Chimes Fallout Leaves VMS Clients with New Concerns

The bankruptcy filing of Ensemble Chimes Global in Los Angeles on Jan. 9 leaves the users of staffing services through the company's vendor management system with some unresolved issues. However, the greatest learning opportunities for staffing clients may come in the long term, as all of the issues surrounding the bankruptcy come to the surface, and clients gain a heightened awareness of the potential risks associated with running staffing transactions through an intermediary company.

Currently some staffing suppliers are opposing the sale of the system to Ensemble Chimes Global's former president, and alleged improprieties have come to the surface about the financial dealings of executives of Axium International Inc. the parent company of Ensemble Chimes Global, as reported by the Los Angeles Times. As these events transpire, clients are realizing how they can become vulnerable, should their vendor management system supplier be acquired, file for bankruptcy protection, or handle funds inappropriately. While the bankruptcy trustee has made interim arrangements for the operation of the system, at the very least, clients face the potential for business interruption should vendor management system firms go belly up and all of the financial ramifications have yet to be identified or decided in this case.

As of Friday afternoon, Ed Lenz, senior vice president for public affairs and general counsel for the American Staffing Association said he had heard from staffing suppliers that outstanding receivables owed staffing firms by Ensemble Chimes Global totaled anywhere from $100 million to as much as $300 million. Lenz said it was his understanding that the majority of the outstanding balances represent billed but unpaid client invoices.

Also still at issue is $22 million in funds swept away by Axium's owners Golden Tree Asset Management as reported by the Los Angeles Times last week and contractors who were paid directly by Ensemble Chimes Global are blogging about being laid off and having little recourse for unpaid wages.

How staffing suppliers that provided temps under the Ensemble Chimes Global system might weather large write-offs is another potential concern for clients.

At the very least, many Ensemble Chimes Global clients originally contracted with a company that operated under different ownership and a different set of financial circumstances, during the pre-acquisition period. While clients may have felt protected under the terms of their original ECG agreements, it's hard to say if those agreements will provide complete financial protection for clients, until everything shakes out.

"Now everybody's trying to put Humpty Dumpty back together again," says Lenz. "I think there will be lessons learned from this insolvency. For example, clients will want to make sure that VMS suppliers have escrow accounts, so they don't co-mingle funds, and clients may place a premium on sound management in the future and require more assurances that the VMS company will continue to operate. All of the issues haven't surfaced yet, and right now, clients have a right to be skeptical."