lawsuits | May 17, 2024 |
Burke Decor’s troubles mount

Earlier this year, Burke Decor came under fire from customers for failing to deliver both orders and refunds. Now the Ohio-based e-commerce retailer is facing trouble from the other side: One of its lenders, Ampla, is suing for breach of contract. The lawsuit, filed on Tuesday, accuses Burke Decor of failing to make key payments and calls out founder and CEO Erin Burke for “fraudulent misrepresentations” of her company’s financial health.

Ampla, a New York–based lender to e-commerce companies, is seeking more than $6.4 million in damages and is asking the court to place Burke Decor in receivership.

The lawsuit lays out a play-by-play narrative of the breakdown between lender and borrower. In September of 2022, Ampla agreed to extend an $8 million line of credit to Burke Decor. In exchange, it would be entitled to collect a cut of the company’s receivables as soon as the money hit a designated bank account.

In the summer of 2023, the lawsuit states, Ampla began to make a series of discoveries suggesting Burke Decor was not honoring the terms of their deal. The first concerned how the retailer was spending the money. While the original agreement had limited the line of credit for specific business expenses like inventory, fulfillment and marketing, Burke Decor allegedly made a series of “unauthorized transfers” to a variety of entities, including Erin Burke herself, totaling hundreds of thousands of dollars in “payroll, taxes and mortgage payments.”

The second discovery was that Burke Decor was allegedly hiding the cash it took in. According to the lawsuit, the company diverted money away from the designated bank account, thereby disguising the amount it owed Ampla. Furthermore, the suit accuses the e-commerce retailer of blocking repeated attempts to access its accounts, preventing the lender from recovering its share of the revenue.

Last October, Ampla entered into a forbearance agreement with Burke Decor—essentially a deal that would give the company time to make good on its debt by this spring. According to the lawsuit, it began missing key payments in January. By April 11, it was still more than $6.3 million in the red with Ampla, a violation of the deal.

The lawsuit also accuses Burke of misrepresenting her company’s financial health. According to Ampla, in 2024 it became clear that she had originally overstated her inventory balances and understated the money owed in accounts payable. The claim, in a nutshell: Burke had lied to get a loan.

In asking the court to appoint a receiver to take over Burke Decor’s operations, Ampla paints a dire picture of the company’s current financial state. The lawsuit claims that “Ms. Burke has made recent representations to Ampla suggesting that Burke Decor is illiquid, may become insolvent, and is unable to operate while also satisfying its outstanding obligations to Ampla and other creditors.”

Furthermore, Burke Decor has allegedly disclosed that “it has only $15,000 in operating cash as of April 1, 2024. A March 31 daily dashboard provided to Ampla by Burke Decor shows that Burke Decor had negative liquidity for 24 days out of the month of March 2024, with a low point of negative $27,205.”

The lawsuit further details issues with Paypal, Shopify and Intuit, which are allegedly holding high cash reserves in transactions with Burke, and makes mention of unfulfilled obligations to customers, which Ampla suggests are “in the millions of dollars.” (A Facebook group founded by a jilted client, Burke Decor Scammed Me, is a repository of recent complaints.)

When reached by Business of Home in March, Erin Burke and an external financial consultant acknowledged a “small percentage” of mishandled orders, pointing to a laundry list of factors that included internal systems changes, interest rate hikes, lender issues, e-commerce partner and payment processor policy changes, and search and advertising platform issues. But ultimately, they expressed confidence in the company’s future, outlining a seven-point recovery plan to put an end to the turbulence. “We are totally dedicated to resolving each and every issue,” stated Burke.

The lawsuit suggests that those efforts are falling short. “Burke Decor’s President, Erin Burke, is struggling to resolve the payment processor issues, loan defaults, and business operations,” it states. “She has hired two different restructuring officers simultaneously, has engaged investment banks, and has attempted potential sales of the business. None of these actions has meaningfully improved the business or financial condition of Burke Decor.”

Erin Burke did not respond to a request for comment.

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