Axium implosion leaves questions for industry
EmptyThe dark gray building at 210 S. Victory Blvd. in Burbank sits unfinished and boarded up. The former airplane hangar's facade suggests the size and scope of the company it would have housed: entertainment payroll firm Axium International and its many subsidiaries.
Axium's sudden Chapter 7 bankruptcy last month changed those plans. The property, bought for $14 million last year, now sits in the hands of GoldenTree Asset Management, Axium's main lender, which abruptly pulled the plug on its multimillion-dollar financing. That led to Axium's seemingly overnight collapse, putting 400 employees out of work and surprising many in the industry -- especially those in the small yet important community that specializes in providing payroll services to entertainment productions.
"It just sent shock waves," says entertainment attorney Caroline Raufi. "Independent financiers, producers, sales companies -- all parties to independent film financing and production never considered (payroll) an issue. It was the one thing that was a sure thing."
In the days following the bankruptcy, employees of one of the industry's major payroll players were left with paychecks they could not cash. Clients, which included top studios, guilds and production companies, found themselves trying to recover funds from accounts that were frozen and ultimately confiscated by GoldenTree. Worse, a lawsuit filed by GoldenTree on Jan. 15 laid out a pattern of abuse and mismanagement of company monies by top Axium executives, including chairman and CEO John Visconti and vice chair and COO Ronald Garber, who are accused of Enron-style corruption, including liquidating the company's assets. GoldenTree is demanding $87.5 million in damages. Visconti and Garber have denied the accusations.
The news of the implosion spread through the payroll community like wildfire, as competitors jockeyed to snap up Axium clients.
"It was triage week," says Ed Spiegel, CEO and president of Cast & Crew, about the days following Axium's bankruptcy filing. "It was not a time where you go through normal paperwork and signage procedures (for new clients). It was Tuesday, and payroll has to be out in 48 hours. There were no formalities."
Entertainment Partners, one of the industry's largest employee-owned payroll and production management services providers, picked up many of Axium's key assets, outbidding rivals as well as a former Axium executive at a Feb. 15 bankruptcy auction.
With a winning bid of $7.05 million, EP agreed to purchase the assets and assume none of the liabilities. Included in the acquisition was the company's highly coveted software assets and servers, which contained confidential information pertaining to its industry clients. EP did not acquire that accounting or payroll data, so it assisted in the trustee's delivery of confidential information back to the appropriate parties.
Ensemble Chimes Global, the staffing arm of Axium, was sold at auction last month to MPS Group for $8.1 million, effectively bringing an end to an industry player that had existed for more than 25 years.
Entertainment payroll firms serve as one-stop shops for production companies that must pay employees promptly and accurately on short-term projects. They, in essence, act as the production's employer, filing the proper tax forms, setting aside appropriate funds for workers' compensation insurance and, of course, paying employees and union dues for guild members.
"For the production company, it limits their liability," says Derrick Fercho, director of operations of NPI Production Services.
Indie productions are especially dependent on payroll companies because they work on smaller budgets and don't have the infrastructure in place like the studios might.
"They're looking to outsource to that area, so they don't have to deal with it," Fercho says.
The disappearance of a major payroll provider could not have come at a worse time for these clients, as they gear up for tax season and end-of-year tax forms are sent to employees. Among Axium's 98 clients listed in the bankruptcy filing: IATSE, the WGA and 20th Century Fox Television.
As the liquidation process continued, all of the required 130,000 W-2s and about 8,000 1099 forms were sent to those impacted, according to court-appointed trustee Howard Ehrenberg.
"It was a huge undertaking, and it involved lots of people volunteering their time, including a large number of people who work at Entertainment Partners in New York, who went to Axium's New York office and helped stuff envelopes," Ehrenberg says.
The quick demise of Axium has caused some of its former clients to take a magnifying glass to the payroll services industry in general, according to those following the case.
But insiders believe Axium operated differently than most payroll players, co-mingling funds deposited for payrolls rather than setting up individual accounts for each client.
"It was just basically one massive account," Raufi explains. "If there were claims made to the company, they could just foreclose and sweep all the accounts."
Which is exactly what GoldenTree did, leaving Axium clients high and dry.
A week after the bankruptcy, Cast & Crew's Spiegel sent out personalized letters to clients trying to calm their nerves and explaining why what happened to Axium could not happen with his company.
"Cast & Crew's growth has always been controlled and fiscally responsible," Spiegel wrote. "Controls were established at every step to protect the company's assets, our clients' assets and the employees' assets."
Long-standing relationships with Bank of America, its insurance carrier and attorneys ensure the safety of clients' money, he wrote.
EP and Cast & Crew, the top payroll companies in both employees and clients, have taken on some of Axium's former clients and a number of Axium employees. It remains to be seen which rival will slip into Axium's spot as No. 3.
Several other payroll companies, including Media Services, PES Payroll and NPI, have taken on some of Axium's clients.
"We've gotten busy with Axium clients looking for new places to go," says Media Services vp sales Steve Bizenov. "We picked up a lot of business. We hired Axium employees and new employees."
But it's unclear how much growth the companies have seen with the recent turn of events.
EP's Ron Cogan says it employs more than 500 people. but declines to offer the size of the expansion or the names of new clients. It has yet to determine how Axium's accounting and software will be assimilated into the company.
Cast & Crew and Media Services also won't name the clients it picked up from Axium.
What is clear is that several questions remain for those who did business with Axium.
Raufi says Axium's operation practices have raised red flags for those in the industry.
"People now focus on that," she says. "People lost money -- hundreds of thousands of dollars in payroll monies."
In the meantime, Ehrenberg says bankruptcy schedules are being prepared for Axium's 37 companies.
"When that happens, we will then be able to send a notice to all the creditors -- who will finally be identified -- with the opportunity to file their claims with the court," Ehrenberg says. "I have commenced my investigation into what happened and whether or not there are any claims that can be brought to try to recover funds."
Another legal battle could erupt among Axium's former clients and GoldenTree. Sources say many entertainment law firms are consulting with former Axium clients who want to recover money deposited to the accounts confiscated by GoldenTree. But no lawsuits have been filed to date. At issue would be whether GoldenTree could legally take money that did not belong to Axium.
"There is an implied lien of ownership," Raufi says of the issue. "Could there be a claim against that third party? I think so. I think it's an issue that has to be adjudicated."
Los Angeles and Burbank are home to several niche payroll companies specializing in film and television productions.
Years in business: 31
Based in: Burbank
Number of employees: More than 500
Specialty: Primarily major studios and some independents
Cast & Crew Entertainment Services
Years in business: 32
Based in: Burbank
Number of employees: 280
Specialty: Split between TV and film production, major studios and
Years in business: 30
Based in: Los Angeles
Number of employees: 250
Specialty: Independent feature, TV and commercial production
Based in: Burbank
Years in business: 14
Number of employees: 51
Specialty: Independent films, TV, commercials and live theater
Based in: Northbrook, Ill.
Years in business: 47
Number of employees: 34
Specialty: "Atmosphere" payroll for major studios
NPI Production Services
Based in: Burbank
Years in business: 6
Number of employees: 25
Specialty: Independent films, live theater, commercials, advertising, print media
The Jacobson Group
Based in: Los Angeles
Years in business: 19
Number of employees: 20
Specialty: Awards shows and specials, reality TV and special events