Smile Direct Club Files Chapter 11 Bankruptcy: Disruptor Disrupted
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- Published: Monday, 02 October 2023 06:25
- Written by Peter Ingle
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Smile Direct Club (SDC), the direct to consumer aligner provider, has been no stranger to controversy. In the latest news associated with the US based disruptor, which was once valued at $8.9 billion, it has filed for Chapter 11 protection from its creditors.
Despite the glossy shopfronts, national TV advertising campaigns, and expensive legal teams, SDC’s financial woes were arguably more easily diagnosed than some malocclusions. Back in 2019, little more than a month after its flotation, Forbes magazine wrote about SDC’s performance. It reported that the three co-founders had already lost their billionaire status, as its stock had dropped in value by 60%.
Forbes went on to describe the challenge of legislation being introduced in California that would introduce new rules for teledentistry. One element of this was to ban companies from making patients sign an agreement not to file complaints with the state dental board. Those who have commented on, or written about SDC, will not be surprised to learn that they in turn filed a lawsuit alleging that the dental board had carried out raids on retail sites “designed to intimidate, harass and unduly burden” the company.
According to Bloomberg, the Nashville based company listed $449 million of assets and over $1 billion of liabilities in its bankruptcy petition. The company has never made a profit and was involved in a patent dispute with a rival.
It is not immediately clear how this will affect the UK operation. According to the CQC, smile shops are run by Smiles Made Here of UK Ltd. The nature of the Chapter 11 process will hopefully mean that those under treatment will continue to receive a service.
Chapter 11 bankruptcy results in one of three outcomes for the debtor, these are: reorganization, conversion to Chapter 7, which is more similar to UK bankruptcy, or dismissal. For a Chapter 11 debtor to reorganize, the debtor must file (and the court must confirm) a plan of reorganization. Such a plan will be a compromise between the major stakeholders in the case, including the debtor and its creditors. Most Chapter 11 cases aim to confirm a plan, but that may not always be possible. SDC hopes that their process of reorganisation will be brief.
With the company share value falling by as much as 85% since the Chapter 11 announcement, its founders have pledged at least $20 million to help recapitalise it. In a statement from SDC it was claimed that, “up to $60 million of additional capital is available upon satisfaction of certain conditions.”
In the event that a reorganisation did not succeed, a Chapter 7 conversion could present huge difficulties for those under treatment. At the time of writing the SDC UK website remains fully functional. There are eight smile shops currently shown in the Greater London Area.
The UK website includes an “Am I a candidate” section which makes an initial assessment of patient suitability for SDC aligner treatment. The writer completed the questionnaire honestly with the singular exception of specifying “look like an owl” as the reason for seeking treatment. The result was a page headed “good news” and an invitation to book a scan at an SDC smile shop, or send off for an impression kit.
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