Eziba, the global crafts on-line retailer that declared bankruptcy last year and was founded by former Williams economics professor Richard Sabot, is in the news again. The New York Times today features an article questioning Eziba’s decision to pay off its bank loan before paying overseas suppliers (i.e., individual crafts persons in Africa and Asia).


Here is the meat and potatoes of the story:

In measuring the legacy of Eziba, a loan of $500,000 from Vermont’s Chittenden Bank could loom large. Mr. Sabot, an emeritus professor of economics at Williams College and the former co-founder of Tripod, a pioneering Internet business that Lycos bought in 1998 for $64 million, said the company was obligated to repay the loan at the height of Eziba’s post-Christmas cash reserves. If the company failed to repay Chittenden before March, the bank could claim Eziba’s cash and other assets.

According to Mr. Sabot and others familiar with the terms, the loan contract also stated that if those assets were not enough to pay back the loan in full, the bank could raise the rest by claiming personal assets of Mr. Sabot, and those of Bill Miller, Eziba’s chief executive, and Michele Gilbert, the company’s vice president of marketing.

Executives at Chittenden declined to comment, but Mr. Sabot strenuously objected to suggestions that the company might have paid off the loan to protect his personal assets, and those of Mr. Miller and Ms. Gilbert. Mr. Sabot said that if it had paid other vendors rather than a secured creditor like Chittenden, Eziba would have been risking what is known in bankruptcy law as a preferential payment, or a payment made to creditors who may not have as valid a claim to the company’s assets as others.

Since bankruptcy judges can order the return of preferential payments pending a fuller hearing of all creditor claims, Mr. Sabot said Eziba was essentially acting in the interests of its artisan vendors by not exposing them to possible litigation. “Anyone who claims that we acted out of self-interest is simply ignorant of the facts or willfully distorting them,” he said.

But Elizabeth Warren, a professor of law at Harvard Law School and a bankruptcy law specialist, said Eziba was not legally obligated to pay the bank first. “Until it filed for bankruptcy, company management decided the order of payment,” she said in an interview. “They preferred the bank, while the artisans were shut out. They may have had business or personal reasons for doing that, but they didn’t have legal reasons.”

I’m not qualified to speak to the legal question about bankruptcy, but I have one brain fart and one question:

Brain fart) The disparity in risk shouldered by small business owners and corporate CEOs is quite remarkable. My understanding is that big corporations are far less likely to go belly up than small businesses, yet the personal assets of the CEO of a small business are at risk and the assets of a corporate CEO are shielded (unless there is fraud or negligence). I realize that banks rightfully view companies like MCI, Qwest, and Enron as far less risky than small businesses. The magnitudes of loans also make personal assets less relevant for giant corporations. But the net effect is that corporate CEOs are less accountable than small business owners.

Question) Does anyone know what the former employees of Eziba are up to? I presume at least a few of them were Williams graduates. Has MassMoCA managed to fill Eziba’s space in its complex?

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