Dippin' Dots Inc.'s biggest lender wants the bankruptcy court to oust the founder and president, Curt Jones, who more than 20 years ago invented the flash-frozen ice cream treat for which the company is named, after accusing him of manipulating the Kentucky manufacturer's sale and putting its future at risk.
Regions Bank, which Dippin' Dots owes nearly $12 million, argued that Jones is using his influence to discourage purchase offers that would wipe the company's finances clean but would strip Jones of his control over the company.
The bank said that the 170-worker company is running dangerously low on cash and it won't lend it any more money until the court appoints an outside financial professional to take over the sale process and broaden the company's search for buyers.
"This approach will save enterprise value and jobs," the bank's attorneys said in its request for a Chapter 11 trustee, which was filed Friday with the U.S. Bankruptcy Court in Paducah, Ky. "The only other alternative is liquidation, which serves nobody."
Dippin' Dots attorney Todd Farmer defended Jones, saying that he is trying to find new investors that would enable the company to reorganize its finances without a sale.
"We obviously strongly dispute the allegations that Regions has made," Farmer said, noting that the company plans to file a lengthier response to the court before a Wednesday court hearing on the bank's request.
In court papers, bank officials said they've uncovered a scheme that eroded their trust in Jones, who owns nearly 90% of the company.
Last week, as the bank attorneys pressed Jones to pay $249,048 on a separate legal judgment related to a personal jet he once owned, Jones revealed that he sold his majority stake in Dippin' Dots' franchising company. Regions said that the move not only defied a federal subpoena but showed "a textbook example of how far Mr. Jones will go to protect his own self-interest."
Regions agreed in November to provide Dippin' Dots with a $200,000 bankruptcy loan as long as company executives agreed to pursue a sale. The bank said the company has spent that money more quickly than expected to keep operations going at the company's 120,000 square-foot Paducah manufacturing plant, which can produce more than 25,000 gallons of frozen dots a day.
Dippin' Dots fell behind on the Regions loan four years ago at the crest of the economic crisis when customers were no longer willing to spend the few dollars it cost for the frozen treat.
The disappointing sales figures came at the tail end of an expensive legal battle, one that the company ultimately lost, over whether Jones properly filed the patents that protect the company's special freezing process. The loss opened the playing field to rival ice cream makers, boosting competition.
The company's sales have since recovered, but the issues with Regions Bank lingered as it pressured the company to find another lender. Dippin' Dots filed for bankruptcy protection last November just as Regions Bank took steps to take control of the company's assets.
The manufacturer of specialty ice cream products, which are flash-frozen into tiny beads using liquid nitrogen, said its novelty products are sold mostly in venues such as theme parks, concert halls and stadiums.
The company also operates about 140 Dippin' Dots retail locations, which are mostly controlled by franchisees. At the time of the filing, the company had agreements with 9,952 small vendors who sell the product at fairs, festivals and sports matches.
