The High Court has appointed provisional liquidators to an e-bike company after turnaround plans aimed at improving its ailing fortunes were hit by a serious safety issue that led to the total recall of all its bikes.
The recall of Modmo e-bikes related to a defect with a lock that kept the battery in place within the frame of the bike.
Batteries on Modmos are inserted through the bottom of the bike but, due a defect in the lock cap, the battery could fall out onto the ground while a user was cycling, the court heard.
This presented a serious safety issue and Modmo is already on notice of seven personal injury claims due to the defect, the court also heard.
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Modmo Technologies Ltd (formerly JMJ Bicycle Distribution) was set up in 2014 by Jack and John O’Sullivan who, along with housing developer Sean Mulryan, are among the largest shareholders.
The petition seeking the appointment of provisional liquidators was made by another shareholder, Bernard (Bob) Coggins, of Strandhill, Co Sligo, who said management accounts up to September 30th showed a loss of some €4.1 million for January to September.
The company is solvent on a balance sheet basis. But once the cost of the product recall, the devaluation of the recalled stock and the remaining value of stock on hand are factored in, the company will not be in a position to meet its debts.
While there is a €2 million book value for its stock, this is substantially reduced by the defects in the products. The cost of the recall alone is conservatively estimated at €765,000.
There had also been previous quality failure issues in relation to batteries and handlebars, while other factors such as Covid, supply chain delays and increased component and shipping costs had affected sales.
A turnaround plan was drafted in September 2022 with a view to addressing quality and safety issues, and building new business.
However, the battery cap lock defect led to a decision by the company’s board to order a complete recall on October 24th.
The company has storage facilities in Ireland, Germany and Vietnam where it also had a subsidiary that had subcontracted assembly of bikes to a third party, as well as providing logistical and technical support. Modmo Technologies has seven employees while the Vietnamese subsidiary has eight employees.
Mr Coggins said there was a need to appoint provisional liquidators to protect assets of the company for creditors and in circumstances where customers will soon begin returning the bicycles as part of the recall, which will place it under considerable pressure.
John Freeman BL, for the petitioner, said he was seeking the appointment of Nicholas O’Dwyer and Colm Dolan as provisional liquidators to protect the assets of the company.
Ms Justice Siobhán Stack approved the appointment and put the case back to later this month.