With the recent Chapter 11 filing of AMS and its ripple effect on PGW client publishers, dozens of small publishers are trying to figure out how to cope with the bankruptcy of their distributors. I've been there, and lived to tell.

Our company, the 25-year-old Toronto House ECW Press, faced these difficulties in the spring of 2002 when our U.S. distributor, LPC Group, filed for protection on April 3. David Wilk, then head of LPC, sent a letter to the publishers LPC represented, telling us the news, but assuring us that "LPC is operating on a cash positive basis in the present, and we are confident that we will acquire immediate Debtor in Possession financing to meet current obligations." This didn't happen. Then the other shoe dropped: our Canadian distributor, General Distribution Services (GDS), filed for creditor protection. By August it had gone under, too.

The news wasn't good, but it wasn't a total surprise, either. Payments from LPC had been slowing down over the past 12 months, and we'd actually moved to IPG in January 2002, though LPC still owed us money. Plus, we had recently announced our plan to leave GDS by June. However, we hadn't proceeded quickly enough. In the wake of the creditor protections, our books in GDS's Canadian warehouse were frozen. (The courts had to rule whether the books belonged to the distributor or the publisher, even though it seemed obvious that they were the publishers'.) Nothing moved except e-mails and legal arguments. We knew banks would be first in line to receive payments from both our distributors, but would there be money left over for us? Would we see any of the combined $400,000 they owed us?

We had to make some choices.

An article in the Toronto Globe and Mail announced that our publishing company was for sale, which I hoped would spur some publisher or distributor to rescue us. We did get some interest, but people were looking for bargain-basement pricing. We refused to sell.

However, the Royal Bank of Canada, the primary lender for our line of credit, read the newspaper stories and—without contacting us for specifics—called our $250,000 line of credit and put it in the hands of aggressive bankers, whose practices were akin to those of a collection agency. We pleaded and begged, and were able to get the line of credit turned into a term loan—which, after four years, we have just paid off.

When it came to keeping the company running, we figured we had two choices: drastically reduce our staff and publications, or carry on and hope to sell our way out of trouble. We chose the latter. We persuaded our authors to wait for their royalties, based on our history of regular payments, and we even managed to publish a bestseller, Neil Peart's Ghost Rider. I convinced our printer that we would be around long enough to pay the printing bill, and within two months we had 60,000 copies in print.

Then we planned how we'd pay off our long-term debt over the next five years.

We've been with IPG for five years now and cherish our relationship. When I think back to the first time I visited their offices, I can see that there were immediate signs the company was financially healthy. Touring the office, I asked CEO Curt Matthews how long they'd been in the building. Curt rubbed his beard, and said he figured he'd bought the place 21 years earlier. I asked him about IPG's financial status. Well, he said, they had a line of credit, but hadn't used it. That was all we needed to hear; we were in.

By then we'd learned two important truths. One, that by making good choices we could survive a distributor bankruptcy. Two, that we needed to choose a distributor wisely, so we'd never again have to test truth number one.

Author Information
Jack David is the publisher of ECW Press.