Essential brand abandons customers in bankruptcy liquidation

When a company goes bankrupt — whether it liquidates under a Chapter 7 filing or it reorganizes under Chapter 11 of the bankruptcy code — customers often suffer.

For example, the recent bankruptcy filing from furniture maker Mitchell Gold + Bob Williams left thousands of orders in a sort of delivery limbo. Customers had paid for their orders which were sent to various shipping companies. And, even though the customers had paid for shipping their order, the furniture company had not paid the delivery company.

Related: Huge service company files for Chapter 11 bankruptcy

That led to those deliveries not being made. Eventually, a bankruptcy court allowed the impacted customers to pay the delivery company directly in order to get their orders shipped. That meant that people paid some very hefty delivery charges twice, but at least they got their orders.

A similar issue could have happened had David's Bridal not been rescued and purchased during its Chapter 11 proceedings. The chain's customers who had pre-ordered wedding dresses could have been left without the dresses they had paid for with no hope of a refund.

In both those cases, a relatively happy solution was reached. That will not be the case for customers of SmileDirect Club, a direct-to-consumer company that makes tooth aligners that work like braces but in a less invasive way.

SmileDirectClub had planned to stay open

A company known for its heavy advertising and novel solution to traditional braces, filed for Chapter 11 bankruptcy in early October. At the time, the company expected to survive with financial support from its founders. 

"SmileDirectClub will seek to recapitalize through a transaction where the company’s founders have committed to invest at least $20 million to bolster the company’s balance sheet and to protect its near- and long-term financial health," the company shared in a press release.

That deal would have given the company access to up to $60 million as long as the company met certain milestones. That included "The favorable conclusion of a marketing process."

At the time that deal was shared publicly, the company assured its customers — all of whom are either starting or in the process of using SmileDirectClub's aligners to straighten their teeth — that orders would continue to be filled. 

That will not be the case as SmileDirectClub has shut down as of Dec. 8 and no more orders will be filled.  

SmileDirectClub shuts down suddenly

This sudden closure leaves the company's customers in a difficult position as many of them are in the middle of a multi-year medical process. The company was very clear, however, on its website that it was closing and no effort was being made to sell the brand to another company which could continue servicing its customers.

"SmileDirectClub has made the incredibly difficult decision to wind down its global operations, effective immediately. For new customers interested in SmileDirectClub services, thank you for your interest, but aligner treatment is no longer available through our telehealth platform. For existing customers, we apologize for the inconvenience, but customer care support is no longer available," the company shared on its website.

The company made it clear that if your order had not been shipped before the closure, it was not going to be.

"Unfortunately, aligner treatment is no longer available through the SmileDirectClub platform. All orders that have not yet shipped have been canceled at this time, and you will not receive your aligners," the company added.

In addition, the company said that its lifetime guarantee was no longer being honored.

People who financed their aligners, however, still have to pay. SmileDirectClub did not have an answer for customers asking about promised refunds that had not been issued.

"There will be more information to come once the bankruptcy process determines next steps and additional measures customers can take," SmileDirectClub shared.