, has won the auction in U.S. Bankruptcy Court, Northern District of California, in San Jose, for embattled Zultys Technologies (News - Alert), agreeing to pay $2.65 million plus the assumption of certain debt obligations.

The auction brings the saga of Zultys – which at the height of its success abruptly shuttered its doors last summer, fired most of its employees and left much of its reseller community in disarray amid a lack of funding – to a happy ending for creditors, suppliers, customers and partners. Pivot VoIP, which was formed by a core set of former Zultys engineers, plans to continue to produce and support the embattled company’s existing product line as well as its reseller channel.

“The buyer has expressed no interest in retaining the existing management so there will inevitably be some changes in the short term. I founded this company exactly five years ago today so I am sad to be leaving but I hope that Zultys is in good hands,” Iain Milnes, company founder and president, said in an email notice sent to suppliers, customers, and partners. Word of the email advisory was first reported on Greg Galitizine’s VoIP Authority Blog.

Milnes had pushed for the auction in an attempt to reorganize Zultys and better manage its obligations, which included $2.75 million of back wages and more than $41.8 million of unsecured creditor claims. Under Section 363 (f) of the Bankruptcy Code, petitioners can seek the sale of assets “free and clear of liens and encumbrances.” The company filed for Chapter 11 bankruptcy protection in September with more than $45 million of liabilities on its balance sheet and assets of only $1.8 million.

Milnes’ strategy, however, backfired after he was quickly outbid early on in the auction process. By yesterday’s hearing, the only other serious suitor was Omaha, Neb.-based reseller InPath Devices, which pledged a starting bid of as much as $1.55 million.

“It was a heavy battle between Pivot and InPath,” described Vladimir Movshovich, the former vice president of technology at Zultys who is now employed at Pivot. “Both sides put everything on the table.”

But at the end of the day InPath couldn’t raise its bids any further because the court proceedings went on into late Monday evening and it couldn’t contact its venture capital backing. InPath requested a delay but Judge Arthur S. Weissbrodt, who was overseeing the proceedings, wanted to know if there could be any guarantees of a higher bid, Movshovich recounted.

With no guarantees, the other parties motioned to end the auction process. Judge Weissbrodt subsequently granted the motion at around 10 pm PT, Movshovich told TMCnet. As part of the acquisition, Pivot plans to pay all “priority” claims, which based on California bankruptcy laws includes back wages up to the amount of $10,000 per employee as well as unpaid taxes. Pivot also plans to some percentage of future profits to the creditors committee over the next several years.

Pivot, which currently has six full-time employees including acting President and CEO Avi Weinrib, will now begin the integration process to merge with Zultys. As part of that integration, Pivot will be offering jobs to the three tech support reps at Zultys that Movshovich characterized as “absolute heroes” for continuing on with customer support throughout the turmoil…even at times without pay.

“We want to continue to support the product and rebuild confidence within the channel,” Movshovich described as his immediate priorities.

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Robert Liu is Executive Editor at TMCnet. Previously, he was Executive Editor at Jupitermedia and has also written for CNN, A&E, Dow Jones and Bloomberg. For more articles, please visit Robert Liu's columnist page. 

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