Creditors Filing Reveals Details of Joystar Bankruptcy

The Unsecured Creditors Committee in the Joystar Inc/Travelstar bankruptcy offered a powerful indictment of Joystar, currently in Chapter 11 bankruptcy proceedings, and urged the Court to convert the case from Chapter 11 to Chapter 7 bankruptcy. The controversial case is being handled by the U.S. Bankruptcy Court for the Southern District of Florida in its Fort Lauderdale Division. The committee also urged the court to appoint a Chapter 11 trustee if the conversion was not possible.

“While this debtor has been in a Chapter 11 proceeding for only three months, it has already become clear that its reputation is so poor that it has no meaningful prospect for reorganization and that liquidation of the estate is in the best interest of creditors," the Committee said. Joystar filed for Chapter 11 (involuntary) on December 31, 2008.

Joystar was a publicly traded travel agency licensed n Florida and California, where its offices were located. “The debtor is a "host agency" that used lead sheets, cold calls, and multi-level marketing techniques to build a roster of several thousand 'member agents' who could place travel bookings with cruise lines and other travel providers,” the Committee notes.

The debtors' principals are identified as CEO William Alverson and his wife, CFO Katherine West.

Among the Committee’s charges are:
“The debtor has been collecting deposit refunds from travel providers identified to particular customers but has not been forwarding those refunds to the customers,” the filing says. They note that the debtor “stopped paying commissions to most of its sub-agents by September 2008, but continued to collect monthly membership fees from its sub-agents through December without advising them that it was not paying commissions.”

Joystar has not maintained its Florida and California licenses, the Committee notes, and has lost its IATAN and CLIA membership. The debtor has been dropped as an approved booking agent by its two principal cruse lines, Royal Caribbean and Carnival.

“The debtor has lost money every year since it was the subject of a reverse merger with Advanced Refrigeration Technologies, Inc. in 2004. It has filed no quarterly reports with the SEC or on the pink sheets since May 2008, at which time it reported dramatic losses.

“The debtor has failed to pay more than one-half million dollars in payroll taxes,
including after the Internal Revenue Service recorded a prepetition lien against the company and assessed the Alversons personally. The debtor has made no effort to protect the IRS's interest in cash collateral or to obtain the IRS's permission to use cash collateral.

“The debtor does not have errors and omissions insurance as it has claimed on its
website. Until sometime in April 2009, its website continued to represent that sub-agents will receive '70 percent to 100 percent of the highest commission levels in the travel industry,' including from such travel providers as Carnival Cruise Lines.”

The filing also said that the debtor has shut down its website, disconnected its phone and not provided documents to the committee. “The debtor continues to spend the cash receipts, mostly override commissions, and applying the funds primarily to the payment of salaries to the Alversons, without the permission of the IRS which has a lien upon the receipts because of the recorded tax liens.”

Joystar is also the subject of a complaint filed in December 2008 by Six Continent Hotels.

Drew Axelrod, a travel agent owed commissions by Joystar, was the lead petitioning creditor in the case. At least a score of agents are still owed commissions by Joystar.

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